M&T Bank Corp. has long wanted to make greater inroads in New Jersey.
Now the Buffalo-based bank finally has the chance. Federal regulators on Wednesday approved M&T’s acquisition of New Jersey-based Hudson City Bancorp, more than three years after the two banks announced plans to merge.
M&T has continued to build its presence in New Jersey while waiting on the Hudson City deal. But the merger, set to be completed on or about Nov. 1, will greatly deepen M&T’s connection there. Of Hudson City’s 135 branches, 97 are in New Jersey. M&T also is poised to pick up $16.5 billion in deposits, the fifth-highest total in New Jersey.
“We’re gratified that the Federal Reserve chose to approve our application and we’re excited about the work we can do in New Jersey,” said Mark J. Czarnecki, M&T’s president and chief operating officer.
The exact value of the cash and stock deal for Hudson City won’t be known until the deal closes, but it is currently estimated between $5 billion and $5.5 billion, said Rene Jones, M&T’s vice chairman and chief financial officer.
M&T has a track record of acquiring thrifts like Hudson City and building them into full commercial banks, Czarnecki said. “We’re very excited about the opportunity to do that in New Jersey. We think it’s a great market, and Hudson City has a really strong franchise that we can build on.”
M&T already has about 140 employees at seven offices in New Jersey, working in areas such as commercial banking, residential mortgages, investments, insurance and wealth management, Czarnecki said. “So we’re just going to add to that and build out the entire bank. We got a really good start.”
When the deal closes, M&T’s total assets will rise to $132.5 billion and its total deposits will climb to $90.8 billion. The Federal Reserve said M&T will rank No. 25 among depository financial institutions in the United States, moving up from its current No. 31 spot.
For M&T, the Hudson City deal was transformational in an unexpected way. Federal regulators discovered shortcomings in M&T’s anti-money laundering and Bank Secrecy Act programs, which put the deal on hold and prompted M&T to spend tens of millions of dollars and hire hundreds of employees to bring its compliance systems up to regulators’ expectations.
In its order approving the deal, the Federal Reserve recounted how its examiners found at M&T “a lack of robust and comprehensive systems for collecting, processing and updating information needed to make money-laundering risk determinations for every customer and account.” Examiners also found weaknesses in M&T’s consumer compliance risk assessment, compliant management and compliance monitoring and testing. Under a written agreement with the Federal Reserve, M&T made “significant changes” to its anti-money laundering and Bank Secrecy Act programs, and upgraded its consumer compliance program, the Federal Reserve said.
“I think if you’re going to be an acquirer, you have industry-leading practices in risk management and” Bank Secrecy Act/anti-money laundering, “and that’s the industry,” Czarnecki said. “We’ve invested very heavily to meet that standard.”
Opening deal pipeline
As the deal dragged on – marked by four deadline extensions – financial industry observers wondered if the prolonged process was deterring other banks from trying to make deals of their own. Recently, the pace of mergers began picking up again, and many analysts believed M&T’s deal would at last get the green light.
“This is just the beginning,” said Dick Bove, an analyst at Rafferty Capital Markets. “Midsize bank acquisitions are going to increase meaningfully starting in 2016.”
Some things have changed since M&T and Hudson City announced their deal in 2012.
Hudson City’s CEO, Ronald Hermance Jr., died in September 2014. The Batavia native had helped bring the deal to the pending stage.
The value of the cash-and-stock deal itself was $3.7 billion when it was announced. The value has risen along with M&T’s share price, based on the deal’s formula for compensating Hudson City shareholders.
M&T’s stock price closed at $121.95 per share on Wednesday, compared to nearly $87 per share when the deal was announced. Hudson City’s share price climbed from $7.19 when the deal was announced to $10.16 on Wednesday. But Hudson City’s annual net income has declined, to $158 million in 2014 from $185 million in 2013.
Czarnecki said M&T remains as confident as ever about the value of acquiring Hudson City: “When you look at the totality of the numbers and you understand the entire deal, we think it’s as attractive as when we announced it.”
“We have reached this milestone thanks to the extremely hard working employees at M&T, and I am gratified by their commitment to strengthening and sustaining our risk and regulatory compliance programs as we position M&T for future growth,” said Robert G. Wilmers, M&T’s chairman and CEO, in a statement. “We also thank the employees of Hudson City and the shareholders of both organizations for their patience as we have been doing this work.”
M&T plans to convert Hudson City Savings Bank branches to M&T in the first quarter of next year.
Czarnecki said the bank has not yet determined the impact of the deal on Hudson City’s work force of about 1,500 people. “The actual work of integrating the banks is something that we’ll now turn our attention to and we’ll get focused on,” he said.
Until now, he said, M&T has concentrated on “setting the right regulatory structure” to prepare for the deal. Czarnecki estimated M&T has added about 1,000 jobs over the last two years in Western New York to strengthen its compliance systems. “We’ve been one of the major factors in private sector job growth in Buffalo.”
Czarnecki said he does not expect Hudson City’s branch total of 135 to change much through its conversion to M&T. “I think you’ll see us have a really robust branch presence there.” Along with its 97 New Jersey branches, Hudson City has 29 locations in downstate New York and nine locations in Connecticut.
Denis J. Salamone, Hudson City chairman and CEO, will join M&T’s board of directors. All current members of Hudson City’s board will be named to a “regional advisory board” that will advise M&T on activities in Hudson City’s former market area, the Federal Reserve said.
Czarnecki said the Hudson City deal provides M&T with a solid growth platform.
“The regional banking business is very competitive,” he said. “I think it’s a good statement for M&T that we’re able to get this done, that we’re able to get a fast-growing market to add to our other fast-growing markets to grow the bank.”
Bloomberg contributed to this report.