Regulatory Approval Process for Big Deals
As those familiar with mergers and acquisitions know, big dollar deals are often subject to regulatory approval by the government. This is largely because the government must ensure that the relevant marketplace for a particular business remains competitive within a specific industry. Antitrust laws are meant to ensure that a business or entity does not own a monopoly on a particular market for goods and/or services, and that businesses remain competitive by not dominating most of the consumer base. The United States Department of Justice and the Federal Trade Commission (FTC) often conduct these reviews and must give their consent that a merger will not result in an anti-competitive environment. The Federal Communications Commission will also handle reviews in the telecommunications industry to ensure no one has an unfair dominion over content on cable, for example. And certain financial institutions or banks may need to go before the Federal Reserve or the U.S. Office of Comptroller of the Currency (which falls under the U.S. Department of the Treasury).
Example: Financial Institutions
In recent news, a financial entity called CIT Group, which engages in lending to small businesses, made a $3.4 billion offer for a regional bank called OneWest. OneWest operates in California. A deal of this size must go through a review by the U.S. Federal Reserve as well as the Office of Comptroller of the Currency (OCC). The Federal Reserve is the country’s central bank that sets monetary policy, regulating the money supply and interest rates to balance credit availability as well as inflation of our currency. The OCC is another entity that supervises national banks, approving their charters and regulating their activity. It was reported in New York Times Dealbook that the Federal Reserve and OCC questioned over 100 people.
Unique Format: A Public Regulatory Hearing
Regulatory agencies will typically interview executives and officials from the entities participating in the proposed merger or acquisition, and may interview experts as well regarding the potential impact on the market. In the hearing regarding the CIT Group purchase of OneWest, however, the Federal Reserve and OCC took a unique tact of holding it publicly and inviting various members of the community, including “homeowners, members of the clergy, small-business owners and advocates for the poor,” in addition to the customary company executives that attend such hearings. The reason for the multitude of invitations from diverse parts of the community is because many from these groups have expressed concern that the target entity, One West, has not done enough as a lender to invest in low-income and minority neighborhoods, and also engages in questionable foreclosure practices. These concerns are magnified by the fact that OneWest, in its prior incarnation as IndyMac, received bailout funds after the market collapse through the Troubled Asset Relief Program (TARP), yet in spite of this federal assistance has still underserved small and mid-size businesses in struggling communities. Notably, the acquiring entity here, CIT Group, also received TARP bailout assistance. As the Dealbook article also notes, the merger would result in a more complex entity and accordingly should be viewed closer and more diligently.
This is an interesting case as far as financial institution mergers go, and particularly because the public is so heavily involved in testimony for the regulatory review process.