The consensus among analysts is for Hudson City to report first-quarter EPS of 12 cents a share, increasing from 10 cents in the fourth quarter, but declining from 15 cents in the first quarter of 2012. Hudson City on April 18 will hold its special meeting and shareholder vote on the M&T acquisition.

Jefferies analyst Ken Usdin in a note to clients on Friday said that the announcement implied M&T would be handed down a "formal/informal decree" over its Bank Secrecy Act compliance deficiencies, and that the merger delay was "clearly a negative for both MTB shares and the merger arbitrage spread on both the delay of EPS accretion and greater uncertainty on closing."

"The trouble with regulatory decrees is that the timeframe for their eventual removal is difficult to handicap," Usdin wrote.

According to Usdin, "the worst-case scenario of one of the parties walking away is tough to assign a probability to, but it would seem that both parties would desire the deal to still close (MTB for earnings help and credibility, HCBK for fundamental business model reasons)."

Bank Earnings Season Kicks Off

JPMorgan Chase ( JPM) began the seasonal flurry of earnings reports for the nation's largest banks, reporting record first-quarter earnings of $6.5 billion, or $1.59 a share, soundly beating the consensus EPS estimate of $1.39.

First-quarter highlights for JPMorgan Chase included a $1.2 billion release of loan loss reserves for its Consumer and Community Banking unit, as well as a significant decline in expenses.

Non-interest expense totaled $15.4 billion in the first quarter, declining from $16.0 the previous quarter and $18.3 billion a year earlier. The company said litigation expenses dropped to $0.3 billion in the first quarter from $1.2 billion in the fourth quarter and $2.7 billion in the first quarter of 2012.

Most of the largest U.S. banks are expected by analysts to show significant decline in mortgage revenue for the first quarter, because of slowing refinancing applications and a narrowing of secondary market gain-on-sale spreads.

JPMorgan Chase reported mortgage fees and related income of $1.4 billion for the first quarter, declining from $2 billion, both in the fourth quarter and the first quarter of 2012. The company also said it originated $52.7 billion in mortgage loans during the first quarter, increasing 3% from the previous quarter. This implies that the revenue decline was almost entirely from lower gains on the sale of new loans in the secondary market, which includes, for the most part, Fannie Mae ( FNMA) and Freddie Mac ( FMCC).

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