M&T Bank Corporation's (MTB) unit – Wilmington Trust Corporation – will shell out $18.5 million to resolve claims of the Securities and Exchange Commission ('SEC'). Delaware-based Wilmington Trust was charged for improper accounting and failure to disclose the actual volume of its loans that were at least 90 days past due during the financial crisis.
Wilmington Trust agreed to the violations of Sections 17(a)(2) and 17(a)(3) of the Securities Act of 1933. Moreover, maintenance of records and provisions of the federal securities laws related to internal controls was also violated.
Apart from the monetary settlement, Wilmington Trust has also agreed to refrain from violating or causing any future violations of these provisions.
Currently, the SEC is continuing its investigation.
Charges
According to the findings of the SEC, when the real estate market tanked down in 2009 and 2010, Wilmington Trust’s construction loans started maturing. However, the loans were not being repaid and the underlying projects remained incomplete.
Wilmington Trust did not take any necessary step to address the issue of the matured loans, which comprised a significant amount. Further, it did not properly disclose the correct amount of such loans and inappropriately removed the matured loans from its public financial reports.
Instead of disclosing a total of $669.1 million in matured loans 90 days or more past due in the quarterly reports of third and fourth quarters of 2009, Wilmington Trust just reported $69.3 million. Moreover, during the same time frame, Wilmington Trust did not reveal properly the amount of non-accruing loans, and significantly understated provision for loan losses and allowance for loan losses. The company misrepresented the category of matured loans 90 days or more past due in the first and second quarters of 2010.
On account of such frauds, investors were misguided about the actual credit quality. Per the director of the SEC’s New York Regional Office, Andrew M. Calamari, “By failing to fully disclose the actual volume of accruing loans past due 90 days or more, Wilmington Trust prevented investors from learning the full scope of the troubles in its commercial real estate loan portfolio.”
Bottom Line
The financial crisis created significant opportunities for M&T to expand its business. Soaring loan losses plagued Wilmington Trust during the financial crisis, which ultimately was acquired by M&T Bank in 2011. However, Wilmington Trust was a strategic acquisition for M&T Bank owing to the strong corporate trust and wealth advisory businesses of the former. The deal added 55 branch locations, 225 ATMs and $10.7 billion in assets to M&T.
Undoubtedly the latest settlement brings some relief to Buffalo, NY-based M&T Bank. However, regulatory woes still persist as the long proposed deal to merge with Hudson City Bancorp, Inc. (HCBK) has yet to close. The deal, which was inked in Aug 2012, has deferred as the Federal Reserve had pointed out several discrepancies in M&T Bank’s risk-management agenda that reflected violation of federal anti-money-laundering regulations and also raised questions about M&T Bank's procedures, systems and processes relating to M&T's Bank Secrecy Act and anti-money-laundering compliance program.
M&T's Bank currently carries Zacks Rank #3 (Hold). Some-better ranked stocks in the finance space include PrivateBancorp, Inc. (PVTB) and Arlington Asset Investment Corp. (AI). Both the stocks carry a Zacks Rank #1 (Strong Buy).
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