Why TIAA's Big Acquisition Should Make Bankers Nervous

TIAA's pending purchase of EverBank Financial in Jacksonville, Fla., portends the rise of a powerful new competitor for banks.

The insurance and retirement savings behemoth had spent six years quietly building its own bank, TIAA Direct, before agreeing to plunk down $2.5 billion in cash for the $27 billion-asset EverBank. The deal, officially unveiled Monday, would give the New York company access to billions of dollars in low-cost deposits.

EverBank would also provide TIAA with greater expertise in areas such as mortgages and commercial lending, along with an entrée into currency CDs and equipment leasing. In short, a TIAA spokesman said, the acquisition "leapfrogs our growth plans for the bank by about a decade."

The deal should "meaningfully steepen the growth trajectory" of TIAA's banking operations, said Matthew Forgotson, an analyst at Sandler O'Neill. "Bolting EverBank's online deposit platform into TIAA Direct materially strengthens their ability to source funds from across the country."

TIAA said in documents filed in conjunction with the deal's announcement that it intends to make EverBank "an integral part of its retail financial services business" with plans of offering banking and lending services to the 5 million individuals and 16,000 institutional clients it serves. Many, if not most of those clients, do their banking elsewhere, industry observers said.

"EverBank will expand [TIAA's] ability to provide banking services to millions of clients," Blake Wilson, EverBank's president and chief operating officer, said in a transcript distributed after the deal was announced.

"Our array of home-lending products and services nationwide will be a great enhancement to TIAA's client offerings," Wilson added. "TIAA also is also an influential investor in commercial real estate around the world, and EverBank's commercial division brings new capabilities and expertise in business lending and leasing."

TIAA, founded in 1918 by the Carnegie Foundation for the Advancement of Teaching to provide pensions to college professors, received a bank charter in 1998. For more than a decade, the unit seemed to operate as an afterthought. While TIAA's core financial planning and retirement business boasts nearly $900 billion under management, its bank had just 62 employees and no deposits in late 2009.

TIAA began taking a more serious approach to banking in 2010 — not long after the arrival of Roger Ferguson, a former vice chairman of the Federal Reserve Board, as president and chief executive. The firm accepted its first deposits in October 2010.

Since then, TIAA has found ways to gradually expand its balance sheet. At June 30, TIAA Direct had $3.2 billion in assets and $2.8 billion in deposits.

While impressive by some standards, it still looks small in comparison to what TIAA will gain from EverBank, which originated $3.1 billion in loans in the second quarter alone.

"Today, TIAA has a direct bank, and it envisions a more robust bank in the future," EverBank said in a regulatory filing.

The combined company will be based in Jacksonville, an EverBank spokesman said. TIAA's spokesman said it was "too early" to address branding questions.

Other issues remain unresolved, the filings show, including the leadership model and sponsorships, including the naming rights to EverBank Field which serves as home to the National Football League's Jacksonville Jaguars.

EverBank's sale had been the industry's worst-kept secret in recent weeks.

A turning point for the company came last fall when its stock plunged after missing Wall Street's third-quarter earnings estimates by 36%. The sale price, however, returns EverBank's stock to the range it was trading at before that swoon.

"It might have taken a couple of years for EverBank to muscle its way back into that territory on its own," Forgotson said.