Finance

Gillian Tan is a Bloomberg Gadfly columnist covering deals and private equity. She previously was a reporter for the Wall Street Journal. She is a qualified chartered accountant.

M&T Bank Corp. Chairman and CEO Bob Wilmers, a longtime critic of excessive bank regulation, is at it again. 

In his letter to shareholders in the lender's 2016 annual report published Thursday, Wilmers spent longer than usual -- some 2,700 words, or almost a third of  his remarks-- griping about regulation. Laws are so burdensome and restrictive, he claims, that they've hampered the regional bank's ability to lend and to invest in itself, either through the introduction of new products and technologies or by other means. Here's a highlight: 

Hundreds of M&T colleagues have logged tens of thousands of hours navigating an ever more entangled web of concurrent examinations from an expanding roster of regulators. During 2016 alone, M&T faced 27 different examinations from six regulatory agencies. Examinations were ongoing during 50 of the 52 weeks of the year, with as many as six exams occurring simultaneously. In advance of these reviews, M&T received more than 1,200 distinct requests for information, and provided more than 225,000 pages of documentation in response. The onsite visits themselves were accompanied by an additional, often duplicative, 2,500 requests that required more than 100,000 pages to fulfill.

These numbers will resonate with President Donald Trump's administration. Already, senior economic adviser Gary Cohn (late of Goldman Sachs) has indicated a disdain for lengthy documents, telling the Wall Street Journal last month that "By the time you read the first 1,000 or 2,000 pages, it will be too late." 

Lockstep
M&T Bank has gained more than 40 percent since the beginning of 2016 on the prospect of economic growth and corporate tax reform, in sync with U.S. banks
Source: Bloomberg

But even a friendlier regulatory environment and a shrunken paper trail won't change M&T's bottom line meaningfully. The $26 billion bank's estimated compliance costs reached $440 million last year, up from $90 million in 2010 and roughly 15 percent of its total operating expenses. A loosening of regulations could see this $440 million figure fall immaterially, or between 5 and 15 percent, according to analysts. 

Chunk of Change
Even if regulatory requirements are loosened, M&T Bank's estimated cost of compliance will likely remain close to current levels
Source: M&T's annual reports
*Not all data before 2013 is available but 2007 and 2010 were said to be $71 million and $90 million, respectively, so there has been a noticeable jump since the financial crisis

Even if Wilmers' grumblings meet sympathetic ears in Washington, the lender can't rely on easing regulations alone to bolster its performance. And for the moment, it can't lean on growth by acquisitions either: M&T Bank is still in the penalty box with the Federal Reserve following years-old issues with its compliance of anti-money laundering laws, meaning it's unable to use its richly-valued stock as currency for deals. At a conference this week, CFO Darren King indicated that weighing acquisitions will be "back on the table" when it's allowed off the sidelines.

M&T's profitability, as measured by return on common equity, landed at 8.1 percent in 2016 -- well below its industry-leading numbers of nearly 11 percent in 2012 and 2013. As well as focusing on efforts to return capital via buybacks and dividends, the Buffalo, New York-based lender should channel its energy toward driving loan growth. Potential ways to do this would be to bolster its mortgage business via the network of 135 branches it inherited through its 2015 acquisition of Hudson City Bancorp Inc. and to invest in growing its wealth-management business.

Lost Ground
After the crisis, M&T Bank had an edge over most rivals but has seen its profitability slip in recent years
Source: Bloomberg Intelligence

Shareholders already have a reason to be optimistic that returns will rebound toward 10 percent or higher -- the bank's net interest income should rise even if there are no interest rate hikes this year. Still, they'll be better served if management channels more of its focus on the company's future and less on what it's been saddled with in the past.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

  1. Shares have also rallied in part because the bank is expected to be a large beneficiary if corporate tax rates are cut. Its effective tax rate is 36 percent, according to data compiled by Bloomberg.

To contact the author of this story:
Gillian Tan in New York at gtan129@bloomberg.net

To contact the editor responsible for this story:
Beth Williams at bewilliams@bloomberg.net