HomeStreet deal alteration proposed by FirstSun once more
FirstSun Capital Bancorp and HomeStreet, two US-based financial institutions, are working on possible solutions to obtain regulatory approval for their proposed merger. The deal, initially announced in January, has already undergone a significant overhaul.
The revamped deal sees HomeStreet investors receiving 0.3867 shares of FirstSun common stock for every HomeStreet share they own, or $13.53 per share, a decrease from the initial $14.75 per share offer.
The Federal Reserve Board (FRB) and the relevant state banking regulatory authorities, including the Texas Department of Banking, are responsible for approving the merger. However, the process has been challenging, with HomeStreet CEO Mark Mason expressing disappointment at the regulators' unwillingness to grant the necessary approvals.
FirstSun is seeking a Texas state charter instead of a national one for the merger. This decision may be influenced by the recent experience of TD, the would-be acquirer that scrapped the deal with First Horizon in May 2023 over uncertainty about a timeline for regulatory approval. TD has since come under intense scrutiny for anti-money laundering deficiencies, resulting in $3 billion in penalties for the Canadian lender and an asset cap on its U.S. operations.
To address regulatory concerns, FirstSun agreed to issue $48.5 million in subordinated debt and channel it into Sunflower, a FirstSun subsidiary based in Dallas. Additionally, HomeStreet would sell or dispose of $300 million in commercial real estate (CRE) loans around the time the deal closes, given the significant differences between the two companies' portfolios in this area.
The companies are also discussing an alternative regulatory structure for the deal and terms for its termination. If a solution cannot be found, HomeStreet may receive a termination fee. The banks initially expected the transaction to close in mid-2024, but this timeline has been adjusted to the end of the year.
Interestingly, the Office of the Comptroller of the Currency (OCC) approved the acquisition of Flagstar by New York Community Bank, despite misgivings from the FDIC about NYCB's Commercial Real Estate (CRE) exposure. This approval might provide a precedent for the FirstSun-HomeStreet merger, should regulators agree to the proposed changes.
As the regulatory process continues, both FirstSun and HomeStreet are working diligently to navigate the challenges and secure the necessary approvals for the merger to proceed. The outcome of these efforts will significantly impact the future of these two financial institutions.
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