TD's failed acquisition highlights our broken M&A process

Bloomberg

Last week, TD Bank Group and First Horizon terminated their $13.4 billion merger plans, issuing a joint release that said, "TD does not have a timetable for regulatory approvals to be obtained for reasons unrelated to First Horizon." The announcement came the day after a report surfaced that executives met with regulators in early March to discuss the deal.

Like other mergers ended before approval or completion, we may never know all the reasons for the regulatory delays in this case. We do, however, see the immediate effect, with First Horizon shares falling by more than 40% after the announcement. At a time of relative instability within the banking system, we are seeing in real time the negative impact the current de facto ban on banking mergers and acquisitions is having.

The termination of this merger raises important questions regarding whether a healthy and efficient process for bank mergers and acquisitions exists at all or whether regulators will continue to rely on large banks to swoop in for failed-bank bargains assisted by the Federal Deposit Insurance Corp.

Anti-merger rhetoric and draft legislation has certainly made for a hostile environment for banks to pursue natural business combinations in a system with more than 4,000 banks. That has a real chilling effect on activity that would otherwise allow weaker banks to combine with stronger ones. Such pruning and combination allow the system to remain healthy and repair itself naturally. It allows the largest banks to face more potential competition because rivals can grow and emerge.

Consumer banking

With TD's acquisition called off, so is its community benefits plan

May 8, 2023 3:59 PM

Stifling mergers and acquisitions has the opposite effect. Instead of harvesting fruit when ripe, it rots on the vine because uncertainty and a lack of decision-making transparency leave market participants reluctant to act because delays are costly, and boards and shareholders hate uncertainty. Still others wait because they spy a bargain down the road. Why pay retail when you can pick up good fruit in the bruised produce bin tomorrow?

That hostile environment may also have the effect of delaying regulatory approvals when the nation's independent regulators hesitate to avoid the ire of powerful members of congressional oversight committees or colleagues in the administration.

Whatever the reason, it is clear our merger and acquisition process is broken and needs a reboot. The market needs a system it can rely on for timely, transparent decisions based on facts and the economic sense of the individual deals, not politics or incumbent protection. When applications for mergers and acquisitions pose an actual threat to the safety and soundness of the system, to competition or to the convenience and needs of consumers, regulators should act in a timely manner to disapprove such proposals. When proposals meet criteria for approval, regulators should act on their independent authority to approve them.