Rating Actions on M&T - Analyst Blog
July 05 2011 - 10:10AM
Zacks
Fitch Ratings has affirmed M&T Bank
Corp.'s (MTB) long- and short-term Issuer Default Ratings
at 'A-' and 'F1,' respectively. The rating action follows the
closure of M&T's acquisition of Wilmington Trust Corp. on May
16, 2011. The rating outlook remains Negative. The proposed
corporate restructuring of M&T announced on June 30, 2011 led
to the rating affirmation.
M&T’s recently accomplished the purchase of Wilmington Trust
backed by capital raises. According to the rating agency, the
capital infusion should help overall capital levels to be
consistent with those that M&T had at the end of third quarter
2010 (tangible equity to tangible asset ratio of 5.96% and a Tier 1
risk-based capital ratio of 9.45%). Yet, M&T’s capital ratios
are still at the lower range of the rating agency’s rated peer
group.
Moreover, M&T also stands to gain a greater banking
franchise from the expanded presence that the Wilmington
acquisition gives. The larger trust business should support its top
line while bottom line can be improved by reducing overall costs
through the rationalization of combined operations.
That the company has performed comparatively better than many of
its peers since the beginning of the financial crisis was also
acknowledged by Fitch. Results have shown improvements in the
recent quarters with lower provisioning, reduced interest expense
and modest loan growth.
However, the Negative rating outlook reflects issues related to
its real estate exposure and its lower-than-peer-group capital
ratios. Plus, the rating agency had categorized Wilmington as a
troubled institution prior to its acquisition by M&T.
Therefore, going forward, rating actions will depend on whether
Wilmington loans are marked appropriately and on M&T’s
integration efficiency.
Holding M&T is Worthwhile
M&T’s first quarter operating earnings of $1.67 per share
exceeded the Zacks Consensus Estimate of $1.41 aided by an increase
in net interest income on the back of net interest margin
expansion, coupled with a substantially lower provision for credit
losses. Credit quality challenges have also lessened.
Going forward, we believe that strategic acquisitions should
help earnings augmentation. The Wilmington Trust Corp. acquisition
added 55 branch locations, 225 ATMs and $10.7 billion in assets,
and is expected to be accretive to the company’s earnings going
forward.
The repayment of the bailout money, though in part, is
essentially a positive step as upon full repayment, M&T can
escape restrictions on both financial and executives’ pay package
flexibility that it was subject to upon being a bailout
receiver.
However, the protracted economic recovery remains a headwind and
top-line growth at M&T is expected to remain somewhat limited
in the coming quarters. We are also concerned about the regulatory
issues. The overdraft legislation is expected to result in a
decline in service charges on deposit accounts.
Therefore, our Neutral recommendation on the shares remains in
place. Shares of M&T Bank Corp. currently retain the Zacks #3
Rank, which translates into a short-term Hold rating. Currently,
M&T’s peers such as Comerica Inc. (CMA) and
Fifth Third Bancorp (FITB) also retain the Zacks
#3 Rank.
COMERICA INC (CMA): Free Stock Analysis Report
FIFTH THIRD BK (FITB): Free Stock Analysis Report
M&T BANK CORP (MTB): Free Stock Analysis Report
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