M&T's Ratings Affirmed by Fitch - Analyst Blog

M&T Bank Corporation's (MTB) long-term and short-term issuer default ratings (IDRs) were affirmed by Fitch Ratings at “A-” and “F1,” respectively. However, the rating outlook remains “Negative.”

The rating affirmation follows M&T's announcement of agreeing to buy Wilmington Trust Corporation (WL) in a stock-for-stock transaction valued at around $351 million. According to Fitch, the combined entity's ratings would not be impacted because of this transaction.

In fact, Fitch believes that this acquisition would benefit M&T as the purchase price is a favorable one. Also, with the overlap of the two companies' footprint and the possibility of an increase in fee-based revenue, the deal seems encouraging for M&T. 

The deal, expected to close by mid-2011, would add 48 branch locations in Delaware and 225 ATMs to M&T Bank's network and result in the company operating 800 branches and 2,000 ATMs in 8 states, the District of Columbia and Ontario, Canada. The deal would add $8.3 billion in deposits and $8.1 billion in loans from the merger to M&T, providing it the top deposit share and a significant commercial market share in Delaware. 

While Wilmington Trust's banking business is facing significant challenges, its Wealth Advisory Services and Corporate Client Services units remain lucrative. M&T should leverage this highly considered Wealth Management and Corporate Client businesses of Wilmington Trust. 

However, the “Negative” rating outlook persists due to the fact that Wilmington Trust is a troubled institution. Moreover, pro forma tangible equity ratio in the second quarter of 2011 is between 5.96% and 6.40% for the combined entity and is lower than M&T's rated peer group. Hence, in case the acquired loan portfolio of Wilmington deteriorates more than expected, the cushion to absorb such losses is less.   

Additionally, concern remains over the increase and repayment of TARP funds that result from Wilmington's acquisition. The ability to raise fresh equity also remains a challenge, with Allied Irish Bank's (AIB) winding down of its nearly 23% stake in M&T. 

Nevertheless, M&T Bank managed to put solid quarters even during the financial crisis and continues to experience growth in net interest margin. The acquisition of Provident and Bradford in the Mid-Atlantic region has proved to be meaningful, both in terms of customer base and profitability. 

Though the tepid recovery of the economy and challenges from the recent legislative actions remain headwinds for the stock, a lessening of credit quality challenges coupled with a growing core deposit will uphold the bank in the long run. Additionally, we believe the acquisition of Wilmington Trust would also help in expanding its network and customer base.  

M&T Bank shares are maintaining a Zacks #3 Rank, which translates into a short-term Hold recommendation. We have a long-term Neutral recommendation on the stock.

 
M&T BANK CORP (MTB): Free Stock Analysis Report
 
WILMINGTON TRST (WL): Free Stock Analysis Report
 
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