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August 11, 2016 at 09:07 AM
Roger Ferguson is hedging his bet that regulators will go along with his plan to turn TIAA into a financial supermarket.
When the retirement-services giant — which Ferguson has run since 2008 — struck a takeover agreement this week for EverBank Financial Corp., it included an escape clause that means TIAA can nix the deal if it meets stiff resistance from the Federal Reserve or Office of the Comptroller of the Currency.
Ferguson, a former vice chairman of the Fed, could terminate the $2.5 billion deal if regulators make demands that would hinder TIAA’s sprawling insurance, retirement and other non-banking businesses, according to regulatory filings, as well as people involved in the negotiations, who asked not to be identified because they weren’t authorized to discuss the transaction publicly.
TIAA asked for the clause to address concerns that regulators may be skittish about letting a company that has only dabbled in banking buy a large, federally insured depository, the people said. It also wants to protect against regulators placing impositions on its various non-banking activities as a condition of buying EverBank, they said.
Large insurers and asset managers have been retreating from banking in recent years as watchdogs increased scrutiny of deposit-gathering institutions.
EverBank agreed to the get-out clause because it’s confident Ferguson has the management experience and credibility to address any regulatory challenges, another person said.
Representatives for EverBank and TIAA declined to comment. EverBank’s shares dropped 4 cents to $19.09 as of 1:27 p.m. in New York, giving the bank a market value of about $2.4 billion.
Termination grounds
Bank merger agreements don’t typically cite undue regulatory burden as grounds for termination, though they often require clear, no-strings-attached clearance from watchdogs as a condition for closing. The distinction matters, experts say, because in this case it may allow TIAA to end the deal without slogging through a long approval process.
“It could allow the parties to terminate earlier,” said Chip MacDonald, an Atlanta-based partner at law firm Jones Day, who specializes in bank mergers and wasn’t involved in this transaction.
The termination clause in this deal is “just a prudent thing to do,” he said, given the heightened scrutiny of bank mergers since the financial crisis, alongside TIAA’s minimal experience in banking.
TIAA is involved in a broad range of other financial services such as real estate investing, life insurance and online banking.
“This is going to be a big deal for the regulators to look at,” MacDonald said. “Because it is sort of a cross-industry acquisition, I suspect they’ll look at it even more carefully than normally.”
