M&T Bank, which struggled with a systems conversion following its acquisition of People's United Financial, has learned the hard way about executing complex bank mergers, according to CEO René Jones.
Jones wrote in his annual letter to shareholders that the Buffalo, New York-based bank underperformed in bringing 1.55 million new commercial and consumer clients into the fold during a systems conversion last September.
"First impressions matter," Jones wrote. "We ambitiously set out to 'convert' our new consumer and commercial customers to the M&T systems in such a way that they wouldn't even notice the change. For many that was the case, for others, not so much."
M&T's $8.3 billion acquisition of Bridgeport, Connecticut-based People's United last April was the bank's largest merger to date, as well as the first where digital services were a major part of the conversion, Jones noted. Problems that arose "largely centered around online access and capabilities," Jones wrote.
During the Labor Day weekend conversion, customers reported being locked out of their accounts and being unable to make payments or obtain records on loans transferred from People's United.
M&T also heard complaints from customers who waited in long lines at local branches before meeting M&T employees who could not help resolve their problems.
M&T's customer security protections were unable to "discern normal from abnormal behavior," Jones wrote in his letter, adding that the bank "saw red flags when they weren't really there."
The security logjam led to a "higher than tolerable" number of customers being locked out of their accounts, which led to increased calls to contact centers and long lines at branches. The number of requests "tested our colleagues, exacerbating the frustration felt by our customers," Jones wrote.
Scrutiny of M&T's preparation began shortly after the conversion. In September, Connecticut Attorney General William Tong
In testimony last month to the Connecticut General Assembly banking committee, Tong stated that his office had received over 400 complaints related to M&T's conversion. He urged lawmakers to
In comments Wednesday, M&T Chief Financial Officer Darren King offered a detailed explanation of the bank's conversion problems.
When M&T added the usernames and passwords of People's United customers to its systems, security protocols began "bumping" up against user history, King said at an industry conference. M&T did initially not "convert over the client's previous history," King said.
"They'll hit some triggers earlier than other customers would while you're learning their behaviors, and your systems are learning their behaviors, and some folks got locked out," King said.
In a research note, analysts at Autonomous Research described Jones' remarks about the People's United conversion as a "big mea culpa."
The Autonomous analysts also expressed some concern about M&T's commercial real estate exposure, saying that the sector "remains a struggle" for the bank. Parts of
In his annual letter to shareholders, Jones wrote that investor-owned commercial real estate loans represent 74% of M&T's loans that are classified as criticized, meaning that they have an elevated level of credit risk. Those criticized commercial real estate loans are concentrated in the hotel, retail and health care sectors.
By the end of 2022, Jones told shareholders, M&T's hotel exposure was showing signs of improvement, with criticized loans to the sector declining 41% from the end of 2021. But criticized retail and health care loans were relatively unchanged, Jones wrote.
Overall in 2022, M&T reported a $3.6 billion year-over-year decline in commercial real estate loan balances.
At the end of last year, criticized loans represented 8.1% of M&T's total loans and leases, down from 9.7% one year earlier.
