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M&T set to repay most of TARP aid; To cover $700 million of $1.08 billion total

M&T Bank Corp. plans to repay about two-thirds of the money it owes the federal government from the Troubled Asset Relief Program by the end of June.

M&T intends to repay $700 million of the federal money it received under the TARP program, leaving it with $381.5 million still outstanding once the repayment program is completed and the bank completes its acquisition of Wilmington Trust Co.

"We'll return the remainder in due course," said Rene F. Jones, M&T's executive vice president and chief financial officer. "It shouldn't be too long."

The Buffalo-based banking company's repayment plan covers a portion of the $600 million in TARP funds that M&T originally received, as well as TARP funding that it inherited through its acquisition of Provident Bankshares Corp. and its pending deal to buy Wilmington Trust.

The Federal Reserve's Board of Governors on Tuesday approved M&T's $351 million deal to buy Delaware-based Wilmington Trust. That acquisition still needs the approval of banking regulators in Delaware and New York.

Around the time the Wilmington Trust merger closes, M&T intends to repay the $330 million in TARP funding that the Delaware bank received. By the end of June, it also plans to repay another $370 million of the $751 million in total TARP funds that were issued to M&T and Provident, Jones said Wednesday. M&T acquired Provident in 2009 for $410 million.

M&T also said it will issue $500 million in new preferred stock by the end of June to supplement its capital levels and replace some of the funds used to repay the bank's TARP obligations.

By issuing preferred stock, M&T will be able to partially fund its TARP repayment without any diluting, to shareholders, of its common stock.

The partial repayment moves M&T closer to removing a "major uncertainty" hovering over the bank, said Joseph Fenech, an analyst at Sandler O'Neill & Partners, in a research note.

He said M&T is "well-positioned to stand alone as the only large bank to have remained profitable through the downturn, maintained its dividend and avoided a common equity raise" to repay its TARP obligations.

The TARP program was launched in fall 2008 to shore up U.S. banks at a time when the nation's financial system was mired in a major crisis following the collapse and bankruptcy of Lehman Brothers and the failing finances of other major financial institutions.

M&T, which remained in solid financial shape, was one of the last major U.S. banks to join the TARP program, agreeing to participate partly because bank officials feared that not being part of the program would be interpreted as a sign of financial weakness. M&T also took the minimum amount of TARP funding allowed under the program's rules.

M&T was one of three local banks to receive TARP funding and is the last one to unveil a plan to repay its obligation.

First Niagara Financial Group in May 2009 repaid the $184 million it received in TARP funding, followed by its related warrant a month later for $2.7 million.

Financial Institutions, the Warsaw-based parent company of Five Star Bank, received $37.5 million through the TARP program. Financial Institutions in February repaid $12.5 million. It paid back the rest in late March after raising $43 million through a stock offering.