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New Delay for M&T, Hudson City Deal Should Be Comfort to Investors (Update 1)

Stocks in this article: MTB HCBK

Updated from 8:13 a.m. ET with midday market action and comment from BMO Capital Markets analyst Peter Winter.

NEW YORK (TheStreet) -- Another long delay to the expected closing of M&T Bank's (MTB) acquisition of Hudson City Bancorp (HCBK) may initially upset investors, but the latest extension of the walk-away date actually makes the completion of the deal more likely. 

The companies late on Tuesday said "additional time will be required" to obtain regulatory approval of the merger, as M&T continues to improve its Bank Secrecy Act compliance systems and its anti-money-laundering compliance program, as required by the Federal Reserve.  The banks extended for 11 months "the date after which either party may elect to terminate the merger agreement if the merger has not yet been completed" to Dec. 31, 2014 from Jan. 31, 2014.

M&T of Buffalo, N.Y., in August 2012 agreed to acquire Hudson City of Paramus, N.J, in a deal originally valued at about $3.7 billion in cash and stock. The merger was expected to be completed during the second quarter of 2013, but the two companies in April announced that the time needed to gain regulatory approval of the deal would be "extended substantially," because M&T had "learned that the Federal Reserve has identified certain regulatory concerns" with M&T's compliance programs.

As they did in April, the two companies on Tuesday said "there can be no assurances that regulatory approval will be obtained or that the merger will be completed" by the new walkaway date of Dec. 31, 2014.

M&T CFO Rene Jones said in the joint press release that "We continue to believe strongly that a merger with Hudson City is beneficial to both institutions, their shareholders and the communities we serve. We could not have asked for a better partner than Hudson City as we continue to work towards a successful outcome."

Jefferies analyst Ken Usdin in a client note late Tuesday wrote that the latest extension "should provide ample time for MTB to progress toward compliance with bank secrecy and anti-money laundering projects to a level that will satisfy the Fed enough to approve the merger."

But the delay did cause Usdin to lower his 2014 earnings estimate for M&T to $7.85 a share from $8.45, "after removing $0.60 of accretion."

"Our 2015 EPS estimate actually moves up to $9.30 from $9.15 on higher net interest income, as the additional time to close will result in a larger-than-planned HCBK loan book," Usdin added.

The analyst also raised his price target for M&T's stock to $116 from $113, "on the '15 revision," but reiterated his "hold" rating for M&T.

M&T continues to perform well, with a third-quarter return on average tangible equity (ROTCE) of 18.03%, according to Thomson Reuters Bank Insight. That's a very strong return relative to peers, but it's down from 22.39% the previous quarter and 21.65% a year earlier.

But Rafferty Capital Markets analyst Richard Bove told Dan Freed last week that he M&T was his least favorite stock among the banks he covers. 

""It's in the midst of a major major restructuring of every aspect of its company because it grew too fast and didn't build the infrastructure necessary to keep up with that growth," Bove said, adding that he didn't think the Hudson City deal would ultimately be completed.

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