On August 28, rating agencies - Fitch Ratings and Standard &
Poor's (S&P) - affirmed their ratings on
M&T Bank Corporation
). Fitch affirmed the long-term and short-term Issuer Default
Ratings (IDRs) of M&T Bank at 'A-' and 'F1,'
respectively. In addition to this, the rating outlook has
been maintained at 'Stable.' Further, S&P has affirmed its
rating of A-/Stable/A-2 on the company.
) has placed M&T Bank on watch for a possible downgrade,
following the announcement of the acquisition deal. Moody's is of
the idea that the deal will expose the company to a sizeable amount
of residential mortgages present on the balance sheet.
Moody's is currently reviewing the mortgage portfolio for possible
losses against the M&T Bank's estimated credit mark of 1.5% and
its general capital position.
Recently, M&T Bank announced a deal to purchase the New
Hudson City Bancorp, Inc.
). According to Fitch and S&P, this deal is highly advantageous
to both banks. The acquisition will be accretive to M&T Bank's
earnings in 2013.
Moreover, this would encourage M&T Bank's Tier 1 common
capital ratio to enhance by 30-40 basis points. With this deal, the
company would also be able to expand its footprint in the New
The stable outlook bears testimony to M&T Bank's robust
financial and credit performance amidst gloomy economic backdrop.
Further, the company's strong varied revenue streams, highly
capable management and goodwill have helped the rating agency
retain this outlook.
However, lower capital levels compared to its peers, huge amount of
trust preferred securities in its capital, considerable presence of
deferred tax assets as well as downbeat results from its Bay View
Investment and its private label - MBS, would likely be the
We agree with Fitch and S&P's view that the acquisition will
assist M&T Bank to attain the required minimum Tier 1 Common
ratio, stemming from the implementation of the Basel III rules.
Further, it will enable the company to build its capital position
stronger like that of its peers. However, concerns raised by
Moody's are also food for thought.
If the company possibly goes aggressive on its capital management
strategy or opts for another acquisition, which could pressurize
the present capital position, even Fitch and S&P possibly may
downgrade the ratings.
M&T Bank currently retains a Zacks #2 Rank, which translates
into a short-term Buy rating. Considering the fundamentals, we also
maintain a long-term Neutral recommendation on the shares.
HUDSON CITY BCP (HCBK): Free Stock Analysis
MOODYS CORP (MCO): Free Stock Analysis Report
M&T BANK CORP (MTB): Free Stock Analysis
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