30 December, 2017

Welcome to Swire Chin's List of International Bank Mergers

Welcome to Swire Chin’s List of International Banking Mergers and Acquisitions. This web site aims to chronicle the corporate genealogy and M&A history in the banking industry. Over 80 of the world's largest and most well-known banks have been documented.

Click on Index to access all earlier publications. Existing publications are updated whenever a major banking acquisition or divestment is announced.

Like many people nowadays, I’ve a love-hate relationship with banks. I do, however, enjoy reading and recording the history of commercial banks. Please feel free to email me if you’ve any comment. My email address can be found on the "About Me" section of the web site.

United States Bank Mergers & Acquisitions (KeyCorp)

Photo: KeyBank Center is a multi-purpose, indoor sports arena in downtown Buffalo, New York. It's the home arena of the Buffalo Sabres NHL ice hockey team.

KeyBank is based in Cleveland, Ohio, but traces its main lineage to two regional banks: the original KeyBank from Albany, New York and Society National Bank from Cleveland.

The 19th century was a time of rapid growth for states around the Great Lakes region. The opening of the 362-mile Erie Canal back in 1825 allowed people, grains, bulk goods, mail and natural resources to bypass the Appalachian Mountains, sharply reducing the time, costs and dangers involved in moving between the U.S. Eastern Seaboard and the Midwest. In other words, the Erie Canal opened up migration, communications, and the economy for a much vaster expanse of land.

It was under such an economic and social environment that KeyBank’s predecessors were established in the early- and mid-19th century.

The KeyBank (KeyCorp) lineage

The New York branch of KeyBank’s lineage dates back to the 1825 establishment of the Commercial Bank of Albany (Albany is the capital of New York state).  

As mentioned elsewhere in this collection of bank histories, the banking industry in the United States had been one of fragmented regulation and instability during the 18th and most of the 19th centuries. During that time, no nationwide regulation even existed, as each state had its own laws governing that state’s banking system.  It was only in 1863 and 1864 that the U.S. Congress passed two National Banking Acts to formally establish a single national currency, and to create a nationwide banking regulatory framework to co-exist with the state regulations. As such, the National Banking Acts were not meant to seize banking regulation from the individual states to the federal government; rather, it aimed to provide a single superlative oversight system to monitor federally-chartered banks, as an additional layer of governance over state regulations. Banks back then, as they still do now, are free to choose to obtain either a state or a federal charter.

In 1865, following a conversion from a state charter to a national charter, the Commercial Bank of Albany adopted the name National Commercial Bank of Albany.

In 1919, the National Commercial Bank of Albany combined with the Union Trust Co. to become the National Commercial Bank and Trust Co.

Like all modern sizeable banks in the U.S., KeyBank grew out of many small local banks of humble origins. Another predecessor of KeyBank was the Trust and Deposit Co. of Onondaga in Syracuse in upstate New York, which was founded in 1869.  In 1919, the Trust and Deposit Co. of Onondaga amalgamated with its local rival First National Bank of Syracuse to become First Trust & Deposit.

In 1971, the National Commercial Bank and Trust Co. took over First Trust & Deposit and became First Commercial Bank. Throughout the 1970s, First Commercial expanded its presence by acquiring other banks in Western New York state. In 1979, First Commercial adopted a new and less ubiquitous name: “Key”.

From 1956 until the 1980s, the Bank Holding Company Act prohibited inter-state banking in the U.S., meaning that banks from one state were prohibited from acquiring or chartering a bank in another state, though in some states, inter-state bankinging was allowed but typically only for neighbouring states that had a regional reciprocal agreement such that, for example, banks based in Minnesota could establish branches in North Dakota, and vice versa.

In any case, when certain states began to relax inter-state banking restrictions in the 1980s, KeyBank bought a few banks in the Mountain States of Wyoming, Utah and Idaho, plus in Alaska. Taking advantage of Alaska’s inter-state banking agreement with other states, KeyBank used the Alaska subsidiary to acquire several small banks in Oregon. By now, it was clear that unlike other banks seeking to enter the “sexy” large urban centres such as Chicago or New York City, KeyBank was content to expand into the rural, less known backwater markets.

