While the executives behind today's $3.1 billion deal by Allied Irish Banks to merge its Allfirst Financial Inc. subsidiary into M&T Bank Corp. of New York denied the move had any connection to this year's foreign-exchange scandal -- several analysts disagreed.
"I believe one or more regulators said, 'You're getting out of the U.S. banking business,'" said Bert Ely, a banking consultant in Alexandria, Va. "I think they were under the gun to sell it, because Allfirst and Allied embarrassed Mother Fed."
Ely was referring to the Federal Reserve. "[John M.] Rusnak was able to get away with it. The Fed should have caught it, but they didn't."
A spokeswoman for the Federal Reserve in Washington declined to respond to Ely's remarks.
"That seems a little far-fetched," Mike Piemonte, an M&T senior vice president, said of Ely's comments. "They're [Allied] getting 22.5 percent of the combined company, they'll have four seats on our board, and one person on our management group.
"The negotiations began well before the Rusnak matter," Piemonte continued. "AIB was looking for a better way to manage a franchise that they had had for some time.
"I'm sure the Rusnak matter exacerbated things, and made them more determined to find someone, but in no way, shape or form was this a forced matter," he said.
Under the deal announced today, Allied would merge the Baltimore-based Allfirst with M&T Bank in exchange for 22.5 percent of the combined company, amounting to 26.7 million shares, as well as for $886 million in cash.
The combination would create the nation's 18th-largest banking company, with about $49 billion in assets. It is the largest bank acquisition since Citigroup Inc. said earlier this year that it planned to buy San Francisco-based Golden State Bancorp for $5.8 billion.
M&T, whose largest shareholder is billionaire Warren E. Buffett's Berkshire Hathaway Inc., has $31 billion in assets. Allfirst has about $17 billion in assets.
Allfirst's 250 branches in Maryland, Pennsylvania, Washington, D.C., Northern Virginia and Delaware will acquire the M&T name -- joining with the 470 other M&T offices in New York, Pennsylvania, Maryland and West Virginia.
The combination is expected to save the new M&T about $100 million by 2004, officials said.
The deal, subject to approval by banking regulators in the United States and Ireland, is expected to be completed by the end of March.
In a conference call from M&T's headquarters in Buffalo, N.Y., Michael Buckley, Allied's group chief executive, and Robert G. Wilmers, M&T's chairman, chief executive and president, denied that the Rusnak scandal had anything to do with the merger.
"What happened with [Rusnak] was an unfortunate, isolated incident," Wilmers said. "The situation has no overall bearing on how Allfirst does business. We're very impressed with the people at Allfirst."
Rusnak, a senior foreign-exchange dealer at Allfirst, was charged in June with seven federal counts of fraud in the alleged $691 million scheme. He is expected to be tried in February.
Allfirst posted a $36.8 million net loss last year because of the trading scandal.
"We have dealt with that issue comprehensively," said Buckley, who noted that the banking companies began merger talks last September and that the Rusnak scandal had no effect on them. "We have dealt with it openly, and we have dealt with it satisfactorily."
As a result of the debacle, Eugene C. Sheehy in April was named Allfirst's first Irish chairman and CEO. He replaced Frank P. Bramble, who retired, and Susan C. Keating, who was Allfirst's president and CEO at the time of the scandal, stepped down in July.
After the merger, Sheehy will oversee M&T's combined branches in Maryland and Pennsylvania.
"That whole situation was completely ring-fenced from this transaction," Buckley said of the Rusnak debacle.
But Ely and several other analysts disagreed, noting the price that M&T is paying for Allfirst -- $3.1 billion in cash and stock. They pointed to Allfirst's asset size, $17 billion, and position in the lucrative Baltimore-Washington region as factors.
"If you're getting what M&T's getting, it's a heck of a good price," said Richard McCaffery, a bank analyst with Morningstar Inc., a Chicago research firm. "I'd be happy with it."
McCaffery noted the financials of the deal.
The total stockholders' equity in the combined company is expected to be about $4.7 billion, he said. Stockholders' equity is a measure of a bank's corporate net worth.
