M&T Bank Corp. said a Federal Reserve review of its compliance with anti-money-laundering rules has delayed its planned purchase of Hudson City Bancorp. Both lenders declined in New York trading.
M&T hired an outside consulting firm as part of its effort to respond to the Fed, the Buffalo, New York-based bank said today in a statement with Hudson City.
“In view of the potential timeframe required to implement this initiative, demonstrate its efficacy to the satisfaction of the Federal Reserve and otherwise meet any other regulatory requirements that may be imposed in connection with these matters, M&T and Hudson City believe that the timeframe for closing the transaction will be extended substantially,” the companies said in a statement.
The banks postponed until Jan. 31 the date at which either party can terminate the deal if a combination hasn’t already been closed, and said “there can be no assurances that the merger will be completed by that date.” The prior deadline was Aug. 27.
M&T slid 4.5 percent to $100.24 at 4:01 p.m. in New York. Paramus, New Jersey-based Hudson City fell 5.5 percent to $8.29, the biggest drop since November.
“Hudson City is down more because of the risk that the transaction won’t close,” said David Darst, an analyst at Guggenheim Securities LLC. “As you push out the expected time required to close the transaction, it increases the probability that deteriorating fundamentals are going to have a negative impact on the Hudson City balance sheet.”
Hudson City Chief Executive Officer Ron Hermance, 65, returned to the bank Aug. 1 after taking medical leave in February of 2012 to receive a bone-marrow transplant. M&T is led by CEO Robert Wilmers, 78.
M&T announced the agreement in August, valued at $3.7 billion at the time, as part of an effort to expand into New Jersey. Hudson City has said record-low interest rates are pressuring profits from residential lending.
The exchange ratio of shares will remain the same as disclosed the day of the announcement, the banks said. Both lenders plan to proceed with shareholders’ meetings next week to consider the deal, according to the statement. M&T said it will discuss the status of the Hudson City deal at a conference call scheduled for April 15 to discuss first-quarter results.
The Fed “identified certain regulatory concerns with M&T’s procedures, systems and processes relating to M&T’s Bank Secrecy Act and anti-money-laundering compliance program,” according to the statement.
U.S. Senator Elizabeth Warren, a Democrat from Massachusetts, questioned regulators in March over whether they’ve done enough to combat money laundering. HSBC Holdings Plc in December settled a probe led by the Justice Department and banking regulators by agreeing to pay $1.92 billion and fix compliance flaws. Citigroup Inc. and JPMorgan Chase & Co. have also been targeted as regulators look into compliance with rules to guard against illegal transactions.
The Bank Secrecy Act was designed to curtail criminals from injecting the proceeds of their crimes into the legitimate financial system. It has since been used as a tool to combat international drug cartels and terrorist groups.
Eric Kollig, a Fed spokesman, declined to comment on the regulator’s interactions with M&T.