A $13.4 billion deal between Cherry Hill-based TD Bank and First Horizon is in the works, but the transaction— which would propel TD’s U.S. franchise into the Top 6 U.S. bank ranks — has come under fire from U.S. Senator Elizabeth Warren, a member of the Senate Committee on Banking, Housing, and Urban Affairs.
The proposed transaction has been blessed by both TD Bank President and CEO Leo Salom and by Bryan Jordan, president and CEO of First Horizon. But will Warren’s opposition be enough to scuttle it? In June, Warren and three members of Congress sent a letter to the Acting Comptroller of the Currency Michael Hsu citing a media report alleging “unchecked fraud and abuse at TD Bank…”
TD Bank denies the allegations, and NJBIZ connected with some experts about the implications of the deal, what it could mean for business borrowers, and the effect of Warren’s thumbs-down. Local organizations have also testified about the deal at a meeting of the federal Office of the Comptroller of the Currency, which charters, regulates, and supervises all national banks, federal savings associations, and federal branches and agencies of foreign banks.
“The allegations in the Capitol Forum article were unfounded,” according to a statement released by TD Bank. “Our business is built on a foundation of ethics, integrity and trust. At TD Bank, we put our customers first and are proud of our culture of delivering legendary experiences to customers. As part of routine and ongoing monitoring, TD Bank has not identified systemic sales practice issues at any time. Our compensation practices – which place a heavy emphasis on customer satisfaction – are carefully and actively managed. We vehemently object to any allegations of systemic sales practice issues, or any other claims alleged in the article.”
NJBankers weighs in on the TD-First Horizon deal
Affuso
To get some deeper insight in the proposed TD-First Horizon M&A, NJBIZ posed some questions to NJBankers President and CEO Michael Affuso. An edited and condensed version of the conversation follows.
NJBIZ: According to a recent KPMG report, M&A among financial organizations is declining, thanks to inflation and higher interest rates. So, what’s the incentive for TD Bank to acquire First Horizon now?
Affuso: Of course, I don’t know the exact TD thought process, but in general, organic growth involves a lot of effort. But it sounds like TD Bank will essentially gain access to the entire lower southern U.S. with this transaction. Developing all that on an organic basis can be cumbersome.
Q. In general, is continued consolidation like this good or bad for business borrowers?
A. A more-streamlined organization can be more innovative and more efficient, compared to two less-efficient organizations. Also, increasing regulatory compliance costs requires many banks to grow quickly through an M&A. The challenge is to maintain the level of connectivity with smaller businesses. They have to think small while getting bigger.
Q. When TD Bank announced the proposed deal, the company noted that the target bank’s footprint was attractive because “populations in First Horizon’s markets are expected to grow approximately 50% faster than the U.S. national average, with some markets far exceeding that level, offering important future growth opportunities as TD invests in the region.” What does that mean for New Jersey’s ability to attract banks and other organizations?
A. It’s a continuation of an existing pattern — Southern states are the growth states. New Jersey has lost Congressional seats [to 12, currently, down from a high of 15]. Many Southern states have a better business climate, and they’re also attractive to retirees.
We have to be competitive with neighboring states’ taxes. Not the lowest, but competitive. New Jersey has to examine its regulatory setup and other snafus and determine if we want to be seen as an attractive place for businesses.
In fact, according to TD Bank, “the OCC examined sales practices across large and midsize national banks and federal savings associations from 2015 to 2018. As stated by then-Comptroller Otting in a letter to Senate Democrats in January 2018: ‘The horizontal review did not identify systemic issues with bank employees opening accounts without the customers’ consent.’ Finally, we strongly disagree with the article’s characterization of information presented as facts regarding TD Bank’s fraud procedures. At TD Bank, protecting the security of our customers’ accounts and personal information is a top priority. We follow industry-best practices that are designed to detect and help prevent fraud.”
