M&T has also taken an innovative step to reduce its cost of capital and avoiding dilution of its common shareholders. The company owes $230 million in bailout money provided through the Troubled Assets Relief Program, or TARP, in December 2008, in addition to $151.5 million for TARP assistance provided to Provident Bancshares before that company was acquired by M&T in May 2009.
The U.S. Treasury on Aug. 17 completed a public offering of the $381.5 million in M&T TARP preferred shares held by the government. The preferred shares have a 5.00% coupon, which is scheduled to rise to 9.00% in February 2014 for the remaining $230 of the bank's original TARP bailout, with the coupon on the $151.5 million in assistance originally provided to Provident Bancshares rising to 9.00% in November 2013.
M&T on Aug. 20 proposed an amendment under which the dividend rate on all of the former TARP preferred shares will rise to 6.375% on November 15, 2013. The amendment needs to be approved by M&T's common shareholders, who will be sure to do so, since it will reduce the possibility of a dilutive common equity raise. The amendment was approved by the Treasury before the public offering, so the new preferred shareholders will not be voting.
If M&T's common shareholders approve the lower rate increase, M&T won't redeem the preferred share until November 15, 2008. Otherwise, the company will probably redeem the shares in 2013. The big icing on the cake for M&T is that the former TARP preferred shares qualify as regulatory Tier 1 capital.
Written by Philip van Doorn in Jupiter, Fla.