New Jersey lender explores sale as banks consolidate
Investors Bancorp talks to investment bankers in step toward a possible merger
Investors Bancorp Inc. is exploring a possible sale amid an uptick in consolidation among smaller lenders.
The Short Hills, N.J., regional bank, which has about 150 branches in the state and in New York, has hired deal adviser Keefe, Bruyette & Woods Inc., which could start reaching out to potential buyers soon, according to people familiar with the matter.
After a sharp decline in its shares as investors sour on bank stocks, the lender had a market value of about $3.3 billion (U.S.) Tuesday morning. A sale at a typical premium would make it the second-biggest bank deal announced in the last two years, after Fifth Third Bancorp’s agreement this year to buy MB Financial Inc. for $4.7 billion.
Investors Bank is in the early stages of exploring a sale and there is no guarantee it will move forward with one.
While bank deal making has slowed since the megamergers of the1990s and 2000s that created several large national players, smaller lenders have continued to merge. They’re turning to deals as they seek to compete with the biggest banks, which are increasingly popular with consumers for their technology and big branch networks.
So far in 2018, announced bank deals stand at $27 billion, according to Dealogic, slightly below the pace at the same point in last three years but up from the period immediately following the financial crisis.
Banks’ fortunes have dimmed this year after a period following Donald Trump’s election in which their shares rose on the prospects of deregulation, tax reform and higher interest rates. While the corporate tax cut has produced a financial windfall, many banks are now facing challenges. Across the industry, loan growth has been tepid for more than two years and deposit costs are quickly rising.
Investors Bank isn’t immune: It paid customers a 1.39% rate on interest-bearing deposits as of the third quarter, causing its profit margin from lending to fall markedly. Bank of America Corp., by contrast, paid such customers 0.50%.
It is also still bound by an agreement with regulators to improve its anti-money-laundering controls, which often holds up deals. On its third quarter earnings call, the bank’s Chief Executive Kevin Cummings said he was “cautiously optimistic” the order could be lifted soon.
Investors Bank stock had fallen 18% so far this year as of Tuesday morning to below where it was the day of the 2016 presidential election.
Despite the languid stock performance, smaller lenders like Investors Bank and its likely suitors have benefited from a rollback in banking rules in recent years.
For instance, lawmakers earlier this year raised the threshold at which banks must automatically undergo the Federal Reserve’s “stress tests,” from $50 billion in assets to $250 billion. Some banks under $50 billion were previously wary of acquisitions that could take them over that asset mark. Now that the limit has been raised significantly, it could widen the pool of potential buyers for Investors Bank, which has more than $25 billion in assets.
Possibly helping propel a sale, Investors Bank has been a magnet for shareholder activists.
Its largest shareholder is Blue Harbour Group LP, a Greenwich, Conn., hedge fund that considers itself a “friendly” working alongside management. The firm has a 9.7% stake, according to FactSet. Last year, Investors Bank and Blue Harbour reached an agreement under which the fund’s managing director, Peter Carlin, would join its board.
Fellow activists Scopia Capital Management LP and Elliott Management Corp. have also been shareholders.