FHLB Merger Deal Contains $57 Million Break-Up Fee
By Brian Collins
The merger agreement between the Federal Home Loan Banks of Seattle and Des Moines contains a little-noticed provision that would force one of them to pay a $57 million penalty if it break off talks. The Home Loan Banks announced last week that their boards have agreed to a merger, which still must be approved by the Federal Housing Finance Agency and each bank’s members. The agreement gives the banks until June 30, 2015 to consummate the deal. Within the details of the merger is a provision that says that if one of the banks backs out prior to June 30, it would pay the other a $57 million “break-up fee.” The provision was first highlighted by Federal Financial Analytics, an analysis and advisory firm in Washington D.C. It noted that a break-up fee would be difficult for the Seattle bank to pay. For the Des Moines FHLB, the breakup fee is “less than six months of net income,” the firm wrote in its analysis of the deal. “For Seattle, it’s a year’s worth of net income.” In its note, the firm said it was a little “puzzling” to see such a hefty breakup fee in the merger agreement. They speculated it might be designed to deter another Home Loan Bank, such as the one in San Francisco, from proffering an alternative merger proposal. “We’ll never know since the transaction is likely to come off as contemplated and, with it, no break-up fee will be handed over,” the report says.