The U.S. Treasury is offloading its stake in
M&T Bank Corp.
). In this context, yesterday, Treasury announced a public offering
of the preferred stock worth $381.5 million it holds in M&T
Bank. The move comes as part of its efforts to unwind its bailout
program. Public investors will now be able to hold the stock.
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The $381.5 million worth of preferred stock comprises 230,000
shares of M&T fixed rate cumulative perpetual preferred stock,
Series A, and 151,500 shares of M&T Fixed Rate Cumulative
Perpetual Preferred Stock, Series C. The joint bookrunning managers
for the offering are Merrill Lynch, Pierce, Fenner & Smith
Incorporated and Sandler O'Neill + Partners, L.P.
Back in 2008, M&T Bank participated in the Treasury's Troubled
Assets Relief Program (TARP) and took $600 million in bailout
funds. In return, preferred stocks were issued to the Treasury. In
the meantime, the acquisitions of two TARP recipients, Provident
Bankshares Corp. (acquired in 2009) and Wilmington Trust Corp.
(2011), have burdened the company with more TARP funds to pay back.
M&T Bank already paid back a part of its TARP dues ($700
million) in May 2011 and was left with the remaining $381.5 million
in the TARP preferred stock.
Compared to a number of its Wall Street counterparts, the company
is making a slow exit from the TARP as it has been quite hesitant
in raising capital through common stock offering.
The stake sale by Treasury is a strategic fit. As of now, it could
achieve a profit on the whole from bailing out the banks. Also, a
number of banks including
Synovus Financial Corp.
) are yet to repay their TARP dues.
On the other hand, an exit from TARP is considered a positive for
M&T as it would free the company from significant government
interventions, pay restrictions and allow financial flexibility.
However, the prolonged period of dividend payment has somewhat
muted investors' enthusiasm.
M&T Bank otherwise boasts a solid business model that poises
the company well for future growth. Benefits from the Wilmington
Trust acquisition are expected to augment its earnings in the years
ahead. While the sluggish economic recovery, regulatory issues and
low interest rates remain the headwinds for M&T Bank, we
believe that a sound capital position, along with a growing core
deposit, will uphold it in the long run.
The shares of M&T Bank Corp. retain a Zacks #2 Rank, which
translates into a short-term Buy rating. However, considering the
fundamentals, we have a Neutral recommendation on the stock.