It's taking longer to complete acquisitions because of regulatory issues, and bankers are learning that managing their businesses during the limbo period is awkward at best.

At worst, the uncertainty of whether a deal will close can lead to the loss of important customers and even a decline in the value of the seller's franchise.

Repeated delays in the closure of M&T Bank's (MTB) acquisition of Hudson City Bancorp (HCBK) are the prime example these days. But other recent deals have taken longer than expected: United Bankshares' (UBSI) pending agreement to buy Virginia Commerce Bancorp (VCBI); Investors Bancorp's (ISBC) purchase of Roma Financial; and a Mexican investor group's purchase of Metropolitan Bank Group in Chicago.

One bank recently decided the wait wasn't worth it. CMS Bancorp (CMSB) in White Plains, N.Y., terminated its sale to Customers Bancorp (CUBI) in Wyomissing, Pa.

It has to be "extremely difficult" for the $39.2 billion-asset Hudson City to manage its loan book while it waits for regulators to approve the agreement, says Thomas O'Neill, co-chief executive of Kimberlite Advisors, an investment bank that caters to banks. As of Dec. 26, the two banks have waited 486 days for the deal to close, with no end in sight.

Hudson City had planned to expand into multifamily and commercial lending, largely through new hires, but "would you take a job at Hudson now, not knowing what's going on?" says O'Neill, who's not involved in the deal.

Hudson City's large borrowers, or potential new borrowers, are almost certainly looking elsewhere, he says.

"If I'm a commercial real estate borrower and I've got 15 choices, why would I go to Hudson City, or for that matter, why would I go to M&T?" O'Neill says.

"You can almost hear … competitors say, 'You don't know who you'll be dealing with in a year,'" says Hugh Wellons, a banking attorney at Spilman Thomas & Battle in Roanoke, Va.

M&T on Dec. 17 said the agreement likely would not receive approval before June 30, and it extended the deadline to Dec. 31, 2014. If it goes all the way to the end of 2014, the two banks could end up waiting a total of 856 days from announcement to closure, or almost two and a half years.

Regulators have demanded that M&T improve its risk-management program and processes for identifying and reporting suspicious transactions before they rule on the application.

The banks are obviously aware of the issues the delays have caused; in its latest announcement of the deadline extension, M&T said Hudson City would be allowed to introduce new small-business and consumer-banking products during the limbo period.

"Our board... continues to believe that the M&T transaction is ultimately in the best interest of the company," Ronald Hermance, the chairman and CEO of Hudson City, said in a Dec. 17 news release.

Still, it's surprising the deal hasn't been called off completely, unless "they are getting the sense from the regulators that the deal would get cleared," O'Neill says. Another possibility is that both companies want to avoid paying a breakup fee, he says.

Each company agreed to pay a $125 million termination fee if it cancels the deal, according to a Feb. 22 regulatory filing.

Hudson City hasn't ruled out the possibility of engaging in talks with a rival bidder. "If we receive an unsolicited alternative transaction that the board of directors determines in good faith is more favorable from a financial point of view to our shareholders than [the M&T deal], we may submit that proposal to a vote of our shareholders and, if approved, terminate the merger agreement with M&T," Hudson City said Dec. 17.

Neither M&T nor Hudson City responded to requests for comment.

In the case of CMS' aborted sale to Customers Bancorp, CMS officials cited delays in regulatory approvals for their decision not to extend the closing deadline.

Regulators had concerns about fair lending issues, says Robert Wahlman, the chief financial officer of Customers. Not all of the facts between Customers and CMS have been disclosed and "given the full set of facts, Customers mutually consented" to terminate the agreement, he says.

"It would have been 16 months since we signed the original agreement," says John Ritacco, the president and CEO of the $258 million-asset CMS. "We thought it was time to go forward."

Still, during the limbo period, Ritacco says CMS didn't make any changes in how it operated.

"We managed our business the way we always managed it," Ritacco says. "We tried to grow our loans and deposits and generate more customers."

Other banks have found managing during the limbo period more difficult, says Neil Grayson, a banking attorney at Nelson Mullins Riley & Scarborough in Greenville, S.C.

"All during that time, the target is exposed and at risk of seeing its franchise deteriorate," Grayson says. "Employees or customers may leave. It makes it materially more difficult to manage your business."

The $8.5 billion-asset United Bankshares, in Charleston, W.Va., missed its Nov. 30 deadline for closing its acquisition of $2.8 billion-asset Virginia Commerce in Arlington. The Federal Reserve Board approved the deal on Dec. 12 and the companies now expect to close by Jan. 31.

Even with the delay, it's unlikely United Bankshares will shy away from future acquisitions, says Richard Adams, chairman and CEO.

"There's always uncertainty that the deal is going to close," Adams says.

Adams' approach was smart and should be emulated by other bankers, says Joey Warmenhoven, an investment banker at McAdams Wright Ragen in Portland, Ore., who specializes in community banks. If executives think the deal is best for the bank, they should wait out the lengthened regulatory scrutiny, he says.

"Ultimately banks are going to sell because it makes the most sense for enhancing shareholder value for their particular situation," Warmenhoven says. "In the mean time, they need to go about business as usual."

There's also the idea that banks should proceed with mergers, when they think it's best for the franchise, regardless of the regulatory environment, Wellons says. That's because if regulators find something they don't like, there's little a bank could have done to prevent the death of a deal ahead of time.

"Even the best-vetted deals can suffer a last-minute surprise," Wellons says.

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