Ferguson Brings $2.5 Billion to Financial Supermarket Bank Aisle

  • CEO wants customers who are first seeking financial services
  • TIAA adds more than $27 billion in assets with takeover

Roger Ferguson’s deal to buy EverBank Financial Corp. shows an eagerness to expand TIAA, the company known for offering retirement products to teachers, while he counters for-profit insurance rivals that retreated from heavily regulated deposit-taking operations.

TIAA will pay $2.5 billion in cash for the largest Florida-based lender, adding a platform for providing personal and business loans, Ferguson said Monday. The push differs from the approach of MetLife Inc., Allstate Corp., Ameriprise Financial Inc. and Principal Financial Group Inc., insurers and asset managers that scaled back from banking amid greater U.S. scrutiny tied partly to the 2010 Dodd-Frank Act.

The EverBank deal follows the purchase this year of wealth-management technology firm MyVest and the 2014 agreement to buy Nuveen Investments for more than $6 billion to expand in mutual funds. The strategy for TIAA, which boasts a AA+ score at S&P Global Ratings and has no publicly traded stock, is to pursue deals when they help expand offerings to customers or attract clients, Ferguson said in an interview.

‘Lifetime Journey’

“We’re very interested in providing lifetime financial security, and we see those products as being an important part of that,” Ferguson said of savings and lending. “For many individuals, particularly those who are just starting out in the workplace, banking is the first financial experience that they may have on this lifetime journey, leading up to, and through, retirement.”

For a story on expansion by insurers without publicly traded stock, click here.

Ferguson, a former Federal Reserve vice chairman, has shown a willingness to break with industry groups on regulation. The executive said in June that he doesn’t support litigation to challenge increased federal oversight of retirement products such as annuities. His familiarity with government watchdogs could be an asset, said David Havens, a debt analyst at Imperial Capital.

“He presumably knows his way around the banking aisle of the financial supermarket,” Havens wrote in a note, praising TIAA’s financial strength. Still, the analyst questioned whether an alliance with a bank might make more sense than a takeover.

Limited Options

Rob Haines of CreditSights Inc. said this could be the right time for Ferguson to diversify, given that low interest rates are pressuring insurers, which hold most of their investments in bonds. TIAA had $889 billion under management as of June 30.

“Insurers in general, they don’t exactly have that many options, or at least compelling options, of what to invest in right now,” Haines said. “Investing in more fixed-income products isn’t necessarily going to be the best use of your capital right now.”

MetLife and Prudential Financial Inc., the two largest publicly traded U.S. life insurers, both reported declines in second-quarter profit last week. State Farm Mutual Automobile Insurance Co. and Nationwide Mutual Insurance Co., neither of which are publicly traded, are among insurers that retained banking operations.

For a story on insurers becoming financial supermarkets, click here.

Ferguson, 64, became chief executive officer of TIAA-CREF in 2008, after leaving a post at reinsurer Swiss Re AG. Google parent Alphabet Inc. named Ferguson to its board in June.

He was previously Federal Reserve vice chairman, and made his name by taking control of the central bank during the Sept. 11 terrorist attacks in 2001. He was the lone board member in Washington when hijacked jets struck the World Trade Center and Pentagon.

Real Estate, Timber

This year, Ferguson rebranded his firm as TIAA and promoted Kathie Andrade to CEO of retail financial services as part of a push to add individual customers at a company that also serves institutional clients, helping them invest in assets from real estate to timber. In June, Andrade announced the purchase of MyVest.

TIAA has about $4 billion of assets at its banking operation and will add more than $27 billion with the EverBank deal. The combined bank will be run from Jacksonville, Florida, the city where EverBank is based.

The buyer had been looking for at least 18 months to add a lender, Andrade said in an interview. Small and mid-size banks have been facing increasing pressure to sell or merge with rivals. F.N.B. Corp. agreed July 21 to buy Yadkin Financial Corp. for about $1.4 billion, while Canadian Imperial Bank of Commerce said in June that it planned to buy Chicago-based PrivateBancorp Inc. for $3.8 billion.

Compliance Costs

Bigger firms may be better able to handle compliance costs associated with increased regulatory scrutiny brought by the financial crisis. And Ferguson should be especially comfortable in that role, said Karen Shaw Petrou, managing partner of research firm Federal Financial Analytics.

“He understands what it means when examiners come in to talk to the board,” she said in a telephone interview. “He is not prone to fear of the Fed.”

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