M&T Bank Corp.’s $3.7 billion merger with Hudson City Bancorp could be delayed until early next year because of federal concerns about the Buffalo-based bank’s anti-money-laundering procedures and systems.
The delay could push the anticipated closing of the merger into January. The previous expectation was that the deal would be wrapped up by late August, M&T executives said Friday.
Both banks said they still are pushing ahead with plans to complete the deal and will hold previously scheduled shareholder meetings to consider the merger next week.
“We are very committed to this transaction,” said Mark Czarnecki, M&T’s president.
The delay reflects the heightened focus that banking regulators are placing on programs that banks have in place to detect and prevent money-laundering activity by suspected terrorists or criminals. Another bank with major Buffalo ties, HSBC USA, paid a nearly $2 billion fine last year to settle a case involving drug money from Mexico.
Czarnecki stressed that the Fed’s concerns did not arise from allegations of widespread money laundering or other illegal acts that were not being detected by M&T.
“There have been no allegations of money laundering or anything like that,” he said.
M&T said it has hired an outside consulting firm that it declined to identify and launched an initiative to address concerns the Federal Reserve raised over M&T’s compliance with the Bank Secrecy Act.
“It’s making our procedures and policies more robust,” Czarnecki said. “It’s an investment that we have to make.”
“When you go for an approval [from federal banking regulators], you have to show you have a higher standard,” he said. “We needed some time to work on a program and make it more robust than it is today.”
And because updating those procedures will take time, the banks pushed back the timetable to complete the merger. The deadline for which either bank can back out of the deal is being extended from Aug. 27 to Jan. 31, 2014.
Czarnecki declined to characterize the hurdle that the stiffer money-laundering procedures pose to the deal. The bank, in a statement disclosing the delay, said there can be no assurances that the merger will be completed by the Jan. 31 date.
But Bob Ramsey, an analyst at FBR & Co., said he believes the merger still will go through. “Both parties are fully committed,” he said in a note to investors.
The delay does not affect the financial terms of the deal, and both M&T and Hudson City, based in Paramus, N.J., will hold special shareholders’ meetings next week to vote on the merger.
M&T’s shareholder meeting is scheduled to be held Tuesday in Buffalo, while the Hudson City meeting is set for Thursday.
But the news of the delay did hurt the stocks of both banks. M&T’s stock lost nearly 5 percent Friday, falling $4.68 to $100.24. Hudson City shares fell more than 5 percent, dropping 48 cents to $8.29.
Because of the delay, M&T has pulled its staff out of the Hudson City branches and stopped any construction or other premerger work on the branches in New Jersey. Czarnecki said those staffers generally were doing preliminary work that would be done in the weeks and months leading up to the date when a merger is expected to be completed, so the delay in closing the deal has pushed back the timetable for completing that work.
Sen. Elizabeth Warren, D-Mass., questioned regulators in March over whether they’ve done enough to combat money laundering. Last year, HSBC paid nearly $2 billion to settle a money-laundering case involving illicit drug money from Mexico brought by U.S. and U.K. officials. The bank’s head of compliance resigned from his position and apologized to the Senate investigation last year after it was found HSBC had lax controls that exposed it to money-laundering and terrorist financing.
Argentina’s government last month accused HSBC of facilitating money laundering and tax evasion through an illegal scheme enabling its clients to hide more than $100 million. HSBC issued a statement that did not deny the accusations and promised to cooperate.
Citigroup Inc. and JP- Morgan Chase & Co. also have been targeted as regulators look into compliance with rules to guard against illegal transactions.
The Bank Secrecy Act was designed to curtail criminals from injecting the proceeds of their crimes into the legitimate financial system. It has since been used as a tool to combat international drug cartels and terrorist groups.
The merger would add $28 billion in assets and 135 branches in New York, New Jersey and Connecticut to M&T’s holdings. Once the deal is completed, M&T would have $109 billion in assets, $89 billion in loans and $87 billion in deposits, the bank said, putting it among the top 15 U.S.-based banks.