M&T Bank and Hudson City Merger Delayed

Zacks

M&T Bank Corporation’s (MTB) proposed acquisition of Hudson City Bancorp Inc. (HCBK) in a cash and stock deal worth $3.7 billion – the largest deal in 2012 – has being delayed further. The companies anticipate regulatory approvals to take more time, which would consequently push back completion of the proposed merger.

M&T Bank believes that the approval is not likely before the second half of 2014. Therefore, M&T Bank and Hudson City have planned to extend the deal’s closure date from Jan 31, 2014 to Dec 31, 2014, after which either of the two companies may terminate the merger agreement if it is still not complete.

Background Details

In Aug 2012, M&T Bank agreed to take over Hudson City. The acquisition was expected to expand M&T Bank’s franchise in the eastern U.S. and give it the fourth largest deposit share in New Jersey. The deal was projected to fetch M&T Bank around $25 billion in deposits and $28 billion in loans, subject to acquisition accounting adjustments.

However, in Apr 2013, the Federal Reserve detected loopholes in M&T Bank's efforts to fight money laundering and put a hold on the acquisition. The U.S. regulatory body had pointed out several discrepancies in M&T Bank’s risk-management agenda that were a violation of federal anti-money-laundering regulations. The Fed also raised questions about M&T Bank's procedures, systems and processes relating to M&T's Bank Secrecy Act and anti-money-laundering compliance program.

However, the bank was successful in reaching an agreement with the Fed to improve compliance with relation to risky activities. M&T Bank is focused in this respect and is making considerable progress.

Conclusion

Following the financial crisis, the market witnessed a rise in the number of distressed banks ready to be taken over by their stronger counterparts. M&T Bank capitalized on such opportunities. In fact, strategic acquisitions have been a part of M&T Bank’s business enhancing policy. The deal with Hudson City will expectedly provide upside to M&T Bank’s top line by leveraging the former’s retail network as well as product and balance sheet diversification.

On the other hand, with interest rates remaining at near-historic lows and stiff competition for mortgage loans due to the involvement of government sponsored enterprises, it had become increasingly difficult for Hudson City to grow its business.

M&T Bank and Hudson City plan to complete the merger at the earliest, following the sanction of regulatory bodies and shareholders as well as fulfillment of other customary criteria.

M&T Bank currently carries a Zacks Rank #3 (Hold). Some better-ranked major regional banks include Comerica Incorporated (CMA) and Fifth Third Bancorp (FITB), both of which have a Zacks Rank #2 (Buy).

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