For many years, KeyBank had also wanted to expand into the New England region, but was forbidden from doing so due to regulations aimed at preventing New York-based banks from dominating in New England. The restriction was probably meant to bar the Manhattan powerhouses, but still applied to regional players such as KeyBank from Albany, New York.

By 1987, more and more of the inter-state banking bans were being lifted, and Rhode Island-based Fleet Financial merged with Albany’s Norstar Bancorp. To satisfy anti-trust requirements, Fleet/ Norstar agreed to sell eight Maine branches and their client accounts to KeyBank, marking Key’s first entry into the New England region.

KeyBank continued its cautious and steady approach to expansion in the 1990s, buying up banks in Idaho, Washington state, Colorado as well as in its home state of New York.  However, managing such a far-flung network of bank subsidiaries was an expensive business. Achieving synergy and sharing corporate functions was no simple matter when the branches were far from each other and were subject to various states’ regulations. Nevertheless, KeyBank undertook an efficiency drive to reduce costs and improve competitiveness by integrating systems and sharing cost centres wherever possible.

The Society National Bank (Society Corp.) lineage

The Ohio branch of KeyBank’s ancestry began with Cleveland-based Society National Bank, which commenced business in 1849 as the “Society for Savings”, a mutual savings bank (i.e. a co-op bank similar to a credit union).

As explained earlier, the mid-19th century was generally a boom time for the U.S. Midwest following the opening of the Erie Canal system in the 1820s. The second half of the 19th century witnessed a flood of settlers arriving from both the Eastern Seaboard and from overseas, who were chiefly German, Irish, Scandinavian and Jewish displaced by econo-political or ethnic turmoil in their homelands.

Society for Savings grew rapidly along with Cleveland during the 19th century. In 1890, the savings bank moved into a new 10-story head office building on Public Square in downtown Cleveland, which was the tallest building in the city at the time. This Romanesque Revival building still stands prominently and is today a designated National Landmark.

Despite having just one single office, Society for Savings was so trusted that it was one of the four largest banks in Cleveland when it celebrated its centenary in 1949. It was only in 1953 that Society for Savings opened its first branch office in a Cleveland suburb.

However, as a mutual savings bank, Society for Savings was restricted to offering only personal banking, so in 1956 it created a separate subsidiary called Society National Bank to provide commercial banking and other lending and investing activities not allowed to mutual savings societies. Just two years later, the decision was made to re-organize the entire Society group: first, Society Corporation was created as a joint-stock parent company for Society National Bank, which then took over the assets, liabilities, reserves and operations of the mutually-owned Society for Savings. The conversion from a co-op bank to a public joint-stock business (a process known as “demutualization”) gave Society National much greater and easier access to raise new capital, and to escape from the many operation restrictions that co-op banks were subject to. Members of the former banking co-op received stock certificates of the new entity based on the amount of their deposits, hence becoming shareholders of the newly-formed joint-stock bank.

By the end of the 1970s, Society Corp. had used this new freedom to acquire over a dozen banks inside Ohio, such as the 1979 acquisition of Canton-based (Ohio) Harter BanCorp. This expansion continued throughout the 1980s, including the 1983 acquisition of Interstate Financial Corp. for USD $80-million. Interstate Financial was the parent company of the Third National Bank & Trust of Dayton, and had subsidiaries in Virginia, Maryland, Florida and Indiana.  The following year, Society acquired a credit- and bank-card processing company called BancSystems Association, which began as a joint-venture between Society Corp., National City Bank and Central National Bank in 1969.

Then later in 1984, Society Corp. took over Cleveland-based Central National Bank’s parent Centran Corp. for USD $220-million, making Society the fifth largest bank in Ohio. The banking holding company spent the next several years re-organizing the many acquisitions under nine regional districts, and shutting branches that were deemed overlapping.

Due to complex state and federal banking regulations at the time, the subsidiary banks under the Society Corp. umbrella were organized as separate legal entities and not as a single integral network. Towards the closing of the 1980s, bans on inter-state banking finally began to be relaxed, or dismantled altogether, which unleashed a wave of consolidations as smaller banks merged to form larger, more powerful banks, and stronger, larger banks bought smaller rivals to gain market share. In anticipation of this rapidly changing operating environment, Society Corp. sold BancSystems Association Inc. to Electronic Data Systems Corp. (EDS) in 1989 to strengthen its capital base.

