M&T; Bank Corp., which agreed this week to buy scandal-tarred Allfirst Financial Inc., will face many challenges in stitching together the two companies, but the biggest could be reviving employee morale at the Baltimore bank, industry experts said yesterday.
Over the past seven months, Allfirst employees have watched as the bank was embarrassed in one of the industry's biggest scandals. They have also seen a number of senior executives leave and have lived with rumors that Allfirst was for sale. About 300 have been offered early-retirement packages.
On Thursday, their world changed again when the bank's parent, Allied Irish Banks PLC of Dublin, Ireland, agreed to sell Allfirst to M&T;, of Buffalo, N.Y., for $3.1 billion.
The deal, expected to close early next year, would make M&T; the country's 18th-largest banking company, with $49 billion in assets and more than 700 branches in six Northeastern states and Washington. Allied Irish would gain a 22.5 percent stake in M&T.;
Many banking industry experts said the deal will be good for shareholders, but they warned that Allfirst employees would have to be convinced that it will be good for them, too.
"I would think that the challenge might be more internal than external," said Gary Geisel, president of Provident Bankshares Corp., a Baltimore banking company with $5 billion in assets.
"You would think that this is a bank that has gone through lots of turmoil already. Now, the question is, 'Can I find a way to energize this employee environment and make them feel good about another transition.' "
Employees haven't had a lot to cheer about since February, when Allfirst was jolted by a $691.2 million currency trading loss.
Bank executives have blamed John M. Rusnak, a former Allfirst foreign exchange currency trader accused of hiding the losses over five years.
Rusnak, who was indicted in June on federal bank-fraud charges, could be sentenced to a maximum of 30 years in prison and fined $1 million if convicted of all the charges. He was fired along with six other employees, some of them executives. Months after the scandal was revealed, Allfirst's top two executives, Frank P. Bramble and Susan C. Keating, left the bank.
"I have to think that ... there would have to be some residual bitterness toward AIB and senior management at Allfirst," said Bert Ely, a banking consultant in Alexandria, Va. "What the Rusnak caper did was in effect put Allfirst into play. It embarrassed these [employees] to be with a bank like this."
Michael S. Piemonte, M&T;'s head of corporate finance and mergers and acquisitions, said the company's first priority is to meet with employees and "try to get them comfortable with us." Customers are also high on the list, he said.
"Our objective is to make everybody as comfortable as possible as quickly as possible," Piemonte said. "We care about these people. We are going to have to rely on a lot of the people [in Baltimore]."
M&T; executives are working to win over employees. Robert G. Wilmers, M&T;'s chairman and chief executive, and other bank executives held a dinner Thursday night at the Harbor Court Hotel for about 40 Allfirst employees, Piemonte said.
"I am hopeful in the end that everybody will be excited about [the deal]", Piemonte said. "We think the people who wind up staying are going to be much happier with a bigger institution ... with a direction."
Deal pleases some
Some employees are happy that Allfirst is being acquired by M&T;, a highly profitable institution that has strong management, an Allfirst employee said yesterday.
"There are others who are very unhappy," said the employee, who requested anonymity. "Across the board, it is safe to say there is a mixture."
Others are worried for their jobs, the employee said.
"It is like living on the Gulf Coast in the 1920s, before they had hurricane warnings," the employee said. "There are a lot of people who just say very simply and sweetly, 'I'm toast.' "
Experts expect M&T; to have few problems merging its operations with those of Allfirst, even though Allfirst is large, with $17.3 billion in assets, about 250 branches and 6,000 employees.
M&T; has $31.7 billion in assets, about 450 branches and 9,500 employees.
"It is not as if they are jumping in with both feet into a new business that they don't know how to manage," said Harry Terris, a bank merger and acquisition research analyst at SNL Financial in Charlottesville, Va.
"They are capable bankers. There is always an integration risk. This deal isn't distinguished by exceptional integration risk."
Robert S. Patten, a banking analyst at UBS Warburg in New York, said, "They aren't deal junkies. They think things through very carefully."
But when the acquisition is completed, M&T; will move into a market that is fiercely competitive and has many large banks, including Bank of America Corp., BB&T; Corp., SunTrust Banks Inc., and Mercantile Bankshares Corp. of Baltimore.
"These are the big boys," Piemonte said. "It is one thing to compete with PNC [Financial Services Group Inc.] and Wachovia over Pottsville, Pa. Now, all of sudden we are looking at Baltimore."
The experts say M&T; is up to the task.
"They go head to head with Fleet [Boston Financial Corp.] and all the banks up here. That is irrelevant," Patten said. "I expect them to be very successful."