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Contrite over flap with Fed, M&T chief reassures shareholders at annual meeting

M&T Bank Corp.’s highly regarded leader took full responsibility Tuesday for the bank’s lapse in complying with federal anti-money-laundering laws, while reassuring shareholders that there is no indication the bank has been used for illegal activity.

Chairman and CEO Robert G. Wilmers said executives are taking steps to correct the problem, which has delayed completion of the bank’s purchase of Hudson City Bancorp by five months.

“The delay is unfortunate. Nevertheless, I take this matter very seriously, and I take full responsibility,” Wilmers said at the bank’s annual meeting.

“I am personally committed and confident in our management’s ability to achieve a timely resolution of the matter.”

M&T agreed in August to pay $3.7 billion in stock and cash to buy Paramus, N.J.-based Hudson City, giving it a major presence in New Jersey. M&T shareholders approved the deal Tuesday. Hudson City shareholders will vote Thursday.

Friday, M&T revealed that the two banks had agreed to extend the deadline for completing the deal from August until to the end of January 2014 so M&T could address regulatory concerns that would block the merger from being approved. M&T said the Federal Reserve found problems with its “procedures, systems and processes” for complying with the Bank Secrecy Act and other laws to prevent banks from being used for money-laundering and criminal financing.

“It’s a question of having a more sophisticated system than we have today. We’ve got to go into greater depth to make sure we’re reporting everything that they want,” Wilmers said in an interview. “We have no knowledge at all that we’ve aided and abetted any money-laundering. I guess I did not realize that we should have much more of a sophisticated system than we have today, but it’ll be good for the bank to have it.”

Even before the Fed’s formal notification, M&T had already hired an outside consultant to correct the problems and will likely hire more staff members, as well, Wilmers said.

The CEO of Hudson City said he was “surprised” but not concerned about the Fed’s critique of M&T. “We haven’t ever been disappointed in the thoughts that we have of M&T. Our shareholders and directors realize how strong M&T is,” said Ronald E. Hermance Jr., who will join M&T’s board after the merger and attended M&T’s meeting Tuesday morning.

“ ‘Surprised’ is more the word that the Federal Reserve had not really brought this to their attention sooner.” And he’s not worried about the concerns among his own bank’s shareholders. “I don’t think M&T is being singled out in any way. They’re just one of many,” Hermance said.

Wilmers, who has led M&T’s growth since 1983 from a small upstate New York bank to one of the nation’s largest, normally uses his annual speech to shareholders to tackle industry or public policy issues outside of the bank itself. In the past, he has taken aim at state and local taxes, government spending and education, as well as criticizing the actions of accounting firms, debt ratings agencies, the six largest money-center banks, Fannie Mae and Freddie Mac, lawmakers, bank regulators and regulation itself.

“I have had a lot to say about a lot of things,” he remarked. “I find myself with few topics left to discuss, at least few that I know anything about.”

Instead, he detailed the bank’s philosophy and track record for using its capital, which M&T has balanced between investing in growth or returning to shareholders through dividends or stock buybacks.

“If there are not enough good opportunities for investment, it is better to return capital to shareholders, who may find better and more productive use of that capital elsewhere,” he said. “We have been careful in identifying investment opportunities and have not pursued growth for its own sake.”

Over the last 30 years, he said, the bank has retained an average of 37 cents of every dollar it earned, using it for lending, investments in operations and 23 acquisitions, while returning 63 cents to shareholders. In the last 10 years, however, the bank experienced two very different periods, he said.

From 2003 to 2007, as the economy boomed, M&T earned $3.8 billion but “could find suitable investment opportunities for only 20 percent of those earnings.” Rather than participate in the loose credit and lax pricing of the bubble, he said, M&T “had the discipline to walk away from some opportunities, which … proved to be fool’s gold.” Thus, M&T grew loans at half the pace of its regional bank peers, and acquisitions were few and small. By contrast, since 2007, M&T has retained 51 percent of that $3.8 billion as the period “has proved opportune for M&T and its shareholders and employees,” Wilmers said.

Although M&T will have more than doubled in size and added 157 branches since 2007, the radius of its entire footprint will have grown by only 27 miles, as the bank has more density in markets it already knows.

“More importantly, we are able to do so without stretching ourselves too thin, which may be the case with some distant geographic acquisitions,” Wilmers said. “It is not our goal to just grow through acquisitions, but rather to focus on our core strength.”