Louisville, Kentucky-based Republic Bank is suing Green Dot, alleging breach of contract, after the prepaid card company-turned-bank backed out of a $165 million deal to buy Republic’s tax refund processing unit, Republic said in a securities filing Tuesday.
Green Dot has been unable to get the Federal Reserve’s "approval of or non-objection" to the transaction, and therefore, it "will not be consummated," the company said Monday in its own securities filing.
At least one other major banking transaction — First Citizens Bank’s $2.2 billion merger with CIT Group — has been delayed for lack of the Fed’s sign-off.
"Action by the Federal Reserve Board is the remaining regulatory approval required to complete the merger, and both parties are committed to continuing to seek such approval," First Citizens and CIT said last week, noting that the Federal Deposit Insurance Corp. (FDIC) and the Office of the North Carolina Commissioner of Banks had each approved the deal.
That transaction was expected to be complete by Oct. 15, but the timeline has been pushed to March 1, 2022. If the deal is not completed by March 1, either bank has the right to back out.
Christopher Marinac, director of research at Janney Montgomery Scott, told American Banker the delay may have more to do with staffing at regulatory agencies rather than any outstanding reservations about the deal.
"I’m not aware of an instance in which the FDIC approved a merger and then the Fed had not," he said. "Now anything is possible, and there is always a first time for everything."
Failure to disclose?
Republic, however, said Green Dot disclosed in August that it had delayed the closing of the sale after its primary regulator requested information relating to the transaction "and Green Dot’s subsequent decision to seek" approval or non-objection before closing.
"Because Green Dot failed to disclose the existence of any regulatory issues that would cause a delay in closing along with its representation that receipt of its primary regulator’s approval or non-objection is not a contractual condition to closing as set forth in the Purchase Agreement," Republic on Tuesday filed a lawsuit against Green Dot in the Delaware Court of Chancery, the Kentucky-based bank said in its filing.
As part of the suit, Republic aims to force Green Dot to proceed with the deal "as the parties had agreed to in the Purchase Agreement," according to the bank’s securities filing.
Green Dot CEO Dan Henry said during the company’s Aug. 3 earnings call that the Justice Department had approved the acquisition and that Republic and Green Dot aimed to close the deal in the third quarter.
"We appreciate the support of our regulators in this process and we'll keep you updated on the transaction as we are working hard to close as quickly as possible," Henry said, according to American Banker.
The Fed declined to comment to the publication Tuesday. But Green Dot did.
"We’re unable to provide details of our correspondence with our regulators, but Green Dot’s inability to receive approval should not be viewed as reflecting negatively on Republic’s Tax Refund Solutions business in any way, nor does it affect our ability to continue providing high quality services to our TPG clients," the company said in a statement. "While we are disappointed to receive this news, this does not change our strategy to invest in our tax processing platform business to allow for long-term, sustainable growth."