Mechanics Bank to buy Rabobank US retail unit for US$2.1b

[NEW YORK] Mechanics Bank agreed to buy much of Dutch lender Rabobank Group's US operations for about US$2.1 billion, bringing together two California lenders and extending the combined company's reach throughout much of the state.

Mechanics, based in Walnut Creek, California, is gaining Rabobank's US retail, business-banking, commercial real estate, mortgage and wealth-management businesses, the companies said in a statement Friday. The unit, Rabobank NA, has more than US$13 billion in assets and 100 branches, while Mechanics has more than US$6 billion and 44 branches throughout the state.

"This is quite unique in that there's very little overlap in our branches," Mechanics chief executive officer John DeCero said in a phone interview. "There are only two cities where we share branches, Napa and Westlake Village, and those aren't geographically close together. So this is very complementary."

The deal's the latest in what may be the beginning of a round of US bank consolidation as lenders seek greater scale. Consolidation would allow divestment by foreign lenders wanting to exit the US market, as well as purchases by banks looking to grow. In February, BB&T Corp agreed to buy SunTrust Banks Inc for US$28 billion in the world's largest bank merger in more than a decade.

The Rabobank deal will give more outposts across California to Mechanics, whose branches are concentrated in the East Bay region of Northern California. Rabobank's branches are spread from Sacramento south to the Mexican border.

PRIVATE EQUITY

Mechanics is controlled by Dallas-based private equity firm Ford Financial Fund, which owns 79 per cent of the bank's shares through its Ford Financial Fund II. Rabobank Group will receive 9.9 per cent of the outstanding Mechanics shares. The deal, approved by the boards of both banks, is expected to close in the third quarter.

"This is a transformational opportunity for us," Carl Webb, co-managing partner at Ford Financial Fund and chairman of Mechanics Bank, said in an interview. "I don't say we're out of the acquisition business, but this certainly gives us plenty to work on right now. We're going to be busy."

Not included in the transaction are Rabobank NA's food and agribusiness assets, which will largely be transferred to an affiliate, St Louis-based Rabo AgriFinance.

Rabobank was weighing selling the operations in a deal that could fetch more than US$1 billion, Reuters reported in November. It also sought to sell its roughly 100 US branches to another California bank in 2017, people with knowledge of the situation have said, but the deal fell apart.

GUILTY PLEA

The company's retail-banking unit was recently prosecuted by the Justice Department, which accused the bank of hiding evidence about the flow of Mexican drug-cartel money through its branches near the border. Rabobank NA pleaded guilty in February 2018 to a felony conspiracy charge and agreed to pay US$369 million in penalties.

As part of its plea, Rabobank admitted that top executives in California took steps to block employees and regulators from exposing the bank's misconduct, which allowed hundreds of millions of dollars of untraceable cash to move through the bank.

Selling the non-food and agriculture business outside the Netherlands is part of Rabobank Group's longer-term strategy, and making a deal for the California unit could be completed only after the settlement, spokeswoman Margo van Wijgerden said in a phone interview.

Lazard Ltd served as financial adviser to Rabobank NA, and Credit Suisse Group AG advised Mechanics.

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