Banks in Louisiana abandon merger proposals
In a series of events that shook the banking industry, several merger and acquisition (M&A) deals were either terminated or put on hold in 2023. The uncertainties in the regulatory environment and the lengthy approval process have been cited as the main reasons for these decisions.
One such instance was the mutually terminated merger between MC Bancshares and Heritage Nola Bancorp. The all-cash deal, valued at $6.5 million, was initially announced in July 2023 but was called off in May 2023 over concerns about regulatory approval. MC Bancshares is the holding company of the $454 million-asset MC Bank & Trust Co, a Louisiana-chartered state bank, while Heritage is the holding company of the $171 million-asset Heritage Bank of St. Tammany, a federally chartered savings bank.
Another significant cancellation was the termination of the largest bank M&A deal of 2022 - the $13.4 billion merger between TD Bank and First Horizon. The deal was called off in May 2023 due to merger uncertainty regarding regulatory approval. In this instance, TD Bank paid an additional $200 million in cash to First Horizon upon deal termination, in addition to the $25 million fee reimbursement agreed earlier.
The proposed merger between MC Bancshares and Heritage Nola Bancorp was expected to close in the fourth quarter of 2022 but was pushed to 2024. However, the termination will not result in penalties or claims of liabilities for either party.
The banking sector saw record lows in M&A activity in 2022, with only 96 deal announcements and a total value of $4.21 billion. This slump can be attributed to depressed bank valuations, which have hampered M&A activity. However, recent equity rallies could provide a tailwind for future deal-making in the sector.
The Biden administration passed an executive order in July 2021 to update guidelines for bank merger reviews, citing concerns over excessive consolidation's impact on rural and nonwhite-majority communities. Under the Biden administration, regulatory bodies have been scrutinising bank decisions more closely, taking into account factors such as reputation risk. There have also been political discussions about discriminatory practices by banks towards conservative customers, particularly in the context of proposed enforcement regulations against so-called "Debanking".
Despite these challenges, advisers expect more M&A activity in 2024 as concerns over regional bank failures fade and clarity is gained on future interest rates. S&P Global Market Intelligence data shows the lowest deal value since 2009 and the lowest number of deals since at least 2000. However, Christopher Maher, OceanFirst Financial's Chairman and CEO, mentioned a long-term interest in pursuing M&A opportunities once the headwinds that hampered deal activity in 2023 begin to dissipate.
In conclusion, the banking industry experienced a slowdown in M&A activity in 2023 due to regulatory uncertainties and delays. However, advisers remain optimistic about a rebound in 2024 as the industry navigates through these challenges.
