Hudson City, M&T Decline Amid Uncertainty Over $3.7 Billion Deal

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Hudson City Bancorp fell the most in the Standard & Poor’s 500 Index amid investor concern that regulatory scrutiny could derail its sale to M&T Bank Corp.

Hudson City declined 5.8 percent to $9.89 at 12:35 p.m. in New York after falling as much as 7.2 percent, the most intraday in more than two years. M&T slid 2.3 percent to $124.33.

The Federal Reserved notified M&T late Friday that it would be unable to complete its review of the proposed merger by the latest deadline of April 30, the Buffalo, New York-based bank said Monday in a statement. The lender said that it remains committed to the deal, while Paramus, New Jersey-based Hudson City said in a separate statement it needs time to review the matter. The banks didn’t set a new deadline.

“There’s concern that the deal won’t happen,” said Bob Ramsey, an analyst at FBR Capital Markets. “While it’s still the most likely outcome that this deal closes, it certainly seems less likely today than it did a week ago. Both companies are more valuable when combined than they are on a standalone basis.”

The acquisition, the largest pending U.S. bank merger, has repeatedly stalled amid regulatory concerns since it was announced in 2012. The Federal Reserve has held up the deal, valued at $3.7 billion when it was announced, as it reviews M&T’s money-laundering controls, a delay that has exacerbated a slowdown in dealmaking among the nation’s largest lenders.

‘A Disappointment’

Hudson City could be worth about $3 a share, or a decline of more than 70 percent, without the M&T deal, Morgan Stanley analysts led by Ken Zerbe said Monday in a research note. M&T’s 2016 earnings per share would decline 11 percent from previous estimates to $8.77, Morgan Stanley said. If the deal is terminated, New York Community Bancorp Inc. may be interested in acquiring Hudson City instead, Morgan Stanley said.

Both banks had taken steps in recent weeks to prepare for the completion of the deal, including notifying stockholders of deadline to decide between stock and cash payment in the merger. The election process has been suspended, M&T said in Monday’s statement. Either bank can terminate the transaction if it hasn’t been completed by the deadline.

“It’s certainly a disappointment, but the deal still makes sense and the most likely scenario is that it will get done,” said Thane Bublitz, an analyst at Thrivent Financial for Lutherans who helps oversee more than $105 billion including M&T and Hudson City shares. “We don’t know what the regulators are looking for. That’s been a big frustration, the lack of good information about what the Federal Reserve is looking for.”

M&T has invested millions of dollars to improve compliance and risk management controls amid the Fed’s probe. Hudson City has proceeded with its own efforts to expand business units as it waited for the merger to be completed

“This does seem like the never-ending deal,” said Jennifer Thompson, an analyst at Portales Partners LLC. “It just shows you how much uncertainty there still is related to bank M&A and the regulatory approval process.”

M&T’s struggle to complete its deal with Hudson City has spooked other lenders from pursuing whole-bank acquisitions and raises concern that other pending sales may face similar scrutiny. Other deals awaiting regulatory approval include CIT Group Inc.’s takeover of OneWest Bank, valued at $3.4 billion, and BB&T Corp.’s $2.5 billion merger with Susquehanna Bancshares Inc.

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