M&T Bank’s deal to acquire People’s United Financial advances an
The $63 billion-asset People’s United spent considerable time and money building scale before agreeing to be sold to the $143 billion-asset M&T, which covets the Bridgeport, Conn., company’s markets and has the heft needed to make
As bigger banks return to M&A, once-unthinkable deals like this are suddenly in play, industry observers said.
Other sizable banks that have agreed to be sold in the last four months include the $104 billion-asset
Expect more deals of that magnitude as banks look to offset a prolonged period of low interest rates and other challenges tied to the coronavirus pandemic, industry observers said.
The M&T-People's United deal “reflects what I think are clear signals sent by bigger regionals that they are ready to start inking some deals,” said Robert Bolton, president of Iron Bay Capital in Rochester, N.Y. “This is the beginning of what I’m convinced will be a bunch of deals.”
The all-stock transaction, should it close by the end of this year as expected, would be the first bank acquisition for M&T since the Buffalo, N.Y., company bought Hudson City Bancorp in Paramus, N.J., in November 2015. That deal took more than three years to complete while M&T addressed regulators' concerns about its anti-money-laundering controls.
Smaller banks have been bulking up for years, using M&A to add scale and enter new markets while creating a bigger midsize class. The number of banks with $30 billion to $80 billion of assets nearly doubled from 2014 to 2020, to 37, according to the Federal Deposit Insurance Corp.
CIT, People’s United and TCF are part of that group. CIT’s pending sale to First Citizens BancShares and Huntington Bancshares' deal for TCF are scheduled to close by the end of June.
Low rates, an overabundance of deposits and tepid loan demand mean that the growth prospects for many banks — including large regionals like M&T — hinge on their ability to leverage capital and pursue acquisitions.
Bigger banks must pursue sizable targets to meaningfully “move the needle,” said Peter Winter, an analyst at Wedbush Securities. “You get a bank with more size … then you have a deal that has an earnings impact.”
For M&T, the decision to buy People’s United is more about the markets the seller entered and the businesses it nurtured, such as equipment finance, than its sheer size, President Richard Gold said in an interview.
The companies had been in touch for years, but Robert Wilmers, M&T’s former chairman and CEO, who
The relationship “remained cordial” before regaining momentum a year ago, Gold said.
People’s United “has always been sort of an appealing partner because of the contiguous nature of the markets they serve and they tend to serve similar midtier markets like we serve,” Gold said. “They’ve always been on our radar screen.”
M&T’s footprint spans eight states and the District of Columbia, and includes such major metropolitan markets as Buffalo, New York and Baltimore. The deal for People's United will extend its reach into greater Boston and across New England, potentially providing significant opportunities for long-term commercial loan growth, Bolton said.
Population density in the Northeast makes the region an attractive banking market for the foreseeable future, added Sam Pappas, president of Mystic Asset Management in Warwick, R.I.
M&T plans to cut about $330 million in annual noninterest expenses, which should help offset some revenue challenges in the aftermath of the coronavirus pandemic, and the deal will allow the company to optimize recent technological investments.
The deal also makes sense given all of the
M&T, for instance, has $24 billion parked at other banks as it waits for lending opportunities to resurface.
“If a company isn’t sure they can achieve reasonable returns on their own, then partnerships make sense,” Marinac said.
Those factors should encourage other large-scale deals, market observers said.
Industry challenges “aren’t going away, so I see a lot more of this kind of M&A,” Pappas said. “It’s essentially merger by necessity.”
A wave of M&A will continue “as long as there are opportunities” in the Northeast and elsewhere, Gold said.
“Deals in our space have ebbed and flowed,” Gold said. “I think we’re in a place where there are opportunities and good, solid institutions to take advantage of those opportunities.”
Paul Davis and Jim Dobbs contributed to this report.
