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M&T Bank Corporation’s (MTB - Analyst Report) proposed acquisition of Hudson City Bancorp Inc. (HCBK - Analyst Report) for $3.7 billion cash and stock – the largest deal in 2012 – has finally overcome all regulation hurdles. The Federal Reserve had detected several loopholes in M&T Bank Corp.'s efforts to fight money laundering in April and put a hold on the acquisition. However, the bank was recently successful in reaching an agreement with the Fed to improve compliance with relation to risky activities.

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 internal controls, review of probable high-risk customers, and supervision of foreign correspondent accounts under its Wilmington Trust unit.

Moreover, the regulatory authorities have asked M&T Bank to submit a new compliance program within 60 days to improve the supervision of doubtful activities. Additionally, the company also is required to hire an independent consultant to evaluate all accounts and transactions associated with high-risk clients in the second half of 2012.

In Aug 2012, M&T Bank agreed to take over Hudson City, which would lead to an expansion of its franchise in the eastern U.S. and give it the fourth largest deposit share in New Jersey. The deal was projected to add around $25 billion in deposits and $28 billion in loans to M&T, subject to acquisition accounting adjustments.

Following the financial crisis, the market witnessed a rise in the number of distressed banks ready to be taken over by their stronger counterparts. M&T Bank capitalized on many such opportunities. In fact, strategic acquisitions have been a part of M&T Bank’s business enhancing policy. The deal will provide many opportunities for M&T to boost its top line by leveraging Hudson City’s retail network as well as product and balance sheet diversification.

On the other hand, with the interest rates remaining at near-historic lows and stiff competition for mortgage loans due to the involvement of government sponsored enterprises, it had become increasingly difficult for Hudson City to grow its business.

M&T Bank’s recent agreement with the Fed related to the risk management measures shows the bank’s steady progress in completing the strategic merger, which would be beneficial to both parties.

M&T Bank currently carries a Zacks Rank #2 (Buy). Other major banks worth a look include JPMorgan Chase & Co. (JPM - Analyst Report) and The PNC Financial Services Group, Inc. (PNC - Analyst Report), both of which carry the same Zacks rank as M&T Bank.

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