M&T Enforcement Action Improves Odds For Hudson City Merger

The Record ( — Wednesday, June 19, 2013

The Record

M&T Bank Corp., which delayed its $3.7 billion purchase of Hudson City Bancorp of Paramus because the Buffalo bank's money-laundering controls failed to pass regulatory muster, has entered into an agreement with the Federal Reserve Bank of New York to revise its compliance programs.

Wall Street has known since April about M&T's regulatory issue, and industry observers say they expected some kind of enforcement action. The action announced on Tuesday, called simply a "written agreement," is not as serious as a "cease and desist" order.

"The fact that we know now it's a written agreement and not the more severe form, that has actually laid the groundwork for the timing [of the merger]," said analyst Brian Klock at Keefe Bruyette & Woods. "It's removed some of the uncertainty. I think there is a higher probability that it closes by the end of January."

M&T's and Hudson City's stock rose Tuesday on the news as investors see the agreement as a sign that the deal will likely be completed. M&T shares climbed $1.09, or 1.1 percent, to $104.13, and Hudson City added 20 cents, or 2.4 percent, to $8.57.

The 10-page enforcement action that took effect Monday and was made public Tuesday by the federal regulator requires the bank to submit to the New York Fed a revised program within 60 days that ensures compliance with the law's requirements.

The agreement said that the regulator found deficiencies in M&T's compliance risk management program, including internal controls, customer due-diligence procedures and transaction monitoring.

Michael Zabel, spokesman for M&T, said Tuesday that satisfying the regulator's requirements remains the company's primary focus.

"This is the next step in a process we started talking about in April," he said. "Other than the fact that there is a written agreement now in place, there is really no new developments here. It doesn't really change the timing one way or the other at this point. It is still the thing we need to get done first. Once we complete it to the full satisfaction of the Federal Reserve, then we hope to be in a position to move forward with the proposed merger."

Hudson City did not respond to requests for comment.

M&T must submit a revised program that includes policies and procedures to identify and verify the identity of account holders, to collect, analyze and retain complete and accurate information on account holders, create timelines to remediate deficient due diligence for customers and devise a method for assigning risk ratings to account holders.

The agreement also requires adoption of a program to report known or suspected violations of law or suspicious transactions to law-enforcement and supervisory authorities.

The bank must within 60 days engage an independent consultant to review account and transaction activity associated with high-risk customer accounts.

Within 30 days after the end of each calendar quarter the M&T board must submit progress reports detailing actions taken to secure compliance. That means the bank could submit two quarterly progress reports before the end of January, which could provide enough information for the Fed to approve M&T's merger application before the Jan. 31 deadline, Klock said.

M&T's plans to eliminate 384 Hudson City jobs to cut costs, mostly at the Paramus headquarters, also have been held up by the regulatory issue. M&T's talks with New Jersey community organizations about possible commitments for affordable housing and small business investment also are on hold.

Phyllis Salowe-Kaye, executive director of New Jersey Citizen Action, said Tuesday she hopes M&T's agreement with the New York Fed points the way to a quick resolution of the anti-money-laundering concerns so the merger can proceed — even though her organization had urged the regulator last year to block the deal, mainly because of Hudson City's subpar minority lending record.

"Hudson City remains an impediment to developing products that serve the low- and moderate-income community," Salowe-Kaye said on Tuesday. "But M&T seems to have a commitment to improve in that area."

M&T, which has a commercial loan office in Saddle Brook but no retail bank branches in New Jersey, will have nearly 100 branches in the state if the deal goes through, including 25 in Bergen County.

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