(Updates with Sandler O’Neill’s estimate cut and comment in the 10th paragraph.)
Dec. 17 (Bloomberg) -- M&T Bank Corp.’s year-long courtship of Hudson City Bancorp Inc. got even longer after the two lenders extended their Jan. 31 merger deadline for another 11 months to placate regulators.
The delay, disclosed today in a statement, is the second extension by Buffalo, New York-based M&T of its bid for Paramus, New Jersey-based Hudson City. The takeover announced in August 2012 and originally valued at $3.7 billion has been stalled by Federal Reserve queries about M&T’s money-laundering controls.
The merger will “probably go down in history as one of the longest deals from start to finish,” according to Bob Ramsey, an analyst at FBR Capital Markets Corp., who said a typical acquisition of this size is completed in less than a year.
The extension through Dec. 31, 2014, raises doubt about whether the biggest pending merger of two U.S. banks will be completed, said Ramsey and BMO Capital Markets Corp.’s Peter Winter. The outcome has been watched by investors because bankers have said they’re reluctant to pursue takeovers in light of M&T’s experience. The two analysts still predict this deal will get done and the companies affirmed their commitment today.
Both companies were left behind by this year’s 30 percent rally in the 24-company KBW Bank Index. M&T fell 1.2 percent to $113.73 in New York trading, leaving the shares up 15.5 percent in 2013. Hudson City slid 0.8 percent to $9.16, bringing this year’s gain to 13 percent.
M&T and Hudson City need more time to win regulatory approval and the Fed isn’t expected to act before the second half of next year, according to the statement.
The original deadline of Aug. 27, 2013 was revised in April after the Fed found potential flaws at M&T. The company then reached a deal to improve compliance with the Bank Secrecy Act and anti-money-laundering programs, according to M&T.
“While all parties are disappointed that the transaction is delayed further, we are gratified that M&T continues to see the value in the Hudson City franchise,” Ronald Hermance, 66, Hudson City’s chief executive officer, said in the statement.
M&T received no assurance that the Fed will approve, so the banks agreed that Hudson City could proceed with its own strategic plan for 2014, according to the statement. The plan includes expansion of secondary mortgage-market operations and commercial real estate lending, the companies said.
M&T is led by CEO Robert Wilmers, 79, and counts Warren Buffett’s Berkshire Hathaway Inc. among its largest shareholders. The purchase of Hudson City is part of M&T’s efforts to expand in New Jersey and analysts at Sandler O’Neill & Partners LP led by Joseph Fenech had been counting on the acquisition to help 2014 earnings. They called the delay disappointing, reduced their full-year 2014 earnings estimate by 30 cents to $7.95 and said they may cut it again.
The Fed’s role has made bankers balk at bidding on other lenders, especially at firms with assets of more than $50 billion, according to the analysts, and the added delay probably will “cast a further chill over the M&A landscape for large banks,” Fenech said in his report.
“That does make you think twice about taking on the deal risk,” said Brian Klock, an analyst at Keefe, Bruyette & Woods Inc.
Executives at larger banks who have expressed concern about the M&T deal include John Kanas, the CEO of BankUnited Inc. whose career was built in part through takeovers.
The Fed “poured cold water on that, put it off for God knows how long,” Kanas told analysts in April. “You’ve got to be careful and you should be aware that regulators are very much involved in the process of consolidation in this industry, and in some cases are using that to further tighten the regulatory grip.”
--Editors: Rick Green, Steven Crabill