Dead End for M&T, Santander Deal?

Includes: MTB, SAN
by: Zacks Investment Research

The M&T Bank (NYSE:MTB) and Banco Santander SA (STD) deal has stalled again, according to a Wall Street Journal report. The deal is said to be dead since the companies failed to reach a consensus on who will control the merged entity.

The deal has been a matter of discussion for several months. Santander sought to merge Sovereign Bank, its U.S. unit, with M&T Bank, buy Allied Irish Banks plc.’s (AIB) 22.5% stake in M&T and take over the control of the merged entity while M&T Bank intended to merge itself with Sovereign but retain its control. The deal therefore needed a compromise.

The M&T Bank regulators are said to be unenthusiastic about the deal as they fear that the merger with Sovereign would undermine the company’s operational efficiencies. While Sovereign has been plagued by problematic loans in its balance sheet, M&T Bank managed to put solid quarters even during the financial crisis.

However, if the deal does take place, it would enable the formation of the joint entity of M&T Bank and Sovereign to become the ninth largest U.S. savings institution by deposits.

The deal is a strategic fit for the Spanish bank Santander, which desperately needs to diversify its geographic footprint due to the economic slowdown in its home market. It has struck a deal to acquire 318 branches and associated assets and liabilities from Royal Bank of Scotland Group plc. (NYSE:RBS) earlier in August, has agreed to buy a portfolio of car loans from HSBC Holdings plc. (HBC) for $4 billion, and acquire the 70% stake of Allied Irish Bank in Polish bank, Bank Zachodni WBK.

Currently, both M&T Bank and Santander carry a Zacks #3 Rank (Hold), implying no clear directional pressure on either stock over the next one to three months.