The chief executive of Wilmington Trust Corp. said Monday that its planned sale to M&T Bank Corp. is "difficult and painful" but necessary because it has increasingly suffered higher losses from bad construction loans to Delaware homebuilders.
Worsening loan problems made a ratings downgrade of the Wilmington, Del., company or a regulatory action against its bank unit increasingly likely, Donald Foley, Wilmington Trust's CEO, told analysts in a conference call Monday.
"This is a difficult moment," he said.
For its part, Buffalo-based M&T said Wilmington Trust's lucrative wealth management and corporate client services would bolster its burgeoning trust business.
M&T has the financial strength to absorb what it expects to be about $1 billion of pending losses in Wilmington Trust's commercial lending book, said Robert Wilmers, M&T's chairman and chief executive, on the call.
The deal would extend M&T into a new market while beefing up its presence in the Mid-Atlantic region, where it is already a dominant player in Maryland, Wilmers said. It also delivers much-needed fee income at a time when banks are making less money from loan interest and deposit fees.
"The strategic fit between" the two companies is "unusually compelling," Wilmers said.
M&T will pay $351 million in stock for Wilmington Trust; the deal is expected to close by mid-2011. The $68.2 billion-asset Buffalo company will gain $10.4 billion in assets through the purchase, and it said that the acquisition should add to earnings in 2012. M&T said in a press release that there is no overlap between its branches and the 48 branches it will gain from the deal.
M&T also said it would keep the "recognizable and reputable Wilmington Trust brand for all wealth advisory and corporate services businesses," which will remain based in Delaware. A bigger goal will include introducing those services to M&T customers in other markets.
"This strategic partnership brings together two institutions that share many common values, and that operate several distinct but complementary lines of business," Wilmers said in the release. "By leveraging the combined strengths of both organizations, we are building an even more powerful franchise with strength and stability, scale and density and top-of-class products and services."
Last year, M&T bought and quickly integrated the $6.5 billion-asset Provident Bankshares Corp. of Baltimore, adding 135 branches.
Early last month Bloomberg reported that Wilmington Trust was looking for capital from private equity firms, and more recently reported Wilmington was in talks with two Canadian lenders about a potential buyout.
Wilmington reported a loss of $365.3 million, or $4.06 a share, compared with a prior-year loss of $5.9 million, or 15 cents a share, a year earlier. The latest period included $100.7 million in tax expense.
Revenue increased 14% to $170.3 million on higher noninterest income. Analysts polled by Thomson Reuters most recently forecast $179 million.
The company's loan-loss provisions surged to $281.5 million from $38.7 million a year earlier and $205.2 million in the second quarter.
