M&T Bank had a bad experience with its last bank acquisition, but it may be poised to re-enter the M&A game.

While acquisitions have been an important strategy for the Buffalo, N.Y., company over the years, it has been on the sidelines since it bought Hudson City Bancorp in a deal that took more than three years to complete. Regulators balked at approving the deal until the $123 billion-asset M&T beefed up its Bank Secrecy Act and anti-money-laundering compliance.

Another two years have passed — regulators wanted management to focus on integrating Hudson City — but M&T seems ready to make another bank acquisition, longtime observers say. What it could buy is a hot topic among those who cover the bank.

M&T “had to do a thorough check up so they should feel good,” about future deals, said Marty Mosby, an analyst at Vining Sparks. “From [a regulatory] standpoint, they’re probably feeling as good as you can going into these types of things.”

M&T, under the leadership of Chairman and CEO Robert Wilmers, added about $58 billion of assets and $35 billion of deposits through six bank acquisitions over the last decade. Hudson City brought with it roughly $37 billion of assets, but it also forced M&T to spend $400 million to upgrade its AML compliance system to please regulators.

While the company felt somewhat “victimized” by the regulatory hit, Chief Financial Officer Darren King said during a November conference that such scrutiny may have been inevitable given increasing expectations for BSA and AML compliance for all banks.

“We would have been in the same boat at some point,” King said. “It just might have come a little bit later because [regulations] … are kind of working their way down from the big guys to the smaller guys. We moved up the scales, if you will, and upped the urgency because we had that deal pending.”

M&T declined to provide any additional comment.

It’s unlikely that M&T’s past struggles will scare off potential sellers, industry experts said. The company has already gone through a rigorous review to buy Hudson, so it’s unlikely that management would be caught off guard by a new problem. M&T, which now has top-notch BSA and AML systems, is generally a strong performer.

M&T would ideally find a target that is about a third its size, King said. The company has also completed deals “as big as half of our size,” he said, adding that management would consider doing something “smaller if it helps us build scale” in a particular market.

While M&T is likely considering commercially oriented banks, management may not want to bulk up too much on commercial real estate loans, said Brian Klock, an analyst at Keefe, Bruyette & Woods. The company could target the biggest metropolitan areas in New York, New Jersey and Connecticut.

“Now that they’re out of BSA and AML jail, I think they’ll be back at it again,” Klock said. “It has been part of their strategy for years.”

“M&T isn’t one of these banks that has to have size for the sake of size,” said Gerard Cassidy, an analyst at RBC Capital Markets. “They’re not a company that will just do a deal just to get bigger.”

M&T also tends to be a value buyer that tries to remain disciplined when it comes to pricing, so management could pass on potential sellers that want too much.

“If M&A heats up and prices rise too rapidly, I’d be surprised if M&T would participate,” Cassidy said. “There will be another down cycle, I can promise you that. What I can’t promise is when it will happen. But they aren’t in any rush. They are a long-term player.”

The company could also consider buying business lines such as wealth or asset management firms to boost fee income. A significant portion of its revenue already comes from fees.

In fact, benefits from the wealth management business M&T snagged when it bought Wilmington Trust in 2011 outweighed issues from the seller’s construction and real estate loans, Cassidy said. King, meanwhile, said the acquisition was likely “the best deal” in M&T’s history.

M&T’s aspirations could also get a boost from proposed legislation to lift the threshold for designation as a systemically important financial institution, or SIFI, to $250 billion from $50 billion.

Under current rules tied to the Comprehensive Capital Analysis and Review process, M&T could be required to hold more capital if a seller has insufficient data collection. Banks that do not have to do CCAR stress testing tend to have lower capital levels and smaller securities portfolios, King said.

“All of those things are [what] we think about and talk about with anyone when we’re contemplating a merger,” King added. “So those things tend to affect pricing.”

Such concerns could lessen if M&T is freed from SIFI requirements. It could also have more freedom to use capital to fund an acquisition. It is unclear if the plan being discussed in Washington will become law, and the timing and scope of implementation by regulators is equally uncertain.

“If this Senate bill becomes a law and we move the regulatory hurdle to $250 billion, you’ll see a bunch of banks, and M&T will be among them, doing deals,” said Dick Bove, an analyst at Vertical Group. “We will see this massive wave of acquisitions similar to what we saw in the 1990s.”

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