Despite being one of the largest bank mergers in Massachusetts history, the People’s United Bank-M&T Bank merger is not expected to destabilize the local banking landscape.
Massachusetts will see a new name on bank branches later this year when Buffalo-based M&T Bank closes its purchase of People’s United Bank.
Currently among the 25 largest U.S. banks with more than $140 billion in assets, M&T Bank last week agreed to acquire the Connecticut-based lender, which has more than 60 branches across Massachusetts. The deal would put M&T just outside the 10 largest commercial banks with more than $200 billion in assets, giving it a dominant presence in New England.
While M&T’s entry into the market will change the state’s banking landscape, analysts believe the well-run institution will not harm the local industry.
“I don’t see [the acquisition] as being harmful to the existing banking franchises that are in New England,” said Arthur Loomis, president of Loomis & Co., a New York-based investment bank that works with banks in the Northeast on mergers and acquisitions. “[M&T Bank] is not going to disrupt the marketplace doing something foolish, half-cocked, or impetuous – none of those adjectives fit who they are.”
Originally known as Manufacturers and Traders Trust Co., the bank was founded in the mid-19th century and now has more than 700 branches from New York state to Virginia.
Much of M&T’s recent growth came from acquisitions; the deal with People’s United Bank will be its 25th merger since 1987. Other than a deal that gave M&T a handful of branches in Connecticut’s Fairfield County, the bank has yet to enter New England.
By acquiring People’s United Bank, M&T will gain branches in every New England state except Rhode Island, including almost 40 locations in Greater Boston. M&T a few years ago did open an office on Congress Street in Boston, though it is not a branch accepting deposits.
During a conference call last week to discuss the $7.6 billion all-stock deal to acquire People’s United, M&T CEO and Chairman René Jones said he and Jack Barnes, People’s chairman and CEO, both saw the deal as a way to increase their firms’ market share in New England.
“When Jack and I were having discussions about whether this made sense or not, one of the things that we both saw was that this creates multiple paths to achieving a scale presence in all of the key New England markets, the fastest path for either one of us to gain share over time,” Jones said. “And that was one of the things that was really compelling for us.”
Buffalo-based M&T Bank is not expected to close People’s United Bank locations, so it is not expected to generate any openings for competitors to open new branches.
‘High-Quality Bank’
M&T Bank is “an extremely high–quality bank,” said Peter Winter, a managing director of equity research at Wedbush Securities. The bank has strong insider ownership from both management and the board of directors, which Winter said was an important aspect of the bank’s independence and commitment to its Northeast market.
Winter also called M&T a rational bank that will not try to take market share by cutting loan pricing or raising rates on deposits. People’s United’s customers will also benefit from a better suite of products offered by M&T, he said, adding that competition in the market will be based on the product loan, digital banking and customer service.
He also pointed to the bank’s charitable donations and noted that the People’s United deal includes a $90 million payment from M&T for charitable activities in the communities currently served by People’s United.
M&T has performed better than its peers during different economic cycles and has strong overall credit quality, Winter said, though he added that the bank does have a higher concentration of commercial real estate loans in the hotel industry compared to other banks. Despite the effects of the pandemic, Winter said the average loan-to-value ratio was less than 60 percent and that those loans would not be a driving concern for making a deal.
This acquisition differs from a typical bank deal, Winter said, because the banks have contiguous markets with little branch overlap. The cost savings will come more from back office and systems integration with little branch consolidation needed.
“The genesis of this deal is not cost takeout but long-term revenue synergies between the two companies,” Winter said “M&T is really going to be one of the dominant banks in the whole Northeast and New England area.”
Local Banks Could Benefit
Despite making two dozen acquisitions in recent decades, the People’s United deal will be M&T’s first since 2016. The last acquisition took three years to complete after the Federal Reserve issued an enforcement action against M&T Bank over compliance issues.
Loomis said M&T shareholders have traditionally received good value in its acquisitions, often because they have been a disciplined acquirer, or because they acquired struggling targets. He noted that while M&T might have overpaid slightly for People’s United, paying 165 percent of tangible book value rather than the 155 to 160 percent range, which Loomis sees as People’s United’s core value, the equity market’s reaction to the all-stock deal was favorable, with M&T’s stock rising 8 percent after the announcement.
He said the acquisition is a smart way for M&T to enter New England with instant scale, rather than opening de novo branches or making smaller acquisitions. He added that the bank’s current footprint covers both urban and rural areas, giving it suitable experience for New England.
When the acquisition is complete, Loomis expects 5 to 10 percent of People’s United customers will leave M&T, preferring a local bank and its known management. The run-off might be even greater in markets where People’s United has completed acquisitions over the years, he said, noting potential opportunities in Western Massachusetts, the Hartford area, Vermont, New Hampshire, Maine and Long Island. The competitor banks in these areas could stand to benefit from this for a year or two, before their abnormal rate of market share growth levels off.
Diane McLaughlin
While he does not see this deal as putting pressure on other banks to look at mergers and acquisitions, banks still might face internal pressures to do so. He added that New England has typically had a 3 percent annual acquisition rate over all sorts of economic cycles, which he expects to return once the pandemic winds down.
M&T’s entry into the market will not significantly change the landscape in the long run, he said.
“They really are a competent competitor for New England and for all the banks there,” Loomis said. “None of the banks in New England should look at this combination and say, ‘We’ve got somebody that’s crazy stepping in or that will do really silly things in our marketplace,’ because they won’t. They will be very disciplined in terms of everything they do.”
