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Buyers to Bank On

An acquirer with a proven record can generate a substantial amount of shareholder wealth in the long run.

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The U.S. banking landscape has seen a fair number of mergers and acquisitions lately. We regularly evaluate potential targets, but in this piece we focus on the value created or destroyed by acquirers. We think this is especially relevant in light of some recent deals in which the buyers have gotten the better part of the bargain.

In the past few months, there have been a few headline-grabbing deals. The most recent one was M&T Bank's (MTB) announcement of the Hudson City Bancorp acquisition for roughly 0.8 times tangible book value and only a modest premium to Hudson City's previous closing price. We think this deal, much like M&T's earlier purchase of Wilmington Trust, reflects a buyer's market for banks. Hudson City was a jumbo mortgage lender waylaid by low rates and loss of market share to the government-sponsored enterprises, while Wilmington Trust was crippled by a deteriorating book of construction loans. In our view, buyers are likely to maintain the upper hand over the next 12-24 months as much of the industry continues to struggle with depressed profitability due largely to revenue headwinds and higher capital requirements.

Maclovio Pina does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.