Citizens is back in the bank-buying business again.
Providence-based Citizens Financial Group unveiled plans Wednesday to acquire Investors Bancorp of Short Hills, N.J., in a stock-and-cash deal valued at $3.5 billion. The acquisition follows a recently announced transaction to pick up about 80 East Coast branches for about $180 million from HSBC, as the British financial giant retreats from the US. The HSBC move by Citizens primarily focuses on the New York area, but it also brings branches in the Washington area and Southeast Florida.
Investors, meanwhile, has about 150 branches in New Jersey and New York, plus another eight that it is about to acquire from Berkshire Bank, while Citizens has about 1,000. Citizens plans to close about 20 to 30 of the branches that it will gain in the two deals, eventually leaving the bank with about 1,200 locations. The size of the bank, as measured by assets, will grow from $185 billion to roughly $215 billion once both acquisitions are completed next year.
These are the first retail bank acquisitions Citizens has made since reaching a deal to acquire Charter One in 2004 for $10.5 billion, with help from then-parent company Royal Bank of Scotland. At the time, Citizens was one of the most acquisitive banks on the East Coast, as RBS saw the New England franchise as a way to build a foothold in the US. But the price tag for the Ohio-based Charter One franchise was seen as too expensive, and that RBS had overpaid for it. Eventually, Citizens was spun out of RBS as an independent, publicly traded bank.
Citizens chief executive Bruce Van Saun said that as an independent bank, Citizens had to prove its financial strength to investors and also that it wouldn’t overpay for a big bank purchase. Citizens, the largest retail bank headquartered in New England, has made several small acquisitions in recent years: three investment banks, a money manager, and a mortgage business. But it was not until the HSBC deal, announced in May, that Citizens began buying traditional bank branches again.
“My view is you have to earn the right to do deals and be trusted to do things,” Van Saun said.
Citizens’ roots are in Rhode Island, but it is the number two bank in Massachusetts based on market share and is strong in Pennsylvania as well, largely because of a string of acquisitions done under former CEO Larry Fish before the Charter One deal. Van Saun said there was a gap in the market that needed to be filled if Citizens is to be a strong East Coast bank: metro New York. HSBC and Investors will help fill that hole.
“Brick-and-mortar is still an important mix in how we serve customers,” said Brendan Coughlin, head of consumer banking at Citizens. “We had some missing holes in our footprint that this addresses.”
Based on the closing price for Investors shares Tuesday, Coughlin said Citizens is paying an 11 percent premium to acquire the New Jersey company. Citizens employs about 17,000 people, while Investors employs about one-tenth of that number. Coughlin said he expects annual expenses at the Investors group will be cut by about a third after the merger is completed, although it’s too early to know how many jobs could be shed as a result.