The marriage proposal between New York Community Bancorp, Inc. (NYSE:NYCB) and Astoria Financial Corp (NYSE:AF) has collapsed. The banks announced a tie-up in October 2015 and had expected to close the transaction by the end of this year. But after the Federal Reserve indicated it would not complete the review of the deal this year, the parties have decided to walk away from the deal.
However, neither New York Community Bancorp nor AF Astoria Financial provided a reason for killing the merger outside of the Fed delay. In the absence of official elaboration on why the tie-up deal collapsed, analysts have been weighing several possible causes.
Did interest rate hike kill the deal?
Some analysts say the recent interest rate hike by the Fed may have eliminated one of the factors that may have prompted the banks to seek a merger. Banks’ earnings ability is limited when interest rates are low and that caused pain for many banks, forcing some to think of consolidation, which may have been the reason behind the proposed tie-up between New York Community Bancorp and AF Astoria Financial. But with the Fed recently increasing the benchmark lending rate and promising to do more rate hikes next year, perhaps New York Community Bancorp and AF Astoria Financial have felt they no longer need to consolidate.
Besides higher rates boosting earnings prospects for banks, it has also driven up bank stocks. Because the New York Community Bancorp-AF Astoria Financial merger involved cash and stock, the movement in financial stocks may have tempered the valuation of the deal in an unfavorable way for one of the parties.
Heightened regulatory scrutiny
But the Fed has also been reluctant to approve bank consolidations that result in the creation of Systemically Important Financial Institutions (SIFI). If it succeeded, the merger of New York Community Bancorp and AF Astoria Financial would have created a bank with more than $64 billion in assets, putting it right within the definition of SIFI, thus attracting stiffer regulatory requirements.
New York Community Bancorp stock fell 3.12% to $16.75 in the last session but the stock has risen about 3% since the beginning of 2016. AF Astoria Financial rose 0.50% to $18.17 in the last session and is up more than 14% since the beginning of the year.
