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The Deal: M&T Bank's Work on Fed Concerns Keeps Deal at Bay

NEW YORK (TheStreet) ¿¿M&T Bank (MTB - Get Report) said Thursday its process of coming into compliance with federal regulations remains ongoing.

M&T Bank entered into a $5.2 billion merger agreement with Hudson City Bancorp (HCBK) in August 2012. The deal has been in limbo since April when the Federal Reserve Board raised concerns about M&T's procedures and processes relating to compliance with the Bank Secrecy Act and anti-money laundering compliance program.

M&T entered a consent order with the Fed in June that laid out obligations for the company to come into compliance with the BSA/AML regulations, including submitting plans for revised programs.

On its earnings call Thursday, M&T chief financial officer Rene Jones said, "We believe the progress to date has been considerable. And while we have a lot of work left to do, we continue to work diligently to create a high quality BSA compliance program that fully addresses the concerns raised in the written agreement with the Federal Reserve."

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Jones said that the level of staffing needed for the BSA compliance program will eventually level out, although it is expected to remain elevated for several more quarters. He said, when asked by an analyst, that the bank didn't know what percentage of the program was completed. According to the CFO, the process involved building state of the art practices, rather than simply fixing a weakness in the system, because those trying to get around the bank's protections are also improving their efforts. The real goals is to have the board and its regulators confident in the bank's infrastructure - and he couldn't answer what the time frame for that would be.

M&T has not spent time thinking about the Hudson City merger because of the compliance process, Jones said, which must be completed before it can turn its attention to the deal.

In July, on its second-quarter earnings call, M&T reassured analysts it had a good understanding of Hudson City's balance sheet and it was comfortable about the economics of the transaction including how rate changes might affect Hudson City.

The Hudson City deal was already approved by shareholders of both companies in April after the Fed raised the BSA/AML issues. Fed approval is a condition of the merger.

Hudson City in September set its annual meeting, which had been delayed by the merger, for Dec. 18. Hudson City said it set the meeting to comply with Nasdaq corporate governance requirements and the meeting will not be held if the deal closes before that date.

The termination date for the merger was extended from Aug. 27 to Jan. 31, 2014.

The deal spread Friday was 32 cents, or 3.4%.

M&T reported that third-quarter net income increased $294 million, as compared to $293 million the year before, but was down from second-quarter 2013 net income of $348 million. Diluted earnings per common share for the third quarter of 2013 were $2.11, compared with $2.17 in the year-earlier quarter and $2.55 in the second quarter of 2013.

Hudson City will report its earnings on Oct 23.

Written by Scott Stuart in New York

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