One long-standing player in this market just got the M&A juices flowing. TCF Financial, based for years in suburban Minneapolis and more recently in Detroit following yet another combination, has a $6 billion deal to sell to Columbus, Ohio-based Huntington Bancshares. When the transaction closes in the second half of 2021, Huntington will have expanded from a modest presence here to the kind of relevance “enjoyed” by PNC and U.S. Bank.
Huntington will move from the 17th-largest bank by deposits in the six-county Chicago area to the 12th-largest. PNC is eighth, and U.S. Bank is 10th, as measured by the Federal Deposit Insurance Corp.’s most recent annual market share survey.
“It’s hard to be a super-regional in the Midwest and yet your presence in the largest market in the Midwest is tiny,” says Alberto Paracchini, CEO of Chicago-based Byline Bank, with $6.4 billion in assets.
The Chicago market, coveted by out-of-town lenders for its plethora of privately held, sizable businesses heavily dependent on banks for financing, remains stubbornly hard to crack. The ethos of relationship banking, forged over decades by leaders of now-retired brands like American National and LaSalle Bank, still is prevalent. Experienced local bankers are prized and paid well for their customer relationships.
Says Wintrust CEO Edward Wehmer, “It’s just another big bank coming in from out of town. What’s one more?”
Of making inroads organically in Chicago, Stephens analyst Terry McEvoy says, “It’s really tough to build it.”
But winning the prize doesn’t guarantee success, either. Cincinnati-based Fifth Third floundered in the Chicago market for two decades before landing a big one with its 2019 acquisition of Chicago’s MB Financial. The market recoiled at the $4.7 billion price tag when the deal was announced in 2018 and set Fifth Third shares plummeting over the rest of that year. When it closed in 2019, the value of the transaction, done mostly with Fifth Third stock, had dropped to $3.5 billion.
Since then, dozens of former MB Financial bankers have departed for competitors like BMO Harris Bank, the second-largest commercial and retail bank in Chicago. In addition, a group of former bankers from Schaumburg-based American Chartered (bought by MB Financial before its sale to Fifth Third) decamped for tiny First National Bank of Ottawa in LaSalle County.
Unsurprisingly, the old clients appear to have followed their former bankers. Ottawa’s assets as of Sept. 30 are nearing $900 million. The bank had just $290 million at the end of 2018, when former American Chartered President Dan Miller led a group of investors into recapitalizing the bank and became its chairman. In the first three quarters of 2020 alone—during a once-in-a-century pandemic—Ottawa’s loans more than doubled to $765 million. Commercial and industrial loans more than tripled to $320 million from $95 million.
And Fifth Third? Its commercial loans in Illinois fell 5 percent in the first nine months to about $9.98 billion from $10.49 billion at the end of 2019, according to a Securities & Exchange Commission filing. Most commercial banks have seen their business loans increase in 2020, albeit not at pre-pandemic levels.
Fifth Third CEO Greg Carmichael recently told analysts that the bank’s Chicago performance is good. “We’re seeing a 4 percent household growth in that market, which is outpacing the total franchise growth from a household perspective,” he said Dec. 8 at an investment conference. “We’re seeing the outcomes we’re looking for.”
Still, few doubt there would be intense interest if Wintrust or First Midwest were open to selling. Wintrust is the fourth-largest area bank by deposits and has grown to $43.7 billion in assets. First Midwest now is at $21.5 billion.
MB Financial was a $20 billion bank when Fifth Third snapped it up. U.S. Bank and the Toronto-based parent of BMO Harris made bids as well, with BMO Harris even trumping Fifth Third’s offer, only to be snubbed. Bankers harbor little doubt BMO Harris would seek to top any out-of-town bank’s bid for a Wintrust or a First Midwest in the same way. (BMO Harris CEO David Casper declined to be interviewed for this article.)
Wintrust’s Wehmer says he’s thinking more about the buying side of deal-making. Wintrust in recent years has bought its way into southern Wisconsin. Now he’s looking east.
“We’d love to be in Indiana,” he says. Using the banking term for branch opening, he adds, “We’ll go de novo if we have to.”
As to potential interest from larger banks, Wehmer says, “It’s not my company. If someone makes an offer I can’t refuse, I have to listen to them.”
First Midwest CEO Mike Scudder echoes that in an interview and says First Midwest wants to hear from smaller banks interested in selling. “For smaller institutions, the competition just remains tough,” he says, citing ultra-low interest rates that pinch on profit margins and increasing technology expenses as the digitalization of banking accelerates.
The parent of Byline Bank, which has been the most aggressive buyer of smaller banks in recent years, will continue on that path, CEO Paracchini says. The smaller bank deals that don’t move the needle for larger banks make a difference for Byline.
“We like the positioning of our bank in Chicago,” he says. “At our size, we have a lot of flexibility.”