TCF Financial Corp. attracts renewed takeover speculation

A Deutsche Bank report calls Wayzata-based TCF a likely acquisition target in 2013 that could fetch as much as $21 a share.

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A TCF Bank.

TCF Financial Corp. could sell for $17 to $21 per share, a noticeable premium to its current price, one analyst suggested this week.

A report from Deutsche Bank, dated Wednesday, identified potential buyers as Fifth Third Bancorp, Huntington Bancshares Inc., KeyCorp and PNC Financial Services Group Inc.

Deutsche Bank Securities research analyst Matt O’Connor has written before that he considers TCF one of the banks in his coverage most likely to sell this year, but his latest report is more specific. Deutsche Bank, which does a lot of work with TCF, raised its target price for TCF to $15 from $14 and reiterated its buy rating. The bank’s shares closed Friday at $14.57, up 11 cents.

O’Connor does not talk to reporters, a Deutsche Bank spokesman said.

Speculation about TCF has waxed and waned for years, and Chairman and CEO William Cooper has long maintained that he would entertain offers at the right price. The bank reiterated that position Friday.

The state’s third-largest bank by deposits, TCF has been slower that others to rebound from the financial crisis as tightened financial regulations sliced important fee income. The bank underwent a major balance-sheet restructuring in early 2012 and has been shifting to higher-­margin specialty lending such as inventory and auto finance.

Key reasons for TCF to sell, O’Connor wrote, are Cooper’s age, growing pressures on the bank’s net interest margin and fewer revenue drivers.

“Bill Cooper (Chairman and CEO and currently 69 years old) has an employment contract that runs through 2015. There are potential successors at [TCF], in our view, but it’s also possible Mr. Cooper explores a sale vs. stepping aside. In a change of control, Mr. Cooper’s payout would be $15.7 million, up from $9.6 million a year ago.”

Key reasons to buy the bank, according to O’Connor, include TCF’s lower-cost supermarket branch network which has renewed appeal in an era of branch cost-cutting, and its attractive deposit base. A larger bank could better leverage TCF’s specialty finance businesses and could take advantage of opportunities to cross-sell other products such as credit cards, which TCF doesn’t originate.

O’Connor noted that there have been 11 non-FDIC assisted bank deals since 2010 valued at least $500 million. On average, sale prices were 1.5 times tangible book value and 17 times forward earnings, which would put TCF about $13-$17 per share. But O’Connor said he expects the bank’s return on equity to increase to 11.9 percent next year, nearly double those of the acquired banks, and its shares would command a premium and could potentially be valued at $17 to $21.

Some of the potential buyers O’Connor named were eyeing TCF back in 2007 when the bank was actively seeking buyers and its stock was trading above $20.

On Friday, TCF spokesman Jason Korstange said, “We will listen to anybody that puts a bid in, and if we think it’s reasonable we will take it to our board of directors.”

“We are not running this bank to sell it; we are running this bank to make a profit for shareholders.”

Bank analyst Jon Arfstrom at RBC Capital Markets said he takes Cooper at his word that the bank is not for sale but will consider offers.

“At this point, I feel like they have more tail winds and less head winds facing their business model,” Arfstrom said.

Ben Crabtree, a senior adviser at Oak Ridge Financial, an advisory firm in Golden Valley, said there’s a question about what TCF’s grocery store branches are worth. But he said its large customer base would certainly be attractive to a bank looking to cross sell.

BMO Harris, the Chicago-based bank that bought Twin Cities player M&I Bank in 2011, is another name that’s been bandied about as a potential suitor, but O’Connor said that bank isn’t part of his coverage. The Canadian-owned bank has purchased several banks since 2007, and its purchase of M&I made it the fourth-largest bank in Minnesota by deposits.

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