Credit union – bank acquisitions likely unaffected by FDIC merger policy
Credit union acquisitions of banks have been on the rise, and advisers predict deals will likely proceed without new obstacles under the Federal Deposit Insurance Corp.'s newly finalized merger guidance.
The FDIC's final Statement of Policy on mergers will take effect on Oct. 28, and it mentions credit unions as an example of an entity that could engage in a deal that would be subject to review. However, the policy statement does not significantly change the process or expectation for Bank Merger Act filings, whether the deals involve credit unions or not, said Joseph Silvia, partner at Duane Morris LLP, who advises financial institutions on M&A and other topics.
"It's largely the same review that they're already doing," Silvia said in an interview.
The FDIC wrote in the final statement that merger applications that involve an "operating non-insured entity are subject to the same statutory factors as any other merger application." While the FDIC's Deposit Insurance Fund does not cover credit unions, they are covered by something similar, the National Credit Union Administration's Share Insurance Fund. The National Credit Union Administration, which regulates credit unions, does its own review of credit union-bank deals.
During the FDIC's reviews of deal applications, it will "consider the nature and complexity of the non-insured entity, its scale relative to the existing [insured depository institution], its current condition and historical performance, and any other relevant information regarding the entity's operations or risk profile," according to the final statement.
Even beyond the credit union portion, advisers said the FDIC was putting existing practices into writing rather than creating new ones.
"There's just additional discussion about how they look at the statutory factors," Silvia said. "But, if you're in this space, and you've applied with the FDIC, you know that this is how they've been doing business. So it should not be a surprise to anybody how they're looking at these applications or the statutory factors."
Even though some are familiar with the current process, the statement can be helpful for them and others.
The FDIC "put their practice into writing, which is helpful to provide guidance to market participants so that everyone knows what to expect, rather than finding out through the regulatory process and being a little blindsided," said Sumaira Shaikh, associate at Hunton Andrews Kurth LLP, who represents financial institutions on M&A and more, in an interview.
Shaikh added that part of that practice involves doing additional analysis related to the "convenience and needs" statutory factor because, although banks can be compared to each other based on their Community Reinvestment Act (CRA) reports, credit unions are not subject to the CRA.
Not being subject to the CRA is just one reason banks might be interested in selling to credit unions. Compared to bank buyers, credit unions can often pay more because of their tax-exempt status, and their ability to offer attractive pricing has enticed some banks to sell even when they were not for sale. Given tax exemption and the perceived regulatory advantages, bank trade groups have been critical of the deals because they believe credit unions have an unfair advantage, and the trade groups have encouraged regulators to apply additional scrutiny. Some state lawmakers have pushed back against the deals.
A growing number of credit unions have still been looking to acquire banks as 2024 has been a record-setting year for the deals. There have been 19 credit union-bank deals announced this year, up from 11 in 2023 and 14 in 2022, according to S&P Global Market Intelligence data through Oct. 23.
In general, banks' acquisitions of credit unions are among the deal types that take longer to obtain approval.
"If anything, in my experience, bank-to-bank transactions tend to be on a shorter time frame," Shaikh said.Fed.
Source: S&P Global Market Intelligence
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