(The following statement was released by the rating agency)
Aug 28 – Standard & Poor’s Ratings Services today said its ratings on M&T;
Bank Corp. (A-/Stable/A-2) are unaffected by the bank’s agreement to
purchase Hudson City Bancorp (unrated) for approximately $3.7 billion. The bank
expects the acquisition to close by April 1, 2013, pending regulatory approval.
In our view, the positive aspects of the acquisition, including sustained
higher risk-adjusted capital (RAC) ratios, more than offset execution risk.
The acquisition will broaden M&T;’s retail footprint in the New York City
metropolitan area (NYC). Hudson City’s 135 branches are located primarily in
New Jersey, an affluent market where M&T; has not had a retail presence. This
will link M&T;’s Northeastern and Mid-Atlantic retail franchises, which stretch
from Upstate New York to the Washington, DC metropolitan area. It will also
provide an attractive vehicle for M&T; to fund its NYC market commercial loans.
We expect the acquisition to boost M&T;’s capital over our forecast period
(18-24 months), which would raise the bank’s RAC ratio, based on our
framework, to the mid-7% area. (Based on our criteria, we consider a RAC ratio
of 7%-10% to be “adequate.”) However, we note that M&T;’s projected RAC ratio
remains toward the low end of our “adequate” category, and we recognize that
capital ratios have historically been lower than those of regional bank peers.
Still, we expect that M&T; will continue to build its capital ratios to meet
expected Basel III requirements, further solidifying its capital position.
Our current rating and outlook on M&T; partly depend on the bank’s ability to
successfully execute the merger as planned. This will be M&T;’s largest
acquisition to date, with the bank’s total assets expected to increase by
about one-third following its planned restructuring of Hudson City’s balance
sheet. This restructuring involves monetizing Hudson City’s $13 billion
investment portfolio and unwinding a similar amount of high-cost wholesale
funding. In our view, this could entail some market risk, even though Hudson
City’s investment portfolio is not complex and is readily marketable. We
expect M&T; to complete the restructuring within three months of closing. We
also believe the acquisition will reduce M&T;’s asset-sensitive interest rate
risk posture somewhat by materially increasing the proportion of longer-term
fixed rate assets on its balance sheet. Nonetheless, we expect that M&T; will
retain an asset-sensitive balance sheet at closing and that the average life
of M&T;’s loan book should decline if Hudson City’s mortgage portfolio runs off
as forecasted.
In addition, over the longer term, we recognize the challenges inherent in
converting Hudson City’s thrift banking model to commercial banking. In
particular, Hudson City’s core deposits consist of relatively high-cost retail
certificates of deposit, which we consider a more volatile source of funding
than traditional non-time retail deposits. Over time, M&T; will have to execute
its retail strategy in Hudson City’s highly competitive markets to attract
non-time deposits, which are expected to fund the increase in commercial loans
in the NYC region.