At the end of the second quarter, June 30, M&T's stockholders' equity was $2.9 billion, according to the company's results. M&T also posted a net income of $130 million, or $1.35 a share, for the quarter, up 9.2 percent from $119.8 million, or $1.19 a share, in the comparable period of last year.
Allfirst's contribution to the final valuation is expected to be about $1.8 billion, McCaffery said. At a total purchase price of $3.1 billion, M&T is paying 1.7 times Allfirst's stockholders' equity.
M&T, by comparison, is trading at 2.3 times shareholders' equity. The stock rose 7.2 percent today, or by $5.43, to close at $80.11, on the New York Stock Exchange.
"Most banks trade at two times book value," McCaffery said. "The best ones trade at four times book value. They got a price that was a little bit below average."
Ely, the Alexandria analyst, concurred with McCaffery's analysis, as did Lewis Sosnowik, vice president for banking securities at Koonce Securities Inc. in Bethesda.
"The price -- $886 million in cash -- that's not a lot of money for 22.5 percent of a company that's coming into new, affluent areas where they can make money," he said. "That's a good investment."
Piemonte, M&T's senior vice president, agreed that the company is getting Allfirst at a good price.
"It was a negotiated transaction," he said. "AIB realized all along that they could have gotten a better price at an auction, but they were interested in something else -- getting out of managing a bank 3,000 miles away and getting an institution that has a good track record."
But all the analysts declined to describe the deal as a "fire sale," noting that the Rusnak scandal simply had diminished Allfirst's value.
"The most egregious error was that Allied Irish had a currency-trading operation in New York and allowed another one to be in Baltimore," Sosnowik said. "That decision was made over there. Why did you need that duplication?"
"Allfirst has done some things right," McCaffery said, noting its presence in this wealthy corridor.
He added that the company's deposits, about $11 billion, put Allfirst on nearly the same footing with the local offices of Bank of America Corp. and ahead of such regionally based competitors as SunTrust Banks Inc. and Chevy Chase Savings Bank Inc.
"Allfirst just wasn't sure where it was going, and I'm not sure that Allied had the commitment to growing it."
"I believe one or more regulators said, 'You're getting out of the U.S. banking business,'" said Bert Ely, a banking consultant in Alexandria, Va. "I think they were under the gun to sell it, because Allfirst and Allied embarrassed Mother Fed."
Ely was referring to the Federal Reserve. "[John M.] Rusnak was able to get away with it. The Fed should have caught it, but they didn't."
A spokeswoman for the Federal Reserve in Washington declined to respond to Ely's remarks.
"That seems a little far-fetched," Mike Piemonte, an M&T senior vice president, said of Ely's comments. "They're [Allied] getting 22.5 percent of the combined company, they'll have four seats on our board, and one person on our management group.
"The negotiations began well before the Rusnak matter," Piemonte continued. "AIB was looking for a better way to manage a franchise that they had had for some time.
"I'm sure the Rusnak matter exacerbated things, and made them more determined to find someone, but in no way, shape or form was this a forced matter," he said.
Under the deal announced today, Allied would merge the Baltimore-based Allfirst with M&T Bank in exchange for 22.5 percent of the combined company, amounting to 26.7 million shares, as well as for $886 million in cash.
The combination would create the nation's 18th-largest banking company, with about $49 billion in assets. It is the largest bank acquisition since Citigroup Inc. said earlier this year that it planned to buy San Francisco-based Golden State Bancorp for $5.8 billion.
M&T, whose largest shareholder is billionaire Warren E. Buffett's Berkshire Hathaway Inc., has $31 billion in assets. Allfirst has about $17 billion in assets.
Allfirst's 250 branches in Maryland, Pennsylvania, Washington, D.C., Northern Virginia and Delaware will acquire the M&T name -- joining with the 470 other M&T offices in New York, Pennsylvania, Maryland and West Virginia.
The combination is expected to save the new M&T about $100 million by 2004, officials said.
The deal, subject to approval by banking regulators in the United States and Ireland, is expected to be completed by the end of March.