In 1988, Society Corp. signed an agreement to be the anchor tenant of a new, 57-storey, 948-foot tall skyscraper in downtown Cleveland, which was completed in 1991.

In 1990, Society Corp. bought Toledo’s financially-troubled Trustcorp Inc. for USD $495-million, whose Trustcorp Bank subsidiary operated in northwest Ohio and neighbouring communities in Indiana and Michigan. Then in 1991, Society Corp. made its largest ever acquisition up to that time by taking over Cleveland’s Ameritrust Corp. for USD $1.2-billion. Ameritrust had bank and trust operations in Ohio, Michigan, Indiana, Connecticut, New York, Florida, Texas, Missouri and Colorado.

Recent transactions:

  • In 1994, KeyCorp of Albany, New York and Society Corp. of Cleveland agreed to merge in a deal valued at USD $7.8-billion. The combination was seen as a merger of equals. Post-merger, the Society name was dropped, but KeyCorp relocated its headquarters from Albany into the 57-storey Society Center (now Key Tower) in downtown Cleveland.
  • In 1998, KeyCorp bought Cleveland brokerage firm McDonald & Co. for USD $653-million. McDonald & Co. managed USD $5-billion of assets through 44 offices in 11 states. However, KeyCorp sold McDonald & Co.’s branch network to UBS in 2007 for USD $280-million, while retaining its former institutional businesses, including investment banking, debt and equity capital markets, public finance and research.
  • In 2002, KeyCorp bought Union Bankshares Ltd. of Denver, Colorado, for USD $54-million. Its subsidiary Union Bank & Trust had seven branches in Denver.
  • In 2004, KeyCorp bought EverTrust Financial of Everett, Washington for USD $195-million. Its subsidiary EverTrust Bank operated 12 branches in Washington state.
  • In 2007, KeyCorp bought U.S.B. Holding of Nanuet, New York, for USD $575-million. Its subsidiary Union State Bank had 31 branches mainly in New York state’s Hudson Valley just north of New York City.
  • In January 2012, KeyCorp agreed to buy 37 branches and their client accounts in the Buffalo region from First Niagara Bank for USD $110-million. First Niagara had in 2011 acquired 195 former HSBC branches and their client accounts in upstate New York, New York City and Connecticut for USD $1-billion from Britain’s HSBC Holdings.
  • In 2015, KeyCorp acquired First Niagara Financial Group (based in Buffalo, New York) for USD $3.7-billion. First Niagara’s 300 branches in New York, Pennsylvania, Connecticut and Massachusetts joined Key’s over 900-branch network.
  • In April 2016, KeyCorp agreed to sell 18 branches and their client accounts in the Buffalo area to Northwest Bank to satisfy the U.S. Department of Justice and Federal Reserve’s anti-trust concerns.

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30 May, 2017

Canada Bank Mergers & Acquisitions (Mouvement des caisses Desjardins)

Photo: Complexe Desjardins, 150 rue Sainte-Catherine Ouest in Montréal, is the head office of Mouvement des caisses Desjardins.

Co-operative banking and Quebec

Quebec, the French-speaking province of Canada, often emphasizes itself as a “distinct society” because of its French heritage, French-language culture and Roman Catholic society.  The rest of Canada sometimes makes fun (sarcastic or otherwise) of this “distinct society” assertion, but Quebec’s banking sector is indeed very different from the rest of Canada. While the Big Five banks oligarchy enjoys an absolute domination in so-called English Canada; in Quebec, the commercial banks’ combined share of the banking market based on deposits is only 55%, with the remaining 45% of deposits being held by co-operative credit unions known as “caisses populaires”. Interestingly, this market environment is very similar to France itself, where mutual banks (“les banques coopératives”) also enjoy a significant market share, particularly outside of major cities.

