AIB Selling M&T Bank Stake – Analyst Blog

In an effort to generate sufficient capital, Allied Irish Banks plc (AIB) announced yesterday that it would sell its 22.4% shareholding in M&T Bank Corporation (MTB). The sale involves a public offering of 26.7 million notes that are exchangeable for the shares of common stock of M&T currently owned by it.

The deal is subject to the approval of the shareholders of Allied Irish. The M&T stake was acquired by Allied Irish in 2003 when it sold Allfirst Bank to M&T. Morgan Stanley (MS) and Citigroup Global Markets Inc., an arm of Citigroup Inc. (C), are acting as underwriters and joint bookrunning managers for the offering.

The financial crisis took its toll on Allied Irish Bank and the government came to its rescue. On September 30, 2010, the Irish government announced the effective nationalization of Allied Irish Banks, marking it the fourth Irish bank to be nationalized in the wake of the credit downturn. The Irish government is taking up a majority stake in the bank. The bank requires €3 billion on top of the previous €7.4 billion requirement. Hence this stake sale by Allied Irish to raise capital was well anticipated.

Media reports suggest that Spanish bank Banco Santander SA (STD) was earlier eyeing this stake in M&T. Santander was reported to have an on-and-off negotiation with M&T for merging its U.S. unit Sovereign Bank. However, a disagreement over the controlling power of the merged entity stalled that deal.

Santander is looking to diversify its geographic footprint to combat 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. (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.

On the other hand, 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. Despite an unfavorable economic environment, the bank continued to experience growth in net interest margin. The acquisition of Provident and Broadway has also boosted profitability, increasing its market share in the Maryland area. Credit quality challenges also seem to lessen. However, the tepid recovery of the economy and challenges from the recent legislative actions would limit the company’s earnings.  

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.