M&T Bank snapping up bargain-priced Wilmington

By Elinor Comlay

NEW YORK (BestGrowthStock) – M&T Bank (MTB.N: ) is snapping up troubled Wilmington Trust Corp (WL.N: ) for a little more than half its market value, buying a smaller U.S. regional bank that has reeled from losses on commercial mortgages and construction loans.

The sale is a sign of how bad loans are still weighing on many U.S. banks, and how stronger regional lenders are likely to grow by acquiring weaker rivals.

M&T Bank is paying about $351 million in stock for Wilmington Trust and is also assuming $330 million of the bank’s obligations to the United States under the Troubled Asset Relief Program. The bank’s value in the stock market was around $650 million on Friday.

Buffalo, New York-based M&T bank, which counts Warren Buffett’s Berkshire Hathaway Inc (BRKa.N: ) among its investors, has emerged from the financial crisis as one of the stronger U.S. regional banks.

That strength will help M&T absorb Delaware-based Wilmington, said Gary Townsend, chief executive and portfolio manager at Hill-Townsend Capital.

“They have the wherewithal and the heft, even if they have to go back into markets and raise some additional capital of their own,” he said.

“We will see substantially more consolidation and this … is an example of what we should expect in the next couple of years,” Townsend said.

Wilmington Trust has suffered from bad loans it made to home developers in Delaware. Those bad loans contributed to a $365.3 million loss for the bank in the third quarter.

But the bank also has a wealth management business that can generate relatively steady earnings, analysts said.

Based on M&T’s closing share price on Friday, the deal values Wilmington shares at $3.84, a 46 percent discount from their closing price on Friday, but equal to their tangible book value at the end of September. Wilmington shareholders will get 0.051372 M&T shares for each share they hold. The deal is expected to close in the middle of next year.

Wilmington shares were down 42 percent at $4.13 in afternoon trading. M&T shares were up 4.5 percent at $78.12.

LOAN LOSSES

Wilmington’s former chief executive, Ted Cecala, abruptly retired in June after 31 years at the bank.

Donald Foley, Wilmington director and former ITT Corp (ITT.N: ) treasurer, stepped in to lead the bank. Talk emerged in October it was looking to sell itself and Bloomberg reported Wilmington had approached several bigger banks.

Founded 107 years ago as a manager for the DuPont family fortune, Wilmington in recent years expanded its lending business. It boosted its loan book steadily throughout the financial crisis.

Part of its growth in lending came from loans to wealth management clients who often owned small or mid-sized businesses.

On Monday, Wilmington said its nonperforming assets rose to $988.6 million, just over 12 percent of its total loans and owned real estate portfolio.

M&T told analysts on a call on Monday morning that it estimates Wilmington could have $1 billion in credit losses, which would be just over $500 million including the bank’s current allowance for loan losses.

In addition, the bank essentially had to write down expected future tax benefits by nearly $200 million. These writedowns, known as “deferred tax asset valuation allowances,” must be taken if a company does not expect to generate enough taxable income to realize future benefits.

In other words, Wilmington Trust’s management evidently had real questions about the company’s future profitability. Regulators have been pressing banks to write these assets down where appropriate.

In February, Wilmington raised about $240 million of equity to help bolster its balance sheet. At the time, its shareholders equity, a measure of the net worth of the company, was about $1.33 billion, supporting assets of about $11.35 billion.

As of the end of September, Wilmington’s shareholder equity was about $1.07 billion.

The deal saddles M&T with just over $1 billion of M&T and Wilmington bailout money from the U.S. Treasury that needs to be repaid. M&T executives said on a call with analysts that they have not begun talking with regulators about repaying the bailout funds but expect to do so next year.

M&T last year bought Bradford Bank and Provident Bankshares, both smaller mid-Atlantic banks with $469 million and $6.5 billion in assets respectively.

The bank will retain the Wilmington Trust brand for wealth advisory and corporate services businesses, and will pick up 48 branch locations in Delaware. Those locations have no overlap with its existing branches in the U.S. mid-Atlantic region.

Wilmington’s lead financial adviser was Lazard (LAZ.N: ), and Morgan Stanley (MS.N: ) (Read more about the money market today. ) offered a fairness opinion on the deal. Its legal adviser was Skadden, Arps, Slate, Meagher & Flom.

M&T’s financial adviser was RBC Capital Markets. Its legal adviser was Lipton, Rosen & Katz.

(Additional reporting by Sweta Singh in Bangalore; Editing by Lisa Von Ahn, Dave Zimmerman, Steve Orlofsky, Gary Hill)

M&T Bank snapping up bargain-priced Wilmington