2nd UPDATE: M&T To Acquire Ailing Wilmington Trust In $351 Million Deal
November 01 2010 - 3:47PM
Dow Jones News
Wilmington Trust Corp. (WL), a once stellar trust bank that lost
its way, said Monday it would sell itself for less than book value
and for roughly half the price its shares fetched on Friday.
M&T Bank Corp. (MTB) said it will buy the Wilmington Trust
bank, best known for its focus on wealthy clients, for $3.84 a
share. On Monday, shares of Wilmington Trust tumbled 42% but
remained well above the acquisition price, trading at $4.13. The
stock had fallen 39% this year through last week.
Shares of M&T rose 3.3% to $77.20.
The $351 million stock deal comes on the heels of Wilmington
Trust's $365.3 million third-quarter loss, also announced Monday,
driven by increasing losses from bad construction loans.
Wilmington Trust had shocked shareholders earlier this year with
the revelation that its loan book was in considerable trouble, and
it abruptly changed chief executives, choosing a nonbanker,
director Donald Foley, to run the company.
Wilmington's losses have continued to mount even as the banking
industry has seen improvements in troubled loans in recent
quarters. The bank operates under an "informal agreement" with its
main regulator, the Federal Reserve, Chief Financial Officer David
Gibson said in an interview with Dow Jones Newswires. The loan
losses are "a focus of our regulators," he said.
On Monday, the bank said it wrote off $145 million in bad loans
in the third quarter, up from $22 million a year earlier.
Nonperforming assets, mostly loans for which repayment is doubtful,
rose 150% to almost $990 million.
Very few of the bank's soured construction loans were tied to
Wilmington Trust's private banking customers, Gibson said. He and
Foley blamed the length of the economic slump for the sharp
increase in loan losses.
M&T CFO Rene Jones said in a conference call Wilmington
Trust's experience "is not all that different from ours" in the
same markets. "They just have a lot more" construction loans than
M&T.
But some investors saw it differently. Jeffrey Bronchick, chief
investment officer at Los Angeles investment advisory firm Reed
Conner & Birdwell LLC, said, "They just blew themselves up the
old-fashioned way by making stupid, stupid credit decisions." His
firm sold its roughly 160,000 shares after the second-quarter
results.
M&T approached Wilmington Trust in early October, an M&T
spokesman said. Foley said after discussions with "several
potential partners" the board decided that the M&T deal was the
best option for its shareholders, clients and staff.
He wouldn't elaborate. But he appears to have bucked advances by
at least one other private equity investor; Gerald J. Ford of the
Ford Financial Fund said he "attempted to contact the company and
indicated interest" to no avail. "Nobody returned our call."
M&T said it would keep Wilmington Trust's name for the trust
business and consolidate the retail banking operation, slashing
costs by 15% and writing down Wilmington Trust's loans by 13%.
M&T, of Buffalo, N.Y., has $68.2 billion in assets and
extensive operations in the mid-Atlantic region. Wilmington Trust
has $10.4 billion in assets.
M&T will assume the Treasury Department's $330 million
Troubled Asset Relief Program investment in Wilmington Trust.
Janney Montgomery Scott analyst Rick Weiss wrote in a research
report, "At first blush, we like the deal. Wilmington Trust has not
realized its true earnings potential for at least the past decade
and would have performed better under a more energetic management
team."
Boenning & Scattergood analyst Matthew Schultheis said, "I
think this is the best-case scenario" for Wilmington Trust.
Wilmington Trust's third-quarter loss widened from $5.9 million
a year earlier. The latest period included $100.7 million in tax
expense. Revenue increased 14% to $170.3 million on higher income
from nonlending businesses. The bank's loan-loss provisions surged
to $281.5 million from $38.7 million a year earlier and $205.2
million in the second quarter.
-By Matthias Rieker, Dow Jones Newswires; 212-416-2471;
matthias.rieker@dowjones.com
(Tess Stynes and David Benoit in New York contributed to this
story.)
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