Upshot of Baltimore deal hurts M&T Bank shares

Just when you thought the nameplate on your bank and football stadium would stop changing, the Maryland bank with the second-largest number of deposits became the subject of merger speculation, big stock swings and international headlines.

M&T Bank Corp. was in combination talks until recently with Banco Santander SA, a global giant based in Spain, according to news reports. Last week, instead of getting a merger, M&T stock owners watched the bank's biggest shareholder dump its entire stake, a turnabout that caused M&T shares to fall below $77 after trading above $90 last month.

The drama might not be over. The cheap stock could make M&T a takeover target for somebody else, some banking analysts believe.

It's all tied to a 2002 Baltimore financial scandal and baggage M&T picked up here when it bought Allfirst Financial a year later.

M&T has done much better than most banks in avoiding the mistakes of the housing bubble. But it's hard to hide from the worst global financial crash in 80 years. Based in Buffalo, N.Y., M&T got winged by a ricochet via Dublin from Baltimore.

M&T stock "was touching $100 not too long ago," says Anthony Polini, who follows the company for Raymond James in New York. "You pull the stock down to the $70 level, and all of the sudden you're 30 percent below where you were. ... It certainly wouldn't surprise me if sometime in the next year we don't see M&T at least partially be put in play" for a merger or takeover.

The only reason M&T even does business in Maryland and has its name on the Baltimore Ravens' stadium was Allfirst currency trader John Rusnak. Based in Baltimore, Allfirst was the former First Maryland Bancorp, which had been bought by Dublin-based Allied Irish Banks in the 1990s.

After Rusnak incinerated $690 million of Allied Irish shareholders' money through stupid currency bets, the Irish sold their Allfirst stake to M&T, which put the familiar green signs on Allfirst branches and took over the stadium name.

M&T became even bigger by buying Baltimore-based Provident Bankshares Corp., which had gotten whacked by the 2008 economic meltdown. As of June M&T had 13 percent of Maryland bank deposits, making it No. 2 in the state after Bank of America.

Meanwhile, Allied Irish kept its hand in, taking a big chunk of M&T stock as payment for Allfirst. The Irish were perfect shareholders: well-heeled and long-term, at least for a while, and happy to let Buffalo run the show.

Good thing, because as managers, Allied Irish proved to be a lot worse than the team put together by M&T Chairman Robert G. Wilmers.

Allied Irish made the same dumb real estate bets as banks around the world. Dumber, on average. First, it was bailed out by the Irish government. Last month, it was nationalized. Last week, it sold its M&T stake — 22 percent of M&T's outstanding shares — to raise capital.

The prospect of those shares flooding the market hovered over M&T stock all year, but the Santander deal was supposed to fix that. According to news accounts, Santander would buy the Allied Irish stake, and M&T would issue additional shares to the Spanish company in return for taking over Santander's Sovereign Bancorp, based in Wyomissing, Pa. Santander as a long-term investor would prevent a supply glut of M&T stock.

But talks reportedly broke down, as they often do, over control. Santander wanted to give the orders; Buffalo didn't want to take them. So Allied Irish had to split the share sale among institutional investors.

If Santander had taken control, the M&T logo probably would have stayed on branches and on the Baltimore stadium, which once bore the name of dot-com disaster PSINet. The logical move would have been for Santander to keep the M&T label and put it on the Sovereign operations, too.

But the demise of the Santander deal doesn't mean the game is over. Wilmers has built M&T into a terrific franchise. The company, which has 2,000 metro Baltimore employees, including nearly 1,000 administrative workers, was one of the few banks not to cut its dividend during the financial crisis.

Other companies might want to buy it — international ones as well as American banks such as PNC or Wells Fargo. (Representatives for those banks said they don't comment on takeover speculation.)

"Why would M&T want to sell out right now?" wonders Collyn B. Gilbert, who follows the company for Stifel Nicolaus. "They see their value probably at a trough."

M&T doesn't want to sell. But in the public stock market sometimes you don't have a choice. M&T insiders control more than a fifth of the shares, Wilmers noted in a memo to employees last week, implying that a hostile takeover would be difficult.

Maybe that and Warren Buffett's 4.5 percent M&T stake are enough for the bank to resist a new suitor. Given how poorly most mergers turn out and how well M&T has avoided mistakes, the bank was right to reject Santander. It would be a shame if it were pushed onto the auction block by reverberations from Baltimore.

An earlier version of this column incorrectly said that M&T, not Bank of America, held the most banking deposits in Maryland. The Sun regrets the error.

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