The United States is said to be weighing new rules for regional banks to add more financial protections in times of possible crisis, a move that is delaying some pending big bank mergers.
The The Federal Reserve and the Office of the Comptroller of the Currency are discussing whether regional lenders should be required to hold more long-term debt that would absorb losses in a downturn, the The WSJ reported Saturday, citing people familiar with the matter. Regulators are looking to see how these requirements would apply to large regional banks that are currently looking to close large deals that have already been announced.
The three big banking deals that are delayed by the potential rules include the Toronto-Dominion Bank (NYSE: TD) planned $13.4 billion purchase of First Horizon (NYSE: FHN), Bank of Montreal (BMO) announced an agreement to buy Bank of the West from BNP Paribas (OTCQX:BNPQF) for approximately $16.3 billion and US Bancorp’s $8 billion deal for MUFG Union Bank (NYSE: MUFG) main regional banking franchise announced in September.
The US assessment of regional banks delays the closing of operations of the three major regional banks and US Bancorp (NYSE: USB) has already missed its original target of closing its deal by the first half of 2022. A key player in what’s to come is Michael Barr, the Fed’s new Wall Street regulator, who officially took office this month. last, according to the WSJ report. Barr is the vice president of oversight, which oversees America’s largest banks and the central bank’s stress-testing process.
The U.S. review of major regional banks comes as Acting Comptroller Michael Hsu telegraphed in an April 1 speech that he feared a recent wave of bank mergers could create more companies “too big.” to go bankrupt” like those that led to the financial crisis of 2008. Crisis.
The WSJ report comes as TD Bank’s (TD) acquisition of First Horizon (FHN) has already worried investors after U.S. lawmakers in June asked a banking regulator to block the deal. Sen. Elizabeth Warren (D-MA) sent a letter to the Office of the Comptroller of the Currency, asking the regulator to block the deal due to concerns about aggressive selling tactics at TD Bank.
Last month, Stifel analyst Mike Rizvanovic slashed TD Bank’s (TD) price target to C$93 from C$97 on concerns that the First Horizon (FHN) deal could be stalled by the US regulators.
“The continuing risks around the acquisition of FHN potentially blocked by US regulators are reflected in the significant discount in FHN’s share price to TD’s offer price, and are not expected to abate anytime soon. early,” Rizvanovic wrote at the time. “We expect this uncertainty to remain an overhang on TD shares for the foreseeable future, warranting a modest relative valuation discount to its Big Six peers.”
And a Bank of America analyst said in June the deal could see an extended delay due to regulatory review. The most likely impact of the in-depth review is that the closing of the transaction could be extended beyond management’s current target for the first quarter of 2023.