Former National-First Midwest Bank deal to reshape Chicago’s loan market

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It is a testament to the desire of many Chicago businesses and residents to do business with a truly local institution that Wintrust ranks in the top five in terms of local depot market share. Chicago-based Northern Trust, which is not really an investment bank and instead caters to the investment needs of the wealthy and institutions, is also in the top five. The other three are JPMorgan Chase (due to the takeover of Bank One in 2004), BMO Harris Bank (a unit of BMO Financial Group based in Toronto) and Bank of America (through the agreement with LaSalle).

Wehmer says he’s not looking for a buyer, but he recognizes the reality of running a publicly traded company. “We are in no rush to do anything,” he said. “We are not for sale. If someone makes an offer that we cannot refuse, we will have to accept it.”

Fortunately for Chicago’s banking future, buying banks don’t make these kinds of offers these days. Currently in vogue are low- or no-premium deals like the one First Midwest agreed to from Old National, which involve less drastic cost cuts to justify the high price tag and are touted as “win-win” combinations for workers. , customers and communities.

But in the case of First Midwest, it’s hard to see the strategy behind this transaction even though it creates a bank the size of Wintrust. First Midwest and Old National barely compete with each other. Old National’s strongest market is his hometown; other markets where it’s # 1 or # 2 are smaller municipalities in Indiana like Terre Haute and Jasper. It’s present in Minneapolis, Milwaukee, and Indianapolis, but has the equivalent impact in those places that First Midwest makes Chicago much bigger.

Former National Ryan CEO and First Midwest counterpart Mike Scudder, who will become executive chairman, say they are building a premier bank in the Midwest. But most banking transactions, even so-called peer-to-peer mergers, strive to become more powerful players in at least some of the affected markets. This is not happening here. And, with the First Midwest branding going away, the new Old National will have to rebrand in by far the most expensive market it’s in: Chicago. First Midwest spent $ 11.5 million on advertising and promotions in 2019, and that dropped slightly to $ 10 million in the pandemic year.

Old National’s lending standards are more conservative than First Midwest’s. Ryan said on a June 1 call with analysts to discuss the deal, “I think we can afford to take more risks on our side.” But where will the credit decisions be made? And how will they change? The way this is resolved often sends more business borrowers looking for alternatives than any change other than their personal banker going to a rival.

Scudder dismissed questions about the rationale for the deal and said the two banks are extraordinarily similar culturally. “Culture will overtake strategy at all times,” he told analysts.

The two CEOs may love each other, but the biggest problem facing the new Old National is to succeed in Chicago, which will suddenly be its biggest and most important market and one of the most competitive and fragmented in the country. . “These are two different banks that have competed against each other in very different markets,” said Terry McEvoy, analyst at Stephens in Portland, Maine.

For years, Old National CEO Bob Jones, who Ryan succeeded in 2019, has repeatedly stated that he has no desire to enter the Chicago market due to its size and his foolish ways. Asked what has changed, Ryan told analysts that First Midwest is a rare opportunity and that Chicago has many small businesses and suburban markets that Old National is familiar with. “Someone asked us recently, how do you see yourself as a Midwestern powerhouse with no presence in Chicago?” Ryan said. “I thought that was a pretty interesting question, right?”

If Scudder was looking for a low-premium merger out of the banking industry, there was probably another very different, but potentially more value-creating option: teaming up with Wintrust and creating a real Chicago powerhouse that could go all the way. . -toe toe with Chase, BMO and every other lender in town, according to industry watchers. This, however, would have resulted in substantial cost reductions and job losses given the overlap between the two. This gives Scudder a three-year employment contract as executive chairman where he is likely to free up $ 5 million or more per year and now the ability to reassure the vast majority of his employees that their jobs are secure.

Whether this creates a first Midwestern bank is an open question.



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