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By Niket Nishant and Nivedita Balu
May 4 (Reuters) - Canada's Toronto-Dominion Bank Group called off its $13.4 billion acquisition of First Horizon Corp on Thursday, triggering a drop of around 40% in the U.S. regional bank's shares in premarket trading.
First Horizon and TD said in a statement they had mutually decided to end the deal because there was no clarity on when they would get regulatory approvals. TD will pay $200 million to First Horizon, in addition to a $25 million fee reimbursement.
TD's biggest deal to date, which it launched more than a year ago, had faced months of regulatory uncertainty and Canada's No. 2 lender came under pressure from some investors to scrap the purchase after the U.S. regional banking crisis.
A First Horizon spokesperson for the U.S. bank said the termination was solely related to TD, which was unable to get approvals, and had nothing to do with ongoing banking turmoil.
TD declined to comment beyond the press release.
"We are surprised that the parties could not come to an agreed upon lower price and believe that there could be broader repercussions from walking away from the deal," Barclays analyst John Aiken said.
"This could affect the willingness of potential partners to sit across the table from TD in the future," Aiken added.
TD agreed to buy First Horizon in February last year to expand its presence in the United States. The Canadian lender also has a stake in Charles Schwab making it one of the most exposed to U.S. markets.
The collapse of the deal further spooked already shaky sentiment towards U.S. regional banks. Three have collapsed since February after a deposit flight spiraled out of control.
The latest was First Republic Bank, which was taken over by regulators who then sold its assets to JPMorgan Chase & Co earlier this week.
Average deposits at First Horizon fell 4% to $62.2 billion in the first quarter, compared to the end of last year.
TD, which acquired New York-based boutique investment bank Cowen Inc for $1.3 billion this year, was also in the running for BNP Paribas' U.S. unit, Bank of the West, but later lost that bid to peer Bank of Montreal.
ORTEX said on Thursday that TD was still the world's most shorted banking stock, confirming its position early last month.
(Reporting by Niket Nishant in Bengaluru; Editing by Savio D'Souza, Nivedita Bhattacharjee, Anil D'Silva and Alexander Smith)