At the closing of the 19th century, a vast majority of Quebec’s 1.6 million inhabitants were Francophone and Roman Catholic. Their livelihoods were closely dependent on agriculture and most of them were too poor to possess a bank account. Access to regular bank credit (loans) was non-existent due to their unreliable income and lack of savings or property as collateral. In situations where they absolutely needed to borrow money for emergencies, frequently their only source was unscrupulous lenders who offered usury at extremely high interest rates, rendering the borrowers into a cycle of perpetual indebtedness and poverty.  This situation was not unique to Quebec, but indeed had been a common social ill across Europe and North America for centuries.

During the 19th century, farm workers displaced by the Industrial Revolution sought factory work in towns and cities en masse, where the working and living conditions were often appalling. A social and labour movement began to rise up to fight this social, economic and political inequality.  One result of this social movement was the birth of the co-operative movement in the mid-19th century.  The co-operative movement was based on democratic, anti-discriminatory, open-membership and mutually beneficial principles. In a co-operative business (often called simply a “co-op”), every customer must first become a member and co-owner of the business with a small fee. Because a co-op is collectively and mutually owned by the member-customers themselves, there is much less pressure to squeeze out more profits at the expense of customers, for it would be just like paying the right hand with money from the left hand of the same person. In fact, profitable co-ops periodically distribute part of their surplus (profits) to their members.

The world’s first co-operative business was established in Rochdale, Lancashire, England, in 1844. Most of the founders of the Rochdale Society of Equitable Pioneers were weavers, who pooled together their resources to open a shop to provide fresh and nutritious food produce that was otherwise unaffordable for many poor people at the time. Meanwhile in 1850, German politician and social reformer Hermann Schulze-Delitzsch established the world’s first banking co-op (credit union) in Delitzsch.

For the rest of this publication, the terms “caisse populaire”, “credit union”, “mutual bank”, “banking co-op”, and “co-op bank” are used interchangeably not to confuse the reader, but because indeed these terms all refer to the same type of bank in various countries. (In Britain, Ireland and some Commonwealth countries, a banking co-op is known as a “building society”.)

Credit unions in North America often cater to a geographic locale, a profession or a group of employees at a specific workplace, or to an ethnic group.  Initially, the credit unions in Quebec operated autonomously. Over time, however, they pooled together their resources to collaborate with each other, and three alliances emerged: the Desjardins group, the Quebec Credit Union League and the Fédération des caisses d’économie du Québec. The two latter alliances eventually amalgamated into the Desjardins group, but they would be described briefly under separate headings.

Mouvement des caisses Desjardins (Desjardins group)

In the final years of the 19th century, Quebec journalist-turned-social-reformer Alphonse Desjardins had become aware of the ruthlessly high interest being charged by lenders to the underclass. After making contact with Europe’s banking co-op promoters, Mr. Desjardins founded the Caisse populaire de Lévis in December 1900. This became North America’s very first credit union. Lévis is the hometown of Mr. Desjardins and is situated on the south shore of the St. Lawrence River across from Quebec City.

Interestingly, during Caisse populaire de Lévis’ first six years of existence, there was no legal framework to recognise such a business form. Despite Mr. Desjardins’ numerous attempts to get the Canadian parliament to legislate credit unions, the lawmakers failed to pass the legislation every time. It was only in 1906 that Mr. Desjardins was able to convince the Quebec provincial legislature to recognise credit unions as “legal” financial institutions. To this day, credit unions in Canada are still regulated by individual provinces even though banks are regulated at the federal level.

Society in the early 20th-century Quebec was still overwhelmingly rural and Roman Catholic, and villages and towns were organised into parishes. As such, many of the caisses populaires at the time operated out of the basements of parish churches.

Together, the tireless Alphonse Desjardins and his wife Dorimène travelled to other towns in Quebec and New England to promote the co-op banking movement across Canada and the United States.

Mr. Desjardins also believed that the habit of money-saving was a virtue that should be instilled not just to the working youths or adults, but to youngsters and school children. As early as 1901, he had tested the concept of a school-based credit union. In 1907, he formally launched the first caisse scolaire, again in his hometown of Lévis, to promote penny savings by children.

