M&T to Sell Stake to Santander? - Analyst Blog

M&T Bank (MTB) may sell a majority stake to Banco Santander SA (STD), according to a Bloomberg report. The report also said that the banks are in consultation, though informally, with the Federal Reserve for sketching a deal. They expect to hear from Federal Reserve by the end of this month.

Both M&T Bank and Santander have been discussing the deal for several months. Santander seeks to merge Sovereign Bank, its U.S. unit, with M&T Bank and take over the control of the entity while M&T Bank intends to merge itself with Sovereign but retain its control. The deal therefore needs a compromise. It may be structured in such a way that Sovereign Bank gets merged with M&T Bank while Santander initially starts with a minority stake in the combined entity but gets an option to increase its ownership over time.

If concluded successfully, the deal would enable the formation of the joint entity of M&T Bank and Sovereign to become the ninth largest U.S. savings institution by deposits. Also Santander is discussing a deal to acquire a 22.5% stake of M&T Bank held by Allied Irish Banks plc (AIB).

The financial crisis was a blessing in disguise for Santander, which has been busy buying up ailing institutions at a discount over the past two years. Earlier in August, Santander struck a deal to acquire 318 branches and associated assets and liabilities from Royal Bank of Scotland Group plc. (RBS). The deal is expected to be completed by the end of the next year. The selling price is at a premium of GBP350 million to net assets at closing. This business' implied equity is GBP1.3 billion.

Santander has also agreed to buy a portfolio of car loans from HSBC Holdings plc. (HBC) for $4 billion and the 70% stake of Allied Irish Bank in Bank Zachodni WBK, a Polish bank, for $3.7 billion.

To boost its market share in Mexico, Santander also bought back its 24.9% stake in its Mexican arm, Grupo Financiero Santander, from Bank of America Corp. (BAC) for $2.5 billion in June.

In the past few years, Santander made acquisitions of several businesses in the Continent and America. In the U.K., Santander acquired Alliance & Leicester and parts of Bradford & Bingley. In Germany, the company added the consumer finance business of Royal Bank of Scotland and General Electric Co. (GE). With the economic slowdown in its home market, diversifying its footprint is an obvious alternative for the Santander.

Currently, both M&T Bank and Santander carry a Zacks #3 Rank (Hold), implying no clear directional pressure on the stock over the next one to three months.
 
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