M&T Bank Corp. may give up a majority stake to Banco Santander SA through a merger with the Spanish lender’s U.S. unit, while retaining some elements of control, according to people with knowledge of the matter.
The banks are in informal talks with the U.S. Federal Reserve to gauge how such a deal would be received, and expect to hear back within two weeks, said the people, who spoke on condition of anonymity because the talks are private. Many of the terms, including the timing of when Santander would get the majority stake, have yet to be worked out, the people said.
An agreement would allow Santander to put its Sovereign Bank unit, which had pretax losses for the past three years, under the management of M&T Chief Executive Officer Robert Wilmers, 76, and his team, the people said. Buffalo, New York- based M&T, which counts Warren Buffett’s Berkshire Hathaway Inc. among its biggest shareholders, steered through the financial crisis without posting a loss.
“M&T is, in our view, an extremely well-run bank,” said Gerard Cassidy, an analyst with RBC Capital Markets in Portland, Maine, in a telephone interview. A deal placing M&T in control of U.S. operations would be favorable to M&T’s shareholders, “because we’d expect M&T to be able to drive its efficiencies into the combined companies to make the bank very profitable.”
M&T has a market value of more than $10 billion. Together, M&T and Sovereign, which are about the same size, would become the ninth-largest U.S. savings institution by deposits.
M&T and Santander have been in intermittent merger talks for months, with Santander seeking a takeover of M&T, and M&T aiming to combine with Sovereign without submitting to the control of the Spanish bank, the people said. The proposal being floated to federal regulators represents a compromise between those two positions, one of the people said.
M&T’s shares rose 5 percent to $91 yesterday in New York Stock Exchange composite trading. The stock is up 36 percent this year.
Spokesmen for M&T and Santander declined to comment. A spokeswoman for the Fed in Washington declined to comment.
The transaction would probably be structured as a stock merger, in which Santander trades its holding of the Sovereign unit for shares in M&T, said one of the people. Santander may start with a minority holding in M&T with an option that allows it to increase ownership to more than 50 percent within a few years, the people said.
Santander, based in the Spanish city of the same name, is in talks to acquire Allied Irish Banks Plc’s 22.5 percent stake in M&T, the people said. Catherine Burke, a spokeswoman for Allied Irish, declined to comment.
Santander has been on an acquisition spree this year, agreeing to buy a portfolio of car loans from HSBC Holdings Plc for $4 billion, Allied Irish’s 70 percent stake in a Polish bank for $3.7 billion, and 318 bank branches from Royal Bank of Scotland Group Plc.
Sovereign had $72.6 billion of assets and $41.6 billion of deposits as of June 30, according to data from the Federal Deposit Insurance Corp. M&T had $67.3 billion of assets and $47.5 billion of deposits.
At Sovereign, where Santander bought a minority stake in 2005, losses and customer withdrawals forced it to seek a rescue from Santander, which bought the rest of it last year.
Wilmers negotiated protections to preserve control in at least one previous transaction. In 2002, he agreed to buy Allied Irish’s Allfirst Financial unit for stock and cash, giving the Dublin-based bank its holding and adding more than 700 branches. Under the deal, Allied Irish agreed to limit its stake to 25 percent and to add Wilmers to its board of directors.
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