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) --

M&T Bank


was the loser among large financial services companies on Tuesday, with shares pulling back 2% to close at $88.37.

The broad indexes were mixed and close to flat, as investors continued to look ahead to

Federal Reserve

Chairman Ben Bernanke's speech at the Jackson Hole, Wyo. global economic symposium this weekend. The

KBW Bank Index


dipped slightly to close at 47.10, with the 10 of the 24 index components down for the session.

M&T's shares reversed course after Monday's 5% increase, after the company announced a deal to acquire Hudson City Bancorp of Paramus, N.J., for $3.7 billion in cash and stock, or $7.22 a share.

Moody's Investor Service early on Monday announced that it was reviewing its credit ratings for M&T and its main banking subsidiary for possible downgrades.

The ratings agency said it would "primarily focus on the credit profile of Hudson City... and the integration challenges that it presents," as "the acquisition of Hudson City will substantially heighten M&T's exposure to residential mortgages through the addition of its $28 billion portfolio." The ratings agency said it "will analyze the acquired residential mortgage portfolio for potential losses versus M&T's estimated credit mark of 1.5% and its overall capital position."

The main factor leading to Hudson City's decision to sell was not credit quality, but a declining net interest margin, resulting from the company's focus on residential mortgage lending and its long-term leverage strategy of investing wholesale borrowings into mortgage-backed securities. The company's second-quarter net interest margin was a low 2.12%, declining from 2.15% in the first quarter, and 2.14% in the second quarter of 2011.

M&T's 1.5% loss estimate on the $28 billion in mortgage loans being acquired from Hudson City Bancorp appears to be a conservative figure, since Hudson City's annualized rate of net charge-offs to average loans has ranged between 0.25% to 0.30% over the past five quarters.

Positive reaction to M&T's merger deal with Hudson City continued, with Jefferies analyst Ken Usdin maintaining his "Hold" rating for M&T, but raising his price target for the shares by three dollars to $96, and calling the merger "financially appealing, accretive to capital and earnings." The analyst raised his 2013 earnings estimate for M&T to $8.00 a share, from $7.45.

Guggenheim analyst Marty Mosby also has a neutral rating on M&T, but said "this acquisition should increase MTB's tangible book value per share by approximately 10% while the synergies and portfolio restructuring helps to raise HCBK's returns on

tangible common equity enough to improve MTB's

return on tangible common equity by half a percentage point."

Mosby raised his price target for M&T's shares by 15%, to $100, while raising his 2013 EPS estimate by a dime, to $8.00.


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Written by Philip van Doorn in Jupiter, Fla.

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Philip W. van Doorn is a member of TheStreet's banking and finance team, commenting on industry and regulatory trends. He previously served as the senior analyst for Ratings, responsible for assigning financial strength ratings to banks and savings and loan institutions. Mr. van Doorn previously served as a loan operations officer at Riverside National Bank in Fort Pierce, Fla., and as a credit analyst at the Federal Home Loan Bank of New York, where he monitored banks in New York, New Jersey and Puerto Rico. Mr. van Doorn has additional experience in the mutual fund and computer software industries. He holds a bachelor of science in business administration from Long Island University.