In a conference call from M&T's headquarters in Buffalo, N.Y., Michael Buckley, Allied's group chief executive, and Robert G. Wilmers, M&T's chairman, chief executive and president, denied that the Rusnak scandal had anything to do with the merger.
"What happened with [Rusnak] was an unfortunate, isolated incident," Wilmers said. "The situation has no overall bearing on how Allfirst does business. We're very impressed with the people at Allfirst."
Rusnak, a senior foreign-exchange dealer at Allfirst, was charged in June with seven federal counts of fraud in the alleged $691 million scheme. He is expected to be tried in February.
Allfirst posted a $36.8 million net loss last year because of the trading scandal.
"We have dealt with that issue comprehensively," said Buckley, who noted that the banking companies began merger talks last September and that the Rusnak scandal had no effect on them. "We have dealt with it openly, and we have dealt with it satisfactorily."
As a result of the debacle, Eugene C. Sheehy in April was named Allfirst's first Irish chairman and CEO. He replaced Frank P. Bramble, who retired, and Susan C. Keating, who was Allfirst's president and CEO at the time of the scandal, stepped down in July.
After the merger, Sheehy will oversee M&T's combined branches in Maryland and Pennsylvania.
"That whole situation was completely ring-fenced from this transaction," Buckley said of the Rusnak debacle.
But Ely and several other analysts disagreed, noting the price that M&T is paying for Allfirst -- $3.1 billion in cash and stock. They pointed to Allfirst's asset size, $17 billion, and position in the lucrative Baltimore-Washington region as factors.
"If you're getting what M&T's getting, it's a heck of a good price," said Richard McCaffery, a bank analyst with Morningstar Inc., a Chicago research firm. "I'd be happy with it."
McCaffery noted the financials of the deal.
The total stockholders' equity in the combined company is expected to be about $4.7 billion, he said. Stockholders' equity is a measure of a bank's corporate net worth.
At the end of the second quarter, June 30, M&T's stockholders' equity was $2.9 billion, according to the company's results. M&T also posted a net income of $130 million, or $1.35 a share, for the quarter, up 9.2 percent from $119.8 million, or $1.19 a share, in the comparable period of last year.
Allfirst's contribution to the final valuation is expected to be about $1.8 billion, McCaffery said. At a total purchase price of $3.1 billion, M&T is paying 1.7 times Allfirst's stockholders' equity.
M&T, by comparison, is trading at 2.3 times shareholders' equity. The stock rose 7.2 percent today, or by $5.43, to close at $80.11, on the New York Stock Exchange.
"Most banks trade at two times book value," McCaffery said. "The best ones trade at four times book value. They got a price that was a little bit below average."
Ely, the Alexandria analyst, concurred with McCaffery's analysis, as did Lewis Sosnowik, vice president for banking securities at Koonce Securities Inc. in Bethesda.
"The price -- $886 million in cash -- that's not a lot of money for 22.5 percent of a company that's coming into new, affluent areas where they can make money," he said. "That's a good investment."
Piemonte, M&T's senior vice president, agreed that the company is getting Allfirst at a good price.
"It was a negotiated transaction," he said. "AIB realized all along that they could have gotten a better price at an auction, but they were interested in something else -- getting out of managing a bank 3,000 miles away and getting an institution that has a good track record."
But all the analysts declined to describe the deal as a "fire sale," noting that the Rusnak scandal simply had diminished Allfirst's value.
"The most egregious error was that Allied Irish had a currency-trading operation in New York and allowed another one to be in Baltimore," Sosnowik said. "That decision was made over there. Why did you need that duplication?"
"Allfirst has done some things right," McCaffery said, noting its presence in this wealthy corridor.
He added that the company's deposits, about $11 billion, put Allfirst on nearly the same footing with the local offices of Bank of America Corp. and ahead of such regionally based competitors as SunTrust Banks Inc. and Chevy Chase Savings Bank Inc.
"Allfirst just wasn't sure where it was going, and I'm not sure that Allied had the commitment to growing it."