On Friday, Moody's Investors Service, the ratings arm of
), downgraded its outlook on
M&T Bank Corporation
) to 'Negative' from 'Stable'. The downward revision was
propelled by the uncertainty over the closure of the pending
Hudson City Bancorp, Inc.
) by M&T Bank.
However, the firm affirmed the long-term issuer rating of A3 for
M&T Bank. Moreover, the bank's standalone bank financial
strength rating (BFSR)/baseline credit assessment (BCA) was
confirmed at C+/a2 along with the reaffirmation of long and
short-term deposit ratings at A2 and Prime-1, respectively.
Rationale Behind Downgrade
The downgrade action by the rating agency follows the delay in
the acquisition of Hudson City, announced in Aug 2012 in cash and
stock deal worth $3.7 billion - the largest deal that year. The
deal has been impeded twice - in April & December 2013.
In Apr 2013, the Federal Reserve detected loopholes in M&T
Bank's efforts to fight money laundering and halted the
acquisition. The U.S. regulatory body had pointed out several
discrepancies in M&T Bank's risk-management agenda that were
a violation of federal anti-money-laundering regulations. The Fed
also raised questions about M&T Bank's procedures, systems
and processes relating to M&T's Bank Secrecy Act and
anti-money-laundering (BSA/AML) compliance program.
The bank was successful in reaching an agreement with the Fed to
improve compliance in relation to risky activities and was
focused in this respect and making considerable progress.
However, in Dec 2013, the companies anticipated regulatory
approvals to take more time, which would consequently push back
completion of the proposed merger.
Amid fundamental pressure in the banking sector related to
profitability, Moody's believes the delayed transaction is a
distraction for management from key issues. Further, the agency
expects the delay to undermine the expected strategic benefits
for M&T Bank to augment its top line by leveraging on Hudson
City's retail network as well as product and balance sheet
Moreover, the impediment to the deal along with legacy issues
related to the acquisition of Wilmington Trust Corporation in
2011 has added to the bank's woes.
Therefore the rating agency has come up with the downgrade.
However, based on the improving asset quality, strong
profitability, less volatile earnings and a solid capital
position, Moody's has reaffirmed the abovementioned ratings.
The rating revisions are valuable for companies as this play a
major role in preserving investor confidence in the stock and
help boost its creditworthiness in the market.
Though a sound capital position, improving credit quality and
growing core deposit will bode well in the long run for M&T
Bank, we believe the sluggish economic recovery, regulatory
issues and low interest rate environment will remain near-term
Currently, M&T Bank carries a Zacks Rank #3 (Hold). A
better-ranked bank includes
The PNC Financial Services Group, Inc.
) with a Zacks Rank #2 (Buy).
HUDSON CITY BCP (HCBK): Free Stock Analysis
MOODYS CORP (MCO): Free Stock Analysis Report
M&T BANK CORP (MTB): Free Stock Analysis
PNC FINL SVC CP (PNC): Free Stock Analysis
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