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Special Reports - 2011 Best in Banking

Banker of the Year

Throwback Approach Keeps Wilmers, M&T on Top

When Robert Wilmers retired as the chief executive of M&T Bank Corp. in 2005, he gave little indication that he would someday return to the corner office.

Sure, Wilmers remained the Buffalo, N.Y., company's chairman and was still involved in major decisions, but he was 71 and M&T seemed in good hands with a new CEO, whom Wilmers had been grooming for years.

It turned out, though, that his hand-picked successor, Robert Sadler, didn't like the job much and in 2007 — after this newspaper had already honored him with its Lifetime Achievement award — Wilmers returned as CEO.

Under Wilmers, the $78 billion-asset M&T has weathered the economic downturn far better than most of its peers. Long one of the industry's best-performing companies, M&T remained profitable throughout the financial crisis and it has continued to increase market share, particularly in the Middle Atlantic region, with strategic acquisitions, including its purchase this year of Wilmington Trust Co. in Delaware.

Wilmers, meanwhile, is one of the few bankers willing to point the finger at his own industry for its role in sinking the economy. In speeches, op-eds and letters to shareholders, Wilmers has argued that ratings agencies, government-sponsored enterprises and, in particular, trading arms of large banks, are the entities most responsible for causing the financial crisis and he is dismayed that Congress failed to acknowledge as much when it passed the Dodd-Frank Act last year.

"One devoutly wishes to be able to say that this new law has done that which it was passed to do—prevent a recurrence of a financial crisis like the one we have experienced," Wilmers said at a conference in Washington in September. "I fear very much, however, that it will likely fall short."

For running one of the industry's top-performing banks for decades, keeping it on top throughout the depths of the financial crisis, and for his refreshing candor about the state of the banking industry, American Banker has named Wilmers as its Banker of the Year for 2011.

Emphasis on Banker. The 77-year-old Wilmers is a not a trader, speculator, subprime lender or master of the universe.

Many people today hear "banker" and think of a Wall Street titan, and that confusion annoys Wilmers, whose trade is to collect deposits from people and businesses and use them to help others buy homes, build new buildings and invest in new equipment. He also collects fees from people and corporations that need help managing their cash.

That's banking: a simple business.

What makes M&T, which has 16,000 employees and roughly 800 branches in the Northeast and Middle Atlantic, a good bank?

It starts with its basic operating model, which its chief financial officer, Rene Jones, has described as basically being a superefficient plain-vanilla lender in "our communities, where our pricing is relatively conservative."

It is fanatical about good expense management: M&T's expense-to-revenue ratio — a crucial gauge of efficiency — is consistently lower than its peers', which makes it more profitable.

It is smart about keeping strong the basic pillars of any bank: loans and deposits.

The retail franchise has a leading share in dense, important East Coast markets such as New York, Maryland and Pennsylvania. It provides the company with a big source of stable, cheap funds. Its deposit costs and costs of funds are lower than rival banks' of similar size.

Its loan portfolio is heavily weighted toward commercial real estate and commercial and industrial loans, but it makes up for that lack of diversity with sound underwriting.

A big chunk of its commercial real estate portfolio is tied to mixed-use properties and apartments in New York City, which tend to perform well. It favors cash flow loans on owner-occupied buildings, which are less risky than loans to renters or loans based on property values that can change.

"M&T is one of the best operators out there," said Todd Hagerman, an analyst with Sterne Agree Group Inc.

That is not to say M&T is perfect.

In his 2009 letter to shareholders, Wilmers admitted to the mistake of being "lured … by the siren song of higher earnings" into risky loans and securities. He's blunter in person, saying in an interview that the bank made some "stupid" loans that elevated its loan losses.

Still, it's a testament to the bank's strength that it could absorb the hit without wiping out profits.

A reluctance to take big bets stems from its ownership structure: Management and employees own more than 20% of the company. That is an unusually high percentage of insider ownership for such a big bank. Warren Buffet — an investor in the bank for decades — owns about 4.3% of M&T through Berkshire Hathaway.

A recent presentation to analysts highlights M&T's enviable metrics.

Its losses since 2008 are lowest among the country's top 20 commercial banks. Its shares trade at a relatively robust two times tangible book value, whereas most big banks are lucky these days if they're trading at or just over book. Its stock market performance is the best among the 100 biggest banks trading in the U.S. since 1983. It has posted a 19.3% annual return since 1980, and outperformed the Standard & Poor's bank index by 64% over the past 10 years.

