Toronto-Dominion Bank’s top executive said this month the lender is “fully committed” to the US$13.4 billion takeover of First Horizon Corp. The market doesn’t buy it.

First Horizon shares tumbled 26 per cent last week as fear and uncertainty spread across the US banking sector. Trading at about US$15.50 Monday morning, the stock is nearly 40 per cent below the takeover offer, as the drumbeat grows louder that Toronto-Dominion will either try to renegotiate the terms of the deal or walk away from it. 

If the Canadian bank were to close the deal, shareholders will expect management to answer two questions, BMO Capital Markets analyst Sohrab Movahedi said in a phone interview. “Did they get the best asset available?” he said. “And did they get the best possible price for the asset?”

The deal has looked shaky for weeks. First Horizon disclosed on March 1 that regulators are unlikely to give approval by May 27, and that it was in discussions with Toronto-Dominion about extending the closing deadline beyond that date.

The next day, TD Chief Executive Officer Bharat Masrani told analysts he was standing by the deal. “This is a great transaction that offers scale and new capabilities to our U.S. franchise,” he said. Toronto-Dominion has more than 1,100 locations in the eastern US, stretching from Maine to Florida. 

But then Silicon Valley Bank and Signature Bank failed, crushing confidence in U.S. regional lenders and putting their shares under intense pressure. The KBW Regional Banking Index plunged 20 per cent in two weeks to its lowest level since December 2020. 

“Risk premiums for U.S. regional banks have increased materially,” Canadian Imperial Bank of Commerce analyst Paul Holden said in a recent note, adding that First Horizon “is seeing deposit pressure, and at a worse rate than the industry average.” 

First Horizon, which is based in Memphis, Tennessee, saw average deposits decline 5 per cent in the fourth quarter, to about US$65 billion.


“Now that U.S. regulators have their hands full with more immediate banking issues, the approval process for TD’s acquisition of First Horizon may take longer,” said Paul Gulberg, an analyst with Bloomberg Intelligence, adding that it raises the possibility of TD trying to renegotiate deal terms. 

First Horizon has far more diversified business than SVB did, and it’s much less exposed to uninsured deposits. Less than half of First Horizon’s deposits were uninsured as of the end of December, according to company filings. More than 90 per cent of SVB’s were uninsured, which made it particularly vulnerable to a bank run as the technology companies it served pulled out their money. 

First Horizon is a member of the Mid-Size Bank Coalition of America, which has asked U.S. regulators to extend FDIC insurance to all deposits for two years to stem an outflow from regional banks. 

“Doing so will immediately halt the exodus of deposits from smaller banks, stabilize the banking sector and greatly reduce chances of more bank failures,” the coalition said in a letter to Treasury Secretary Janet Yellen, the Federal Deposit Insurance Corp., the Comptroller of the Currency and the Federal Reserve.