Hudson City Expects Loss From Plan to Cut Interest-Rate Risk

Jan 29, 2014 10:10 am ET

(Updates with M&T comments, Hudson City fourth-quarter earnings starting in fifth paragraph.)

Jan. 29 (Bloomberg) -- Hudson City Bancorp Inc., the target of the biggest pending bank takeover in the U.S., said it’s planning to reduce interest-rate risks and that the effort will produce an unspecified loss.

Managers led by Chief Executive Officer Ron Hermance are considering “whether to restructure all or various portions of our borrowed funds and various alternatives for replacement funding,” the Paramus, New Jersey-based firm said today. The plan was disclosed in the company’s earnings statement, which said fourth-quarter profit dropped 4.4 percent.

The exact timing hasn’t been decided and any transaction isn’t expected before the second half, Hudson City said. While the effort will result in a loss and a decline in stockholder equity, the bank expects better net interest margins and earnings prospects.

Hudson City agreed in August 2012 to be bought by Buffalo, New York-based M&T Bank Corp. The deal stalled after the Federal Reserve told M&T to bolster money-laundering controls, causing the banks to push back their deadline to the end of this year. Regulators haven’t given any assurance they’ll approve the takeover, so Hudson City has said it will proceed with its own strategic plan.

“All we know is that the two management teams are really committed to producing a strong bank in New Jersey,” Rene Jones, chief financial officer of M&T said on a Jan. 17 earnings conference call. “We’re economic animals. We reviewed all the economics of the deal and I’m absolutely positive that Hudson City did the same. And it just makes sense.”

Profit Falls

Fourth-quarter net income at Hudson City fell to $45.8 million, or 9 cents a diluted share, as loan production declined, net interest margins narrowed and deposits slid 8.6 percent from a year earlier. Annual profit dropped 26 percent to $185.2 million, or 37 cents a share. The bank didn’t say how big the projected loss would be or which quarter would be affected.

“Market interest rates still remain too low to compel us to pursue any balance-sheet growth in the near-term,” Hermance said in the statement.

Hudson City plans to expand business lines including secondary mortgages, commercial real estate lending and consumer banking independently of M&T. Those programs will start this year, the company said.

Shares of Hudson City rose 6 cents to $9.10 at 10:04 a.m. in New York. The stock is down 3.6 percent this year. M&T, the worst performer in the 24-company KBW Bank Index last year, rose 0.5 percent to $111.79. M&T’s biggest holders include billionaire Warren Buffett’s Berkshire Hathaway Inc.

M&T said earlier this month that fourth-quarter profit fell 17 percent. Expenses climbed 12 percent, with the bank citing merger-related regulatory costs such as upgrading its technology and hiring more people.

--Editors: Rick Green, Dan Kraut