It has consistently been among the most efficient banks in the industry (though soft revenue and merger-related expenses sent its efficiency ratio soaring in the third quarter.)

Wilmers, who splits his time between Buffalo and New York City, has old-fashioned ideas about banking, and old-fashioned tastes.

Black-and-white photos hang on the walls of his Park Avenue office, where he sits at a big antique desk made by L. & J.G. Stickley, an old furniture maker in upstate New York. There's no computer on the desk, just a messy spread of memos, newspapers and mail.

Two beige phones sit on another table behind the desk. And he keeps a strange old antique against the wall that looks like a tiny row of Victorian houses on a fancy coffee table. It just kind of ended up there after Wilmers bought and refurbished it. He likes to show it off to visitors, but doesn't even know what it is.

He went into finance after college, and did stints at a small New York bank that catered to the wealthy and the city's finance commission. He made his name in the mid-1970s running the Belgian operations of J.P. Morgan & Co. He came home and established its international private banking unit.

He started his own firm in 1980 with the aim of taking over an undervalued bank. He came to then $2 billion-asset M&T as an activist investor: He was named CEO in 1983 after his group bought up a quarter of its shares and began pushing for change.

His growth strategy over the past 28 years: play it safe and make big moves when the economy tumbles. M&T has made 23 acquisitions on his watch. Many of the important ones were in a downturn: It branched into New York City after the crash of 1987, buying the $2 billion-asset East New York Savings Bank, his first major acquisition. It did a flurry of transactions in the wake of the savings and loan crisis in the early 1990s that consolidated its position in upstate New York, a slow growth market that provided the company with a surprising amount of financial oomph through the years.

Sticking with cheap deposits and safe loans laid the foundation for its three big moves of the 2000s. It entered Maryland in 2003 buying Allfirst Financial, which sold itself because of big currency trading losses. It solidified its grip with two post-crisis deals that few other banks could have pulled off: 2008's takeover of Provident Bankshares of Baltimore and its 2011 purchase of Wilmington Trust, a leading corporate trust player hobbled by construction loans.

The transaction required a buyer with considerable financial strength: M&T moved swiftly and agreed to pay about $365 million for the $10.5 billion-asset company, retired its $330 million in federal aid and wrote down less than $1 billion of Wilmington's bad loans, mostly in construction.

The transaction has taxed M&T's expenses and capital levels, but investors are giving it the extra leeway on those fronts given its history of making deals work.


In person, Wilmers looks a bit like the actor Kirk Douglas, but smaller and more soft-spoken. The loudest thing about him during an interview in October was his bright red suspenders.

He lapses into short, boilerplate answers on personal matters but is happy to talk at length about M&T or the state of banking.

He's good with people, the type of top executive that walks a visitor to the lobby after a meeting. He loves lunching with people that don't often get face time with the CEO of a major bank. He entertained a handful of M&T interns and a half-dozen business customers on a late week in October.

"I want to know what's going on," Wilmers said. "Because I have the corner office, they might be interested in what I'm like."

As a manager, he has a reputation for being inquisitive, and demanding. His deputies say he leads from the front.

"Bob is a true leader. He is very consistent. He's focused on the business," Jones said. "He always asks the right questions."

Like a lot of effective CEOs, he has a knack for absorbing lots of information and figuring out how to determine what it means in the broader scheme of things. That makes him good at troubleshooting.

"He has a keen business mind," said John Zawadzki, the former CEO of Partners Trust Bank in Utica, N.Y., which M&T bought in 2007. "In working with him I sense that he is able to sort through the issues to the source of the problem very quickly."

Having investors, like Buffet, that take the long view helps M&T do the same. It is willing to make decisions that hurt profits now but pay off later.

Earlier in the year the company decided to retain originated mortgages, because the opportunities to buy securities at a gain had gotten scarcer. Selling mortgages to investors or the government boosts fees. M&T's mortgage fees have been soft while other big banks report gains as low interest rates spur refinancing activity. M&T does not expect to see the benefits of bringing the $800 million in mortgages it added to its balance sheet until this year's fourth quarter.

The Wilmington Trust acquisition is another example of looking long.

Wilmington Trust was a rare bank that relied on fees for profits, with well-regarded wealth management and corporate services divisions.

So far, the transaction has been a bit of a drag on M&T's earnings. Its past two quarters have been obscured by a number of one-time items related to the acquisition and it expects to book another $32 million in merger expenses this quarter. Meanwhile, fees from Wilmington's trust operations have been weaker than expected.

