Distressed Bank M&A Transactions: 8 Key Questions Prospective Acquirers Should Ask Themselves – Financial Services

The intense pressure on banks, which have had to respond to new
regulations and rapidly changing markets for financial products and
services, has only been compounded by the recent volatility in the
banking sector. However, during such times, one bank’s
struggles could present an opportunity for others.

Here are eight questions an organization should ask itself when
considering acquiring a distressed bank:

1. Are there restrictions on its ability to acquire a bank? A
   financial institution may not be able to acquire a bank if, for
   example, the institution has outstanding anti-money laundering
   compliance deficiencies or a low Community Reinvestment Act
   rating.




2. Are its existing business activities consistent with the
   activity restrictions imposed on banks and bank holding companies?
   An organization that acquires control of a bank becomes subject to
   restrictions on its activities, including prohibitions against
   commercial activities, proprietary trading, and asset management
   activities. This may require divestitures or restructuring of the
   current business or necessitate a non-controlling investment.




3. What financial resources are required to acquire a bank? While
   the exact capital commitment depends on the situation, an acquirer
   must serve as a financial source of strength for the bank and
   demonstrate that the bank and the bank holding company will be
   sufficiently capitalized after the acquisition.




4. What type of managerial resources are expected by the
   regulators to acquire a bank? Among other things, an acquirer must
   have personnel with bank experience and robust risk management and
   compliance programs.




5. Would an acquisition of the target bank present antitrust or
   systemic risk concerns? Banking acquisitions are subject to an
   antitrust analysis that has not been updated since the mid-1990s
   and may necessitate branch/deposit divestitures.




6. Is the target bank subject to any existing regulatory actions
   or investigations? A bank that has an existing enforcement action
   with its regulator may have ongoing compliance and remediation
   obligations. And information about the existence or extent of any
   existing investigations or examination concerns may be limited by
   restrictions on sharing confidential supervisory information (CSI),
   making due diligence complicated.




7. What other licenses or registrations do the target bank’s
   affiliates hold? A target bank that owns a broker-dealer might be
   subject to FINRA approval for a transfer in ownership. Similarly,
   asset management subsidiaries may be subject to client consent
   requirements that the acquirer would need to navigate.




8. What type of personal information must owners, officers and
   directors disclose to the regulators as part of the application to
   acquire a bank? Even noncontrolling or natural person acquisitions
   of a bank may require the acquirer and others to disclose
   significant amounts of information to federal and state banking
   regulators, including fingerprints and financial information.

To summarize, the prospective acquirer’s and target’s
current business circumstances, activities and relationships could
present regulatory and other hurdles—which can be surmounted.
To learn more about the eight considerations above and others for a
contemplated deal, please contact one of the authors of this Legal
Update or another member of our Financial Institutions M&A
practice, which works closely with Mayer Brown’s Financial
Services Regulatory & Enforcement, Private Equity, Funds &
Investment Management, Banking & Finance, and Technology &
IP Transactions practices.

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