TCF Merger: Why, and What’s Next?

Wayzata-based TCF Financial Corp. said this morning it plans to combine with Detroit-based Chemical Financial Corp. in a merger that gives TCF shareholders 54 percent ownership in the newly combined firm, which will take TCF’s name.

The new TCF is to be based in Detroit and consist of $45 billion in assets and 526  branches in nine states—Arizona, Colorado, Illinois, Indiana, Ohio, Michigan, Minnesota, South Dakota and Wisconsin. There is very little overlap, geographically.

Why is this occurring?

Small to mid-sized banks have been under pressure since the Great Recession because their primary way of making money—interest rates—dropped to record lows while regulators made it tougher for them to create new products and services. Even with slight interest rate increases during the last three years, small and mid-sized banks have only been growing by either winning market share away from their competitors, or by either acquiring or being acquired. Meanwhile, new competition has surfaced by way of alternative sources of financing, many of which are app-based and don’t require the physical locations and related overhead of traditional banks. It’s also expensive to expand into other markets on one’s own, and extremely difficult given the competition that already exists in those markets. An acquisition provides instant market expansion.

TCF’s news release on this move explains more as to why the two are merging.

What’s next?

The merger needs to be approved by shareholders on both sides, as well as regulators. Neither company has said what may happen thereafter. But it’s likely some locations (especially brick-and-mortar with little business) will be shuttered and some jobs in Minnesota may be eliminated for two reasons.

First is that mergers such as this are done in part to cut costs. With this transaction, a key redundancy will be TCF’s and Chemical’s operations centers. TCF’s is in Plymouth, while Chemical’s is in Midland, Michigan (where Chemical last year promised to retain 500 jobs even though it would move its headquarters functions from there to Detroit).

Second is that Chemical recently went through a similar merger that led to branch closings and layoffs. In August 2016, Chemical acquired Talmer Bancorp for $1.1 billion. Within one year, Chemical announced plans to close 34 locations (13 percent) and consolidate seven others. As of today, it has 50 less locations (19 percent) than after the Talmer deal was completed. Also one year following its acquisition of Talmer, Chemical announced plans to lay off 235 people (7 percent of its workforce).

Meanwhile, much of new-TCF’s near-term growth is scheduled to occur in Michigan. Last summer, Chemical was named the City of Detroit’s exclusive, primary banking partner to manage the city’s operating deposit accounts, which are expected to be as much as $500 million. Chemical said at the time it plans to build a 20-story headquarters and employ up to 500 people in Detroit—on top of retaining its Midland workforce.

[Update Note, Jan. 31: This article from the Lee Schafer at the Star Tribune also explains why jobs will likely be cut in upcoming months.]

One other situation to watch is whether the University of Minnesota will continue to receive as much support from the new TCF as it did from the old. TCF agreed in 2005 to pay the university $35 million over 25 years to have its football facility called TCF Stadium (and to have TCF’s logo on just about everything sports related). In 2017, the two parties agreed that TCF could keep those naming rights until 2040 if it pays another $4 million. But TCF also can decide to opt out of this arrangement.

Leadership of the new bank will be in Minnesota’s favor, however. TCF Chairman and CEO Craig Dahl is to become president and CEO of the combined firm; and the new board will have eight directors from each side including Vance Opperman, who is the lead independent director of TCF.  Opperman also is lead independent director of Thomson Reuters, which purchased Eagan-based West Publishing from his father and him in the 1996 for $3.6 billion; and owner of Minneapolis-based Key Investment, the parent company of MSP Communications, a contract publishing business that also operates Mpls./St. Paul Magazine and Twin Cities Business.

End of a Legacy

While it’s called TCF it’s really the bank that Bill Cooper created. Here are some excerpts about him from Twin Cities Business, which on this page and its links related articles has the state’s most comprehensive background about him and his accomplishments at TCF.

“Cooper began his career as a Detroit cop in the 1960s. In 1967, he earned his accounting degree from Wayne State University and took a job as an auditor at Touche Ross. His first banking job was at Michigan National Bank as an assistant treasurer until Later he being named president of Huntington Bank and then president of American Savings and Loan Association. Come 1985, he moved to Minnesota and took over as CEO of Twin City Federal.

He was quick to make changes to the Wayzata-based financial institution, reducing its number of troubled loans, which totaled more than $1 billion at his time of entry. One of Cooper’s most-lauded implementations was “Totally Free Checking” accounts, which drew in thousands of new customers.

In a TCB’s 2012 feature “Bill Cooper’s Way,” Joe Witt, CEO of the Minnesota Bankers Association, touted Cooper’s mid-1980s strategies — which emphasized free checking, seven-days-a-week banking and branches in supermarkets — as revolutionary to the industry.

During that time, in 1986, Cooper also led TCF through its public offering.

He first retired from TCF in 2005, but returned to the CEO chair three years later to manage the bank through the Great Recession. Cooper’s official retirement from TCF came in August 2015, although he remained on the bank’s board of directors.

Aside from being a pivotal figure within the state’s banking scene, Cooper was active in its political community, as well. From 1997 to 1999, he was chairman of the Minnesota Republican party and became a vocal advocate against government regulations on banks and bailouts for large financial institutions amid the Great Recession.

Cooper grew a reputation as a boardroom bulldog when he and TCF sued the Federal Reserve, the chief banking regulator, in 2011 over its move to drastically reduce debit card swipe fees.

Outside of the political and banking realm, Cooper was also a strong advocate for charter schools.

As an illiterate student early on, Cooper credited his third-grade teacher Mrs. Hope for saving him from being the self-described ‘dumb kid’ during his later years in school. Under his leadership at TCF, the bank ‘sponsored’ 16 of the state’s 149 charter schools, most of which were in low-income areas.”

Cooper passed away two years next month at the age of 73.