Still, market watchers are optimistic M&T will make the transaction work. Steven Alexopolous, an analyst with JPMorgan Chase & Co., said an "opportunity exists" for M&T to post stronger earnings than the market is expecting "via synergies" with Wilmington.

"Although the fee-generation side of [Wilmington] seemed to have tremendous potential, under prior leadership this potential never seemed fully realized," Alexopolous said.


With success comes status, and Wilmers has used his to try to reverse Buffalo's sagging fortunes, making him a figure of both praise and controversy.

M&T has helped fund everything from the rain forest exhibit at the local zoo to free concerts downtown, and Wilmers himself is a significant benefactor to the arts.

Education is one of Wilmers' biggest pet causes.

M&T essentially adopted an underperforming public school, pumped a bunch of money into, staffed it with volunteers from the bank and, ultimately turned around its dismal test scores and attendance record. The school has won a lot of accolades in education circles, but organized labor got miffed when the school — with M&T's backing — won approval to go private. Wilmers, the critics contended, held too much sway over the local school board through his involvement managing Buffalo's finances.

He famously offered to help pay for the search for a new superintendent a few years ago.

In his role as a founder and leader of the city's control board, he was credited for greatly improving Buffalo's financial standing — from finding big savings, increasing surpluses and improving the city's credit rating — but cops and firefighters didn't like the wage freezes the board suggested and they protested outside Wilmers' home. (Wilmers stepped down from the control board four years ago.)

Wilmers has been very loudly speaking his mind for years. What has changed lately is that more people outside upstate New York are very much interested in what he has to say, largely because it has become very obvious how much better he is at running a bank than most people in his field.

He's gotten a bigger megaphone since the credit crisis struck.

His frank assessment of the dismal state of banking in his last several annual shareholder letters raised his profile in the business press. They've been excerpted by The Wall Street Journal and Bloomberg News. New York Times columnist Joe Nocera dubbed Wilmers the "good banker" in a widely circulated column in May.

Wilmers has developed something of a stump speech that is highly critical of the institutions that he believes helped create the financial crisis and government officials who he says haven't done enough to prevent another one.

He called out the "six-largest U.S. banks" in a September speech before American Banker's Regulatory Symposium, saying their mixing of commercial and investment banking was bad for the economy. He didn't name them, but it doesn't take much guesswork to determine that he's talking about Bank of America Corp., JPMorgan Chase & Co., Citigroup Inc., Wells Fargo & Co., Goldman Sachs Group Inc. and Morgan Stanley.

He said they shouldn't be allowed to gamble on trades while benefiting from the "protection of the [federal deposit insurance] that should protect depositors, not speculators."

That creates an unfair landscape because the banks with a hand in Wall Street can "create far more fees than realized in the rest of the banking industry," Wilmers said.

The system is still set up for a repeat of the 2008 crisis without a wall between trading and lending banks, he said, because Wall Street banks have the incentive to take big risks as long as they know the government will be there to rescue their depositors.

Smaller banks that aren't involved in trading, meanwhile, are stuck with the bill for the recklessness in the form of higher assessment fees to the Federal Deposit Insurance Corp.

"When banks go bust, the taxpayer doesn't pay but we do," Wilmers said.

He also resents that institutions such as M&T that didn't get too carried away with risky loans are now stigmatized.

"Banks are intensely disliked and politicians on both sides of the aisle have taken advantage of that," he said. "This is new."

He's ambivalent about his public role as the voice of bread-and-butter bankers.

Wilmers said that "98% of reactions" he's gotten for being vocal have "been favorable," but he's not sure anybody in Washington pays attention when he speaks out.

"I doubt it's made any difference," he said.

Wilmers initially planned to retire in 2005, but Sadler, his longtime lieutenant, "felt it wasn't any fun being CEO," Wilmers said. "So I came back."

The obvious questions: Does he find it fun or is he ready to retire for the second time?

Wilmers said he discusses succession matters with the board and he's confident M&T has a deep bench. He jokes that about half the dozen executives on the management committee could run the company as well or better than he does.

Investors and analysts agree that there are a handful of capable senior managers ready to take the reins when needed.

Each member of the executive team has been with the company for decades, which is unusual.

Jones is the new guy with 19 years of service. President Mark Czarnecki, 55, has been with M&T 34 years, or longer than Wilmers. Michael Pinto, the chief executive of M&T's operations in the Middle Atlantic, joined 26 years ago.

For now, though, Wilmers smiles and says he serves at the pleasure of M&T's board. "I enjoy it," Wilmers said. "I like being part of the banking business, being part of the community. As a banker you get involved in everything."