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M&T Bank (MTB) & PBCT Merger Receives Green Light From Fed

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More than a year after the deal was announced, M&T Bank Corporation (MTB - Free Report) announced receiving regulatory approval from the board of governors of the Federal Reserve System to close the previously announced acquisition of People's United Financial, Inc. . In mid-February, the companies extended their merger agreement deadline to Jun 1, 2022, from the initial timeline of Feb 21, 2022, as the Federal Reserve nod was pending.

Notably, in late October 2021, MTB announced that it would roll out a five-year reinvestment plan to provide $43 billion of loan investments and other financial support to low and moderate-income communities. The Community Growth Plan has been developed in conjunction with the MTB-PBCT pending acquisition and will be operational shortly after the deal closing.

MTB joined numerous other peers to reduce non-sufficient fees and overdraft fees. The company will eliminate non-sufficient funds, reduce overdraft fees from $35 to $15, and limit daily fee assessment to once per day (down from 5 times previously). The changes are scheduled to be effective in second-quarter 2022.

While there was no such mandate requirement for MTB’s merger approval, the $43-billion commitment and the reduction of overdraft fees have likely been looked upon favorably by regulators.

With the recent green flag, no further regulatory approvals are required. In October 2021, the merger received approvals from bank regulators of New York and Connecticut — New York State Department of Financial Services and the Connecticut Department of Banking — wherein M&T Bank and People’s United are headquartered. In May 2021, the companies received shareholders’ nods for the all-stock acquisition deal.

The $7.6-billion deal is anticipated to expand M&T Bank’s presence in the Northeast and complement top-tier deposit share in core markets. When the deal was announced last year, MTB expected the combined company to have $200 billion in assets and a network of more than 1,100 branches and 2,000 Automated Teller Machines spread across 12 states from Maine to Virginia and the District of Columbia.

The deal was expected to be instantly accretive to its tangible book value per share and result in M&T Bank’s earnings accretion of 10-12% in 2023, suggesting estimated annual cost synergies of $330 million, 85% of which was expected to be achieved in 2022. Given the delay in deal closing, we expect cost synergy realizations to be pushed forward as well.

The merger will create a diversified, community-focused banking franchise in the Northeast and Mid-Atlantic regions. A complementary top-tier deposit share in core markets is another positive factor. Moreover, footprint spread across an economically diverse region, which accounts for more than 20% of the U.S. population and more than 25% of U.S. GDP, is expected to bode well for the combined company’s long-term growth prospects.

The product and balance-sheet diversification, stemming from such buyouts, will likely support the company’s financials.

Over the past six months, shares of MTB have gained 28.4% against a 4% decline of the industry it belongs to.

 

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M&T Bank currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 (Strong Buy) Rank stocks here.

Inorganic Growth Efforts by Other Firms

While escalating political and regulatory scrutiny of large bank mergers and acquisitions might result in higher execution risk for future deals, it is not discouraging banks from consolidation activities.

Last week, First Horizon Corporation (FHN - Free Report) and TD Bank Group (TD - Free Report) signed a definitive agreement for TD to acquire FHN in an all-cash deal valued at $13.4 billion or $25 for each FHN common share.

TD anticipates the FHN acquisition to close by Nov 1, 2022. The acquisition is subject to customary closing conditions, including approvals from First Horizon's shareholders, and U.S. and Canada regulatory authorities.


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