New York (CNN) First Horizon and TD Bank have didn’t work out a $13 billion deal that would have created America’s sixth-largest bank, adding to the turmoil sweeping regional lenders.
Stuck in the worst banking crisis since 2008, First Horizon’s (FHN) the share price has fallen about 40% in the past few months, well below the $25 per share TD offered when the acquisition was announced in February 2022.
The stock closed at $15.05 a share on Wednesday and fell another 36% Thursday after the deal was both abandoned by the banks.
First Horizon is a regional lender in the southeastern United States and would have helped Canada’s TD expand south of the border. But regional banks have been losing the trust of investors and customers since the March collapse of Silicon Valley Bank and Signature Bank.
On Monday, a third regional bank, First Republic, failed and JPMorgan bought most of its assets. Fourth, PacWest Bank confirmed on Thursday that it is looking for a financial lifeline.
First Horizon said it remains stable, cash-rich and diversified.
“While today’s announcement is unfortunate and unexpected, First Horizon will continue on its growth path operating from a position of strength and stability,” First Horizon CEO Bryan Jordan said in a statement.
TD said in a statement that the companies halted the merger due to an unexpectedly lengthy regulatory approval process. With no timetable for approval, companies have begun to question whether the deal will get regulators’ blessing. TD said the regulatory issue was for “reasons unrelated to First Horizon.”
In an interview with CNBC, Jordan agreed that he doesn’t believe the deal was canceled because TD Bank wanted to avoid buying First Horizon while regional bank stocks were plunging.
“We didn’t get a timeline for approval and we reached this agreement,” Jordan said. “We do not assume that regulatory approval has been granted. We have always known that there is risk in this process.”
He added that he believes the banking sector remains strong, and that First Horizon has not made major changes to tighten its lending standards.
“I think things will stabilize, it’s just going to take some time,” said Jordan. “At the same time, we’re seeing around the margins that contraction is happening, just because of the tightness of financial conditions.”
While TD did not directly cite the banking crisis or the collapse of First Horizon’s market value as reasons for abandoning the purchase, CEO Bharat Masrani said in a statement that the decision provided “clarity” to its customers and shareholders.
TD will pay First Horizon a $200 million breakup fee plus a $25 million reimbursement fee.
Other regional bank stocks have fallen in recent days after First Republic’s failure. Investors are waiting for the next shoe to drop. Early Thursday, based in California PacWest Bank said it is evaluating “all strategic options” after it halved its share price in after-hours trading following a Bloomberg report that it is considering a sale.
of PacWest (PACW) the stock was cut in nearly half Thursday, while Western Alliance Bank (WAL)another regional competitor, fell more than 20%.
As the Fed raised interest rates to fight inflation, the value of regional lenders’ loans and bond holdings collapsed. Customers moved their money to larger banks, leaving some regional banks without the cash they need to pay for withdrawals.
