Republic Bank said in a regulatory filing that it sued Green Dot Tuesday, alleging breach of contract by the prepaid card company over its backing out of a $165 million deal to buy Republic’s tax refund processing unit.
Louisville, Kentucky-based Republic sued "because Green Dot failed to disclose the existence of any regulatory issues that would cause a delay in closing," the bank said in its Tuesday filing with the Securities and Exchange Commission.
Pasadena, California-based Green Dot, which added a digital bank in January a decade after becoming a bank holding company, has been unable to get the Federal Reserve’s "approval of or non-objection" to the transaction, and therefore, it "will not be consummated," Green Dot said Monday in a separate regulatory filing.
Republic: Green Dot failed to disclose issues
Republic said Green Dot disclosed in August that it had delayed the closing of the May purchase agreement after its primary regulator requested information relating to the transaction. It said that Green Dot subsequently decided to seek approval from the regulator, or at least an indication of "non-objection," before closing.
In its lawsuit filed in the Delaware Court of Chancery, Republic cited Green Dot's prior "representation that receipt of its primary regulator’s approval or non-objection is not a contractual condition to closing," according to Republic's Tuesday SEC filing.
As part of the suit, Republic aims to force Green Dot to proceed with the deal "as the parties had agreed to in the Purchase Agreement," according to the bank’s filing.
Green Dot CEO Dan Henry said during the company’s Aug. 3 earnings call that the Justice Department had approved the acquisition and that Republic and Green Dot aimed to close the deal in the third quarter.
"We appreciate the support of our regulators in this process and we'll keep you updated on the transaction as we are working hard to close as quickly as possible," Henry said, according to the trade publication American Banker.
The Fed declined to comment to the American Banker on Tuesday. But Green Dot did.
"We’re unable to provide details of our correspondence with our regulators, but Green Dot’s inability to receive approval should not be viewed as reflecting negatively on Republic’s Tax Refund Solutions business in any way, nor does it affect our ability to continue providing high quality services to our (tax products group) clients," the company said in a statement to that trade publication. "While we are disappointed to receive this news, this does not change our strategy to invest in our tax processing platform business to allow for long-term, sustainable growth."
First Citizens-CIT deal
At least one other major banking transaction — First Citizens Bank’s $2.2 billion merger with CIT Group — has been delayed for lack of the Fed’s sign-off.
"Action by the Federal Reserve Board is the remaining regulatory approval required to complete the merger, and both parties are committed to continuing to seek such approval," First Citizens and CIT said last week, noting that the Federal Deposit Insurance Corp. (FDIC) and the Office of the North Carolina Commissioner of Banks had each approved the deal.
That transaction was expected to be complete by Oct. 15, but the timeline has been pushed to March 1, 2022. If the deal is not completed by March 1, either bank has the right to back out.
Christopher Marinac, director of research at Janney Montgomery Scott, told American Banker the delay may have more to do with staffing at regulatory agencies rather than any outstanding reservations about the deal.
"I’m not aware of an instance in which the FDIC approved a merger and then the Fed had not," he said. "Now anything is possible, and there is always a first time for everything."