M&T Bank Corp. tried to buy rival HSBC Bank USA’s branch network two years ago, although executives worried about how much they would have to sell, how many customers they might lose, and how well they could put the deposits to work in lending, CEO Robert G. Wilmers wrote in his annual letter to shareholders this week.
The disclosure by the chairman of Buffalo’s dominant bank is the first time M&T has said it sought the 195 branches and $15 billion in deposits that HSBC sold across upstate New York and southwestern Connecticut in the summer of 2011.
Wilmers said executives weren’t entirely convinced the deal would be as beneficial to M&T as initially thought, and “in the end, [we] fell short of the eventual pricing.”
Buffalo-based First Niagara Financial Group acquired the branches instead, subsequently selling 64 offices to three other banks and consolidating 35 others.
“When HSBC decided to exit retail banking in our home town and other parts of New York, it was tempting to acquire its branch system and to purchase its deposits,” Wilmers wrote in his 26-page missive.
“Not every opportunity is equally rewarding, and ... every transaction has its own risks requiring a cautious approach to pricing ... We were less confident about the benefits of such an acquisition,” he wrote.
The letter laid out the reasons why the bank hesitated, and ultimately lost out, although that’s not the way Wilmers views it. He noted, in the end, the bank has profited more by picking off a significant number of customers disgruntled by the market disruption caused by the deal.
“Some of the very concerns that led to our skittish approach towards the transaction have proven beneficial in the aftermath,” he wrote.
The acquisition generated concern inside M&T about “the likelihood of mandatory divestitures” by the U.S. Justice Department because it would have created a level of concentration that would violate antitrust law. Indeed, even First Niagara, with a much smaller market position at the time than M&T, had to divest 26 Buffalo-area branches to gain Justice Department approval.
Wilmers also expressed doubt about “the feasibility of a quick redeployment of acquired deposits into loans, given our already strong, and arguably dominant, presence.” And he said officials “worried about customers’ propensity to choose a new home amidst such large market disruption.”
That’s exactly what happened, he noted. As a result, the bank’s deposits grew 11.3 percent in 2012 over 2011, more than double the industry average of 5 percent. And 44 percent of its deposit growth, and 36 percent of its overall commercial loan growth, came from upstate.
“The market disruption caused by the exit of a large competitor, whose branch system was divided among four other banks, has resulted in some of the customers migrating to M&T, assisted by a well-trained sales force that has covered these markets for generations,” he said. “We have acquired customers, made loans and received new deposits at a pace unseen in upstate New York for a very long time.”
Wilmers’ letter is part of the bank’s annual report, but M&T issued it publicly this week, in a nod to the level of attention typically paid to it. Unlike most bank and even nonbank CEOs, who mostly focus their shareholder messages on their own companies’ performance, the 78-year-old Wilmers is known for his candor and bluntness in not only addressing topics related specifically to M&T but also topics affecting the larger industry, the state and the nation. He has routinely taken to task politicians, educators and both state and local leaders, as well as his industry peers, regulators and Congress.
This year, he continued his ongoing public tirade against the malfeasance of big banks and government, lashing out at what he called the lavish executive pay of the nation’s largest financial firms, criticizing the complexity of the U.S. accounting system, and chastising the government for the increasing burden of unneeded regulation.
He said accounting rules have made bank balance sheets “opaque” and impossible to decipher, generating fears of hidden risks and obligations, and fostering a lack of investor confidence. And new laws and rules, most of which aren’t aimed at small and regional banks but affect them anyway, are unhelpful and misguided at best, or costly, damaging and dangerous at worst.
“We have an accounting system that is too complicated to understand, confuses more than it resolves, and operates in a manner that has been beneficial mostly to itself,” he wrote. “When the rules are easy to understand and follow, there’s a greater likelihood they’ll be followed.”
He said executive pay “remains at astronomical levels when compared to the wages of an average American worker,” noting that the average pay of the Big Six CEOs is 234 times that of the average U.S. worker, and even the average employee at those firms earns at least three times that of a typical American. Yet, he notes, these are the leaders of “a handful of firms that have done so much damage to the economy and to the reputation of our industry.”
“There is less focus and appreciation of banks as providers of potential benefits than as sources of potential problems,” he wrote.
“Regaining public confidence and reversing that trend will take more – much more – than better public relations or uplifting advertising. In order to regain that confidence, banking must begin to take steps towards its own reform.”