Interestingly, Mr. Desjardins is also the father of the banking co-op movement in the United States of America. At the beginning of the 20th century, as many as 600,000 Franco-Canadians lived in the New England region to seek better opportunities and lives, making up as much as 10% of the population at one point.  This was the result of a phenomenon known as the “Quebec Diaspora”. It was during a trip to visit the Quebec expat communities in 1908 that Mr. Desjardins founded the Caisse populaire in Sainte-Marie de Manchester in New Hampshire, creating the first credit union in America.

Also in 1908, Mr. Desjardins launched North America’s first workplace or profession-based credit union, known in French as a caisse d’économie or a “group caisse”, when the Civil Service Savings and Loan Society was established in Ottawa for federal government employees. This also became the first credit union in Canada outside of Quebec. And in 1913, for the first time the word “Desjardins” – the founder’s name – was used when Saint-Sauveur-des-Monts’ caisse populaire was established.

However, during these early days, not all of the credit unions would survive. The operations very much relied on volunteers, and the local economies could be unstable at the best of times. In any case, Alphonse and Dorimène Desjardins helped establish well over 130 caisses populaires in Quebec, around 20 in Ontario and nine in the United States. Following her husband’s death in 1920, Dorimène Desjardins continued to be consulted on key decisions regarding the development of the movement for a number of years. Though never given an official position during her lifetime, today the Desjardins group considers Dorimène an equal co-founder as much as her husband Alphonse.

Initially, each of the many caisses populaires was run independently, catering to its local community and had little collaboration with each other. In 1920, this began to change when the caisses populaires in the Trois-Rivières region formed the first “Union régionale”, initiating a strategy to create a liquidity oversight mechanism, to promote collaboration, and to defend the caisses populaires’ interests. In the next several years, three other Unions régionales were created in Quebec City, Montreal and Gaspé respectively. Over time, each of the four Unions régionales also established a new regional caisse to manage and transfer the affiliated caisses’ capital, and to clear cheque payments. This set the beginning of a more cohesive network.

The Great Depression that started in 1929 heightened the importance of regular and accountable audits of the caisses populaires. The Quebec government agreed to fund this regulatory mechanism, provided that the four Unions régionales establish a centralised and responsible organisation. This agreement led to the creation of the Fédération de Québec des unions régionales des caisses populaires Desjardins in 1932. For the first time, the many caisses populaires across Quebec came under a single umbrella organisation. However, there were still many other credit unions that were not under this Desjardins federation – see below.

In 1944, the Desjardins group branched into the property insurance business when the Société d’assurance des caisses populaires (SCAP) was created. Four years later, a life insurance division was founded: Assurance-vie Desjardins.

At the close of the 1940s, the Unions régionales agreed to contribute to a central reserve fund (“fonds de sécurité”) in case emergency capital was needed for any of the member caisses populaires, further bonding the Desjardins group together.

Throughout the 1960s, the historically religious, frugal, conservative and less affluent Quebec society underwent rapid changes. Rising consumer confidence and the rise of consumerism let to appeals for easier credit, and the caisses populaires relaxed their long-held opposition to personal loans.

Desjardins officially launched its inter-caisse computer system in 1975, allowing clients to make transactions at any caisse in the network, putting Desjardins several years ahead of the Big Five banks in Canada.

Two important events happened in 1979 to the Desjardins group: first, the Caisse centrale Desjardins (CCD) was created. As its name suggests, CCD performs certain “central bank” functions for the numerous caisses within the group, such as managing the Unions régionales’ reserves and clearing and settling payments (e.g. cheques) both between Desjardins’ member caisses and with other Canadian and foreign banks. The second momentous event was the merger of the Fédération de Québec des unions régionales des caisses populaires Desjardins and the Fédération des caisses d’économie du Québec, creating a massive network of community credit unions and workplace credit unions. The ten Unions régionales became regional federations following the combination. The combined entity adopted the name Confédération des caisses populaires et d’économie Desjardins du Québec.

