U.S. bank merger recovery could get hurt by recent turkeys

Fri Nov 6, 2015 7:49pm EST
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By Dan Freed and Dan Wilchins

NEW YORK (Reuters) - The recent pickup in U.S. bank merger activity could slow down in the coming months after regional banks that announced deals last week were punished in the stock market, bankers said.

When KeyCorp (KEY.N: Quote) said on Friday that it agreed to buy First Niagara Financial Group, FNFG.O shares of both banks dropped fell, with KeyCorp dropping 7 percent and First Niagara slipping nearly 1 percent.

When New York Community Bancorp (NYCB.N: Quote) agreed to buy Astoria Financial Inc, (AF.N: Quote) the acquirer's shares fell 12 percent, and Astoria's shares fell 7.7 percent.

It's not unusual for an acquirer's shares to drop after a deal is announced, but the shares usually do not drop so steeply, or sometimes even rise. In August, for example, BB&T Corp (BBT.N: Quote) said it would buy National Penn Bancshares NPBC.O for what was then about $1.8 billion. National Penn Bancshares' shares rose 17 percent the day after the deal was announced, and BB&T's shares edged about 0.25 percentage point higher.

After the KeyCorp and New York Community Bancorp deal met with the frosty reception from investors, two bankers that spoke to Reuters said that deals they are working on now could take longer to negotiate, because both sides want to be sure the price they agree to is reasonable to investors. The bankers declined to be named, because they did not want to speak publicly about deals that have not yet been announced.

"These deals were terrible for M&A because the market hated them," said one of the bankers. The bankers estimated that the delays could be a few months, but any talk of deals taking longer is unusual, as bankers are often inclined to talk up their business.

Any slowdown in merger activity would come just as bank consolidation was starting to ramp up. In late September, the U.S. Federal Reserve approved M&T Bank Corp's (MTB.N: Quote) purchase of Hudson City Bancorp, HCBK.O three years after the deal was first proposed. Approval for that deal took more than three times as long as the government usually takes, and many bankers saw the greenlighting of that deal as a sign that the Fed is willing to allow regional banks to acquire again, after a recent de facto freeze on bigger deals.

For the year so far, there have been 275 deals totaling $19.59 billion, Reuters data show. (see graphic) Most of those deals have involved community banks — just three have involved a bank paying more than $1 billion for another, totaling $11.4 billion in value.   Continued...