The lack of a timetable for regulatory approval is being blamed for the collapse of a merger between TD Bank and First Horizon that would have created the sixth biggest bank in the US.

In a statement issued Thursday, TD Bank said: “Because there is uncertainty as to when and if these regulatory approvals can be obtained, the parties mutually agreed to terminate the merger agreement.”

Canada’s TD Bank was preparing to pay $13.4bn to acquire First Horizon, which is based in Memphis, Tennessee. The deal was announced in February 2022 but close out had been repeatedly delayed as politicians and regulators raised concerns about it creating too big a player in the US market, and about TD’s treatment of US customers.

Shares dive

TD will now pay $200m in cash to First Horizon, plus a $25m reimbursement that had already been agreed. First Horizon shares took a dive on the announcement, falling 33.2% to a 52-week-low.

First Horizon CEO Bryan Jordan called the collapse of the deal “unfortunate and unexpected” and said the bank would “continue on its growth path operating from a position of strength and stability”. But he is also quoted as saying that “we always knew there was a risk” and that “ we never assumed regulatory approval was a given”.

Bharat Masrani, TD’s CEO, said the decision “provides our colleagues and shareholders with clarity”.

While there was opposition to the deal, notably from Sen Elizabeth Warren (D-MA) who raised concerns over the incentivization of employees to enroll customers in new services without their consent when asking the Office of the Comptroller of the Currency to block the deal last June, regulators also approved TD’s $1.3bn acquisition of Wall Street brokerage Cowen in February.

Midsized banks

The collapse of the deal adds to the uncertainty about the future of midsized banks in the US, precipitated by the collapse of SVB.

“It’s a difficult time for mid sized or regional US banks with an extremely volatile landscape and much uncertainty about the future” said Rob Mason, Director of Regulatory Intelligence at Global Relay (our parent company).

“The fact that TD offered to pay $25 per First Horizon share in Feb 2022 with present valuations of under $10 is clearly a testament to this, despite reassuring statements published by both sides.

“Delays in completing the deal have been associated with US regulators challenging it. TD is now left with a capital surplus so we may see further acquisition attempts, though they will need to square any regulatory concerns away before revisiting the market.”