Dive Brief:

• The Federal Reserve on Tuesday approved Banco Santander’s acquisition of Stamford, Connecticut-based Webster Financial, the holding company of Webster Bank. 
• The central bank’s approval – 129 days after it received the application – was the last regulatory green light Santander needed for the estimated $12.3 billion transaction, this year’s largest bank deal to date. The Office of the Comptroller of the Currency issued its approval in June, and the European Central Bank did the same in July, the banks said in a news release. 
• The transaction is expected to close Aug. 20, with $86 billion-asset Webster becoming a wholly-owned subsidiary of Spain’s largest bank, which has about $2.1 trillion in assets.

Dive Insight:

With the acquisition, Santander Holdings USA is set to become the 19th-largest bank in the U.S. with $253.6 billion in assets, the Fed said. Santander Bank would become the top lender in Connecticut by deposits, with $42.3 billion, and rank fourth in Massachusetts and Rhode Island, and 11th in New York. 

Christiana Riley will remain Santander’s country head in the U.S. and the CEO of Santander Holdings USA, while Webster CEO John Ciulla will become the CEO of Santander Bank, N.A., into which most of Webster’s businesses will be integrated, the banks said. 

Ana Botín, executive chair of Santander, called the two lenders “a perfect match.” 

“Together, supported by Santander’s global platforms, technology and expertise, we will create a stronger bank with the scale to better serve our customers and communities,” she said in the release. “This combination will strengthen our position in one of the world’s most attractive banking markets and put us firmly on track to build one of the highest-performing banks among our U.S. peers.”

The combination “will expand our scale and round out our U.S. business model,” Riley said in the release. 

In addition to scale, Santander’s enhanced capabilities and financial strength will help us to deepen local relationships and build upon the trusted partnership that Webster customers have come to expect from us,” Ciulla said.

The Justice Department’s review of the proposed acquisition found it wouldn’t have a significantly adverse effect on competition, the Fed noted. 

The Fed said it received four adverse comments on the proposed deal. One commenter objected to the deal, saying Santander has “faced challenges” and closed branches in some countries, raising concern the bank may do so in the U.S., too. 

The commenter also said the merger could reduce competition and limit credit and small-business lending access in New York City, the Hudson Valley, northern New Jersey and Connecticut.

One commenter “requested careful scrutiny” of the proposed merger, alleging that allowing Santander to control Webster “could result in decisions, including credit decisions, being made abroad rather than driven by domestic needs and priorities,” the Fed said. 

That commenter also expressed concern about Santander’s judgment with respect to certain financial transactions, noting its reported credit exposure of about $300 million to First Brands and its founder, Patrick James, who has been indicted on federal fraud charges.  

Another commenter alleged the merger may violate securities laws because “he was assured as a former customer of Sterling Bank that no further mergers would occur following the merger of Sterling Bank with and into Webster Bank in 2022.” The commenter also suggested Webster’s board and management “may have violated their fiduciary duties by failing to provide meaningful engagement, adequate disclosure, and full transparency regarding the current proposal.”

The Fed said it’s not authorized to consider matters related only to corporate governance and shareholder compensation.  

The banks highlighted some overlap in branch network between the two, and while Santander may consolidate “one or more” branches, it hasn’t made final decisions and pledged to minimize any impact on low to moderate income communities, the Fed said.

After integrating Webster, Santander expects its U.S. business to achieve a return on tangible equity of about 18% by 2028, the bank said Tuesday.