The 1980s was a decade of expansion and diversification for Desjardins. In 1981, the credit unions under the Quebec Credit Union League (see separate heading below) joined the Desjardins group. And in the same year, after years of consideration, Desjardins finally began offering Visa card products. The year also saw the installation of the first ATM (bank machine). In order to broaden its deposit base and penetrate the vast credit (loan) market in Canada’s primary financial market, Caisse centrale Desjardins opened an office in Toronto in 1986. Then in 1988, for the first time Desjardins entered the securities brokerage business when it acquired a stake in discount brokerage Disnat. A securities arm called Corporation Desjardins des valeurs mobilières (CDVM) was promptly created, which in 1989 acquired a majority stake in full-service broker Deragon, Langlois. By 1991, Desjardins had taken full control of both Disnat and Deragon, Langlois, which eventually became today’s Desjardins Securities.

As many as 500,000 Canadians own vacation homes in the U.S. Sunbelt (chiefly in Florida and Arizona). Each year, these so-called “snowbirds” fly down to the U.S. to escape the long and cold Canadian winter. It was only natural for Quebec’s largest financial institution to cater to these seasonal Canadian residents in Florida.  In 1992, Desjardins launched the Desjardins Bank in Hallandale Beach (near Fort Lauderdale) in Florida, and now runs a four-office network in the state.

In 2001, Desjardins decided to simplify its bureaucratic and cumbersome three-tier structure (the caisses populaires, regional federations and the Confédération) by removing one layer of management. The ten regional federations and the Confédération were combined into a new Federation.

As of the time of publication (early 2017), the Desjardins group serves over five million members on-line, over the telephone, and through more than 800 branches and 2,000 ATMs (bank machines) in Quebec and Ontario. In addition to banking products, the group also offers auto, home, property and life insurance, asset management, and full-service and discount brokerage service.

Quebec Credit Union League

Initially, the workplace credit union mode proliferated more so in the U.S. than in Canada. But in the 1940s, the Canadian subsidiaries of American corporations caught on with the movement and Bell Canada (at the time a subsidiary of the American Bell Telephone Co.) was one of the first large private employers to have a workplace or profession-specific credit union, where savings were made through payroll deductions. Within a few years, Montreal’s firefighters, hospital workers, and police all established their own caisses d’économie, as did workers from Canadian National Railway and the Canadian Pacific Railway. In 1944, some of these predominantly English-speaking workplace credit unions banded together and created the Quebec Credit Union League to promote their cause and co-ordinate their activities. During the 1950, dozens of French-speaking credit unions also joined the Quebec Credit Union League so that its membership numbered 70 caisses by the time it joined the Confédération des caisses populaires et d’économie Desjardins du Québec in 1981.

Fédération des caisses d’économie du Québec

During the 1960s, a seismic shift in socio-economic and political ideology later termed the “Quiet Revolution” was brewing in Quebec, and one key discord was the contentious issue of the historic domination of the English language in Quebec’s business world and amongst its socio-political elites. In September 1962, 14 French-speaking caisses d’économie split from the English-language Quebec Credit Union League and formed the French-language Fédération des caisse d’économie du Québec. Within a few months, another 18 caisses d’économie had joined the federation.

In 1979, the Fédération des caisses d’économie du Québec’s 116 affiliated caisses agreed to combine with the Desjardins Group, resulting in the new Confédération des caisses populaires et d’économie Desjardins du Québec.

Recent transactions:
  • In 2000, Desjardins General Insurance acquired The Personal Insurance Co. and CIBC General Insurance Co. from CIBC for CAD $330-million. The acquisition gave Desjardins 400,000 new policies.
  • In 2011, Desjardins acquired Western Financial Group for CAD $443-million. Western Financial Group had 121 offices in British Columbia, Alberta, Saskatchewan and Manitoba offering insurance and investment products to individual clients.
  • In 2013, Desjardins took a 40% stake in on-line brokerage Qtrade Financial Group. Qtrade held CAD $7.5-billion of client assets.
  • In 2015, Desjardins bought the Canadian property and casualty, and life insurance operations of State Farm Mutual Automobile Insurance Co. The acquisition added over 1.2 million clients to Desjardins and would nearly double Desjardins’ annual premium revenue from CAD $2-billion to $3.9-billion.
  • In February 2017, Desjardins sold its Western Financial Group and Western Life Assurance operations to Wawanesa Mutual Insurance Co. for CAD $775-million.
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