Updated with regulatory news, market close information and comment from Deutsche Bank analyst Matt O'Connor.
Hudson City's shares popped after the troubled Paramus, N.J., lender agreed to be acquired by M&T Bank (MTB) for $3.7 billion in cash and stock, or $7.22 a share.
The deal price represents a 12% premium over Hudson City's Friday closing price of $6.44, offering shareholder a way forward, after Hudson City's long-term leverage strategy of increasing wholesale borrowings and investing in mortgage-backed securities backfired.Hudson City has undergone two recent and painful balance sheet restructurings, the first of which was forced by the Office of Thrift Supervision. Following a first-quarter 2011 restructuring that included a charge of $649.3 million to prepay $12.5 billion in higher-cost borrowing, the company prepaid another $4.3 billion in borrowings during the fourth quarter of last year, resulting in $440.7 million in charges. Despite the balance sheet overhaul, Hudson City's second-quarter net interest margin -- the difference between a bank's average yield on loans and investments and its average cost for deposits and wholesale borrowings -- was a stubbornly low 2.12%, declining from 2.15% in the first quarter, and 2.14% in the second quarter of 2011. With long-term rates continuing to see downward pressure, especially for Hudson City's bread-and-butter mortgage lending business, the margin pressure was bound to continue. Hudson City Bancorp reported second-quarter earnings of $72.3 million, or 15 cents a share, for mediocre return on average assets of 0.66% and a return on average equity of 6.19%. Hudson City CEO Ronald Hermance said that "Hudson City recently embarked on a diversification of our product lines and our balance sheet," and that "as we combine Hudson City's attractive retail network with M&T's full service commercial banking suite, our stakeholders will participate in the growth of one of the nation's strongest and most successful banking franchises." After the merger is completed, Hermance will remain as a board member for the combined holding company and its main banking subsidiary. Hudson City has $43.6 billion in assets, with 135 branches, with 97 branches in New Jersey, 29 in New York, and nine in Fairfield County, Conn. M&T has $80.8 billion in total assets, and plans to "repay approximately $13 billion of Hudson City's long-term borrowings by liquidating its comparably sized investment portfolio," after the merger is completed. M&T -- headquartered in Buffalo, N.Y. -- will add $25 billion in deposits and $28 billion in loans, from the acquisition.
Select the service that is right for you!COMPARE ALL SERVICES
Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.
- $2.5+ million portfolio
- Large-cap and dividend focus
- Intraday trade alerts from Cramer
- Weekly roundups
Access the tool that DOMINATES the Russell 2000 and the S&P 500.
- Buy, hold, or sell recommendations for over 4,300 stocks
- Unlimited research reports on your favorite stocks
- A custom stock screener
- Upgrade/downgrade alerts
Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.
- Diversified model portfolio of dividend stocks
- Alerts when market news affect the portfolio
- Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.
- Real Money + Doug Kass + 15 more Wall Street Pros
- Intraday commentary & news
- Ultra-actionable trading ideas
Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.
- 100+ monthly options trading ideas
- Actionable options commentary & news
- Real-time trading community
- Options TV