M&T Repays $700M in TARP (JPM) (MTB) (USB) (WFC)

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M&T Bank Corporation (MTB) has repaid $700 million in Troubled Asset Relief Program (TARP) funds to taxpayers.

This week, M&T repurchased TARP Capital Purchase Program (CPP) preferred shares from the Treasury totaling $370 million. These include the TARP preferred stock issued by Provident Bankshares Corporation and M&T to the Treasury Department. Provident was acquired by M&T in 2009.

In addition to this, last week M&T Bank purchased CPP preferred shares totaling $330 million that had been issued to the Treasury by Wilmington Trust. The company earlier announced its intention of repaying TARP dues concurrent with the closing of the merger of Wilmington Trust Corporation. The Treasury holds remaining outstanding M&T CPP preferred shares totaling $381.5 million.

According to an announcement from Treasury in March, its investment in banks has already turned a profit. Out of the total $700 billion bailout money, about $245 billion was handed out to banks in 2008. Now, with the repayment of the TARP dues by M&T, taxpayers have recouped a total of over $252 billion from bailed out banks. This recovery includes dividends as well as interest income from banks.The Treasury currently anticipates that bank programs within TARP will ultimately provide a lifetime positive return of approximately $20 billion to taxpayers.

Holding M&T Stock is Worthwhile

While M&T still has to repay more in TARP dues, we believe that it is essentially a positive step as upon full repayment, M&T can escape restrictions on both financial and executives’ pay package flexibility that the company was subject to upon being a TARP receiver.

Strategic acquisitions also augur well for M&T. The company recently acquired Wilmington Trust which was plagued by soaring loan losses. But because of its strong corporate trust and wealth advisory businesses, it was an attractive buy for M&T. The merger of Wilmington Trust is projected to be accretive to the company’s earnings in 2012.

Other strategic acquisitions such as Provident and Bradford acquisitions in the Mid-Atlantic region have proved meaningful, both in terms of customer base and profitability. The purchase of K Bank, Randallstown, Maryland through an FDIC assisted deal, should also aid the company to expand its network in the Mid-Atlantic region.

In fact, consolidation has become an industry norm as the financial crisis created significant opportunities to expand businesses. Besides M&T, the other major acquirers of failed institutions include JPMorgan Chase & Co. (JPM), Wells Fargo & Co. (WFC) and U.S. Bancorp (USB).

M&T managed to deliver solid quarters even during the financial crisis and continues to enjoy growth in net interest margin. A sound capital position with a growing core deposit should benefit the bank in the long run. Recently, the company also declared a quarterly cash dividend of 70 cents per share on its common stock.

Yet, while headwinds related to credit quality has also lessened, sluggish economic recovery and regulatory headwinds remain concerns.

M&T shares are maintaining a Zacks #3 Rank, which translates into a short-term Hold recommendation. Considering its fundamentals, we also have a Neutral recommendation on the M&T stock.

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WELLS FARGO-NEW (WFC): Free Stock Analysis Report

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