Banking

Webster turns to big bank M&A to address growth challenges

Webster Financial in Waterbury, Conn., is the latest Northeastern bank to line up a big acquisition to build scale in a slow-growth region.

The $33 billion-asset company agreed on Monday to buy the $29.8 billion-asset Sterling Bancorp in Pearl River N.Y., for $5 billion. The proposed merger would create a $63 billion-asset regional bank and would combine Webster’s low-cost deposits with national lending lines that Sterling has bought and nurtured in recent years.

The combination should create opportunities that both banks would have struggled to gain if they had stayed independent, given their size and the markets where they operate.

“We’ve had to step away from great lending opportunities with longtime relationships due to balance sheet constraints,” John Ciulla, Webster’s chairman and CEO, said during a conference call to discuss the deal.

“On our side we’ve been limited by the size of the deals we’ve been able to do because of the size of the balance sheet,” added Jack Kopinsky, Sterling’s CEO. “Now, we have a great opportunity to grow a variety of categories and keep within the risk parameters that we want.”

That narrative has played a role in several other big bank mergers in the Northeast.

Those deals include the pending sale of Century Bancorp to Eastern Bankshares; M&T Bank’s proposed acquisition of People’s United Financial; and the planned merger of WSFS Financial and Bryn Mawr Bank.

“The Northeast, while densely packed, is not necessarily the fastest-growing region of the country,” said John Carusone, president of the Bank Analysis Center in Hartford, Conn. He added that the combined company, which will keep the Webster name, will likely focus even more on national lending while keeping an eye on expansion towards the mid-Atlantic.

Stephen Duong, an analyst at RBC Capital Markets, agreed.

“The logical extension is really to head down to the Washington, D.C., area,” Duong said. “That to me is a perfect extension: Connect New York to Boston and then start moving down to the DC area.”

Webster and Sterling had independently been looking at ways to grow beyond their home turf.

Webster is the biggest bank operating in the health savings account market, a business that generates plenty of low-cost deposits.

Despite opening commercial loan offices in Boston, New York, Philadelphia, Washington and Providence, R.I., and significantly ramping up asset-based lending in other cities, Webster’s loan-to-deposit ratio was just 74.8% on March 31.

Sterling had focused on national lending platforms, including asset-based lending and equipment finance. Sterling had a 96.2% loan-to-deposit ratio on March 31, creating a need for low-cost deposits at the company as the economy improves and lending opportunities return.

Webster “needed to figure out” how to put its liquidity to work, Duong said. “They’re definitely going to have some businesses they’re going to cross sell and pick up on.”

The new Webster will start with about $52 billion of deposits and “the best mix of funding channels you can get,” Kopinsky said, citing a network of more than 200 branches, commercial lenders trained to land deposit accounts, the HSA business and Sterling’s new banking-as-a-service initiative.

Lending opportunties will include sponsor finance, factoring, mortgage warehouse, franchise lending and commercial real estate, providing “significant flexibility in how to invest in the future,” Kopinsky said.

“One of the reasons we get so excited about this is that we think we can grow commercial loans by [up to] 10% annually on an organic basis,” Ciulla said. “We don’t see ourselves pulling back in or repurposing any of the commercial portfolios. … We think when we get some economic tailwinds, we’ll be able to outperform the market.”

Webster’s HSA business already has 3 million customers with $7.5 billion of deposits, or roughly 12% of the national market.

Ciulla is betting that Webster can growth the business by using its newfound heft to go after bigger prospects.

“We knew this was an opportunity to supercharge the growth and our investment,” Ciulla said.

Webster only plans to cut about 11% of the combined company’s annual operating expenses, reflecting minimal overlap in the companies’ branch networks. But Webster was already in the midst of a cost-cutting effort that includes plans to shutter 18 branches

Ciulla, meanwhile, said he is hopeful the deal would avoid regulatory pitfalls.

“Jack and I have talked in great detail with the Federal Reserve and Office of the Comptroller of the Currency,” Ciulla said. “We believe we’ve checked all the boxes that regulators like to see. We’ll have a lot of capital, good earnings and a lot of good relationships.”



Most Related Links :
reporterwings Governmental News Finance News

Source link

Back to top button