TD Bank President & CEO Leo Salom also defended the proposed deal at an August 18 OCC meeting, noting that, “TD views this merger as a growth opportunity. We have publicly pledged from the day we announced this transaction to keep all First Horizon client-facing bankers. We demonstrate how we value our colleagues by providing comprehensive benefits and pay. Our minimum wage is competitive, and in July, we awarded all non-executive TD colleagues a wage increase to address inflationary pressures.”
Salom also said the merger will bring benefits to bank customers, such as “our extended hours, which we’ll bring to First Horizon communities. In many locations, stores will be open 7 days a week to better serve our customers. Together, TD and First Horizon will benefit consumers through expanded access to affordable products and services, including services for the underbanked.”
Deal cheerleaders
The proposed transaction has been backed by some local organizations. A former investment banker and current president and CEO of New Jersey Community Capital — a New Brunswick-based nonprofit community development financial institution that supports affordable homes and sustainable community development ventures through strategic investments and knowledge — told the OCC that he’s 100% behind the transaction.
“I am here today in support of the merger between TD Bank and First Horizon,” testified NJCC’s Bernel Hall. “Since 1987, through partnerships such as the one that we maintain with TD Bank, NJCC has grown to 70 employees with net assets nearing $700 million while serving 150,000 LMI (low-to-moderate income) communities and businesses.”
Pointing to $13 million of low-interest loans and $1.5 million of grants extended by TD bank to NJCC, Hall noted he “has found TD Bank to be a strong partner in providing innovative solutions to the plethora of socioeconomic challenges that we face in New Jersey and beyond.”
Hall also told NJBIZ that he’s not worried about how a rollup of Memphis, Tenn.-based First Horizon into TD Bank would affect the ability of businesses to shop around for the best deal on a loan. “Business owners who plan to grow and expand to multiple regions generally do not want their relationship with a bank to be confined to a single location,” he said. “If you’ve spent 10 years building a relationship with certain bank officials, it is important to continue to have access to them as you grow. TD and First Horizon clearly mapped this out and appear to have minimized the chances of any disruption. That gave me comfort.”
Another organization, Ridgewood-based Family Promise of Bergen County, also went to bat for the deal.
“We are not qualified to analyze the effects of bank mergers, but we can — and did — testify about the way that TD Bank has provided substantial assistance to our not-for-profit organization,” noted Kate Duggan, executive director of Family Promise of Bergen County, which assists homeless and at-risk working families. “In addition to monetary assistance — which included a $150,000 grant last year made by the TD Bank Charitable Foundation that was a huge help to us — for more than a decade TD Bank staff have volunteered for a number of our programs, have provided financial literacy education for the people we reach out to, and have made appearances at our summer camp to teach youngsters about the importance of building up a nest egg. The bank has also sponsored fundraising events for Family Promise of Bergen County, which also raise awareness of the issue of family homelessness in our community. TD Bank recognizes that there is a need in the community and they are helping us meet that need. So, I wanted to make it clear to federal regulators that our experience with TD Bank has been very positive.”
“Bank M&As are the name of the game today,” according to Peter J. Ostrowski, a former analyst at the Federal Reserve Bank of Boston who now serves as managing director at Ostrowski & Co. Inc., a Cranford-based bank consulting firm. “Financial institutions — even large banks — are looking to spread their spiraling compliance and other costs over a larger base. Some do it through organic growth, but if an M&A makes economic sense, that can deliver growth faster.”
The performance pressure isn’t just coming from accountants in green eye shades, Ostrowski adds. “Some it comes from shareholders,” he said. “There may not be as many shareholder activists, since there just aren’t that many banks organized as mutual holding companies anymore, but shareholder pressure is still there.”
Mergers and acquisitions can have positive results, but he cautioned that they also pose risks. “The potential downside in any M&A is that the deal may not deliver the expected efficiencies,” said Ostrowski. “But in this case, TD Bank and First Horizon are both pretty experienced, so I’m sure they’ve done their homework.”
He is likewise unfazed about Congressional obstacles to the deal, despite Sen. Warren’s broadside. “Experienced large banks like these probably already held behind-the-scenes discussions with regulators before announcing the proposed M&A,” said Ostrowski, “and have likely already been vetted.”
Source: njbiz.com
