Mark Fitzgibbon of Sandler O'Neill is often asked what he thinks will happen if M&T Bank's (MTB) deal to buy Hudson City Bancorp (HCBK) falls apart. He gets the question so much that he decided to put his thoughts in writing.

On Wednesday the analyst published a research note entitled "HCBK — What Happens if the Deal Breaks?" The $3.7 billion agreement was originally scheduled to close in the second quarter but was delayed in April when M&T, of Buffalo, N.Y., announced it had to sort through compliance issues involving anti-money-laundering laws first.

The deal is now expected to close by Jan. 31, but the $83 billion-asset M&T has said there can be no assurances that it will complete it by that date.

Fitzgibbon walked through several scenarios, though he says high up in the detailed note that he expects the deal to close in "due time."

The most common questions he gets about the $44 billion-asset Hudson City, in Paramus, N.J., are: who else would buy it if the deal collapses, or could the company restructure its balance sheet away from residential mortgages and stay independent?

The pool of other buyers is limited, but Fitzgibbon sees New York Community Bancorp (NYCB) and Toronto-Dominion Bank's TD Bank unit as potential suitors.

The $44.6 billion-asset New York Community has been preparing itself to cross the $50 billion-asset threshold, which would make it a systemically important financial institution under Dodd-Frank. While going substantially over the threshold with Hudson City could present some hiccups, Fitzgibbon says, the "strategic rationale for the combination is crystal clear."

“In one fell swoop,” New York Community “would become a major player in New Jersey, gain a toehold in Fairfield County, and meaningfully deepen its presence” in the New York metro market, with a pro forma deposit market share of 4%, Fitzgibbon says. “However, we would be remiss if we did not point out that while [M&T] is having some regulatory challenges, there is no guarantee” that New York Community “would go through the regulatory process unscathed, especially since it would be a newly minted” systemically important institution.

TD could get a 6% deposit market share in the New York City area, but Fitzgibbon says even though he sees it as a potentially good fit, TD may have already passed on it.

"We should point out that presumably TD had an opportunity to bid for [Hudson City] in the past," Fitzgibbon says. "Therefore, they may not have as much interest in the [Hudson City] franchise as we think."

He also thinks Hudson City could restructure itself, but "it would be a long and painful process." Before announcing the M&T deal, Hudson City had disclosed plans to do a massive overhaul.

"Our sense was that [Hudson City's] strategic plan was going to take at least 2-3 years to implement and require the hiring of over 200" full-time employees," he says. "Standalone [Hudson City] would have to build the commercial infrastructure from the ground up and presumably from a standing start."

M&T remains a good fit for Hudson City because of M&T's experience with M&A and the pairing of Hudson City's retail network in the New York City area with M&T's commercial business.

"We get a very strong sense that [Hudson City] chose to partner with [M&T] for these reasons," he says. "We believe that all of these considerations — coupled with the paucity of potential buyers and the structural challenges facing standalone [Hudson City] — will likely propel this proposed combination to fruition."

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