N.Y. Community Joins Bank-Merger Rush With $2.5 Billion Deal

(Bloomberg) -- New York Community Bancorp agreed to buy Michigan's Flagstar Bancorp Inc. for $2.54 billion, joining this year's string of tie-ups among small lenders trying to stay competitive against the nation's banking giants.

U.S. regional banks have been merging to grapple with low interest rates, weak loan demand and the need to boost technology spending. Pressure is coming from the nation's top lenders, such as JPMorgan Chase & Co., which are moving into new states and spending billions annually on digital offerings.

The deal comes a week after Webster Financial Corp. agreed to purchase Pearl River, New York-based Sterling Bancorp in an all-stock transaction that valued the target at $5.14 billion. Among other recent mergers: M&T Bank Corp. agreed in February to buy People's United Financial Inc. for about $7.6 billion.

“The combination of our two companies will allow each of us to continue our transformation to a full-service commercial bank by broadening our product offerings while expanding our geographic reach with no branch overlap,” New York Community Chief Executive Officer Thomas Cangemi said Monday in a statement. Cangemi will remain CEO of the combined company, which will be based on Long Island. He's held that title since his predecessor, Joseph Ficalora, retired in December.

The merger rush gained steam last year, when Huntington Bancshares Inc. agreed to buy TCF Financial Corp. for about $6 billion and PNC Financial Services Group Inc. said it would pay $11.6 billion for Banco Bilbao Vizcaya Argentaria SA's banking operations in the U.S., the industry's largest deal nationally in 2020.

Investors cheered on many of those transactions, sending stocks higher after they were announced.

Read more about the positive reactions bank mergers are enjoying

Flagstar shareholders will receive 4.0151 shares of New York Community common stock for each Flagstar share they own, according to the statement. That translates into $48.14 per share, or 6.1% higher than the closing price Friday.

Flagstar shares climbed to $48.99 at 10:07 a.m. in New York, above the premium New York Community is offering. In a note, Raymond James analysts called the price tag “a bit of surprise” given their $60 price target for the bank.

After the acquisition is completed, which is expected by the end of this year, the combined company will have more than $87 billion in assets and about 400 branches in nine states, as well as 87 loan-production offices in 28 states, according to the statement.

New York Community is based in Westbury, New York. The company was founded in 1859 and bills itself as the largest thrift in the nation on its website. It has significant exposure to New York City's real estate market, which has been roiled by the pandemic.

Flagstar was chartered in 1987 as a federal savings bank, according to its website.

Piper Sandler & Co. and Goldman Sachs Group Inc. served as financial advisers to New York Community, and Sullivan & Cromwell LLP was legal adviser. Morgan Stanley and Jefferies Financial Group Inc. acted as financial advisers to Flagstar, and Skadden, Arps, Slate, Meagher & Flom LLP was legal adviser.

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