At the end of the day on Friday, Dec. 17, the Federal Reserve approved three bank mergers that had been in its backlog. The approvals came as a bit of a surprise -- not because I didn't think they would get approved, but because I thought they might be pushed off until next year due to the changing regulatory landscape in Washington, where regulators and lawmakers have been tussling over large bank mergers and how they are scrutinized. The recent approvals bode well not only for the parties involved but also for other larger bank mergers in the pipeline.
Let's take a look at these three deals and how investors may be thinking about them.
1. First Citizens' acquisition of CIT Group
In perhaps the most significant approval, the Federal Reserve finally signed off on First Citizens Bancshares' (NASDAQ:FCNCA) planned acquisition of CIT Group (NYSE:CIT). The deal, announced in October 2020, was first expected to close in the first half of 2021. But after months of delay, First Citizens and CIT were forced to extend their merger agreement to March 2022. The acquisition will grow First Citizens to about $111 billion of assets.
This approval is huge because investors loved this deal right off the bat and have been driving up First Citizens' stock price ever since. The acquisition is expected to grow First Citizens' earnings per share next year by more than 50% and its tangible book value (TBV, what a bank would be worth if it were liquidated), by more than 30%. Both of those numbers are considered massive for a bank deal. Since announcing the deal, First Citizens' stock is up about 95%, and I believe investors are valuing the bank based on its new TBV. So, if the deal had not gone through, I think the stock price would have gotten knocked down considerably.
2. Webster's acquisition of Sterling Bancorp
In April, Webster Financial Corp. (NYSE:WBS), based in Connecticut, announced its plan to merge with Sterling Bancorp (NYSE:STL) of New York in a deal that will create a regional bank with nearly $66 billion in assets. Webster recently announced that it now expects the deal to close on Feb. 1, 2022, which is still a few months after its initial closing projection before the end of the year. Still, given the way things had been trending, and with the competing tones over bank mergers in Washington and backlog of pending deals at the Fed, this should relieve any concerns among investors that the deal might not go through.
The market did not like this deal when it was announced, likely because both Webster and Sterling were already strong-performing banks, and it seems like the market saw this as a bit of a gamble in terms of strategic direction. While the deal has a lot of execution risk, I think there is some good potential here. The deal will enable Webster to invest more into its health savings account business, which is a main driver of deposits at the bank, along with Sterling's up-and-coming banking-as-a-service capabilities.
3. WSFS' acquisition of Bryn Mawr Bank
The other deal the Fed approved last Friday was WSFS Financial Corp.'s (NASDAQ:WSFS) acquisition of Bryn Mawr Bank (NASDAQ:BMTC). The approval of this deal is not as surprising as the others because the transaction will only create a roughly $20 billion asset bank on the Pennsylvania-Delaware border. The deal is now expected to close on Jan. 1, which is slightly delayed from when it was supposed to have closed in the early part of the current quarter. The acquisition creates an attractive bank for shareholders that will have strong core fee revenue and a good deposit base. The combination of WSFS and Bryn Mawr also creates a strong wealth management franchise with $43 billion in assets under management.