CORRECTED - UPDATE 4-M&T Bank snaps up bargain-priced Wilmington

Mon Nov 1, 2010 12:01pm EDT

(Corrects 10th paragraph to show Ted Cecala was former CEO of Wilmington, not M&T)

* Stock deal values co at $3.84/shr, 46 pct discount

* M&T to repay Wilmington's bailout funds

* Wilmington Q3 loss/shr $4.06 vs $1.33 yr-ago

* Wilmington shares slump 42 pct; M&T up 3.4 pct

By Elinor Comlay

NEW YORK, Nov 1 (Reuters) - M&T Bank (MTB.N) has snapped up troubled Wilmington Trust Corp WL.N, a smaller U.S. regional bank and wealth manager, which sold itself at a bargain price after facing soaring loan losses and reporting its sixth straight quarterly loss.

Shares of Wilmington, which has been battling losses on commercial mortgages and construction loans, slid more than 40 percent after it announced its planned sale to M&T Bank for about $351 million in stock.

Buffalo, New York-based M&T bank, which counts Warren Buffett's Berkshire Hathaway Inc (BRKa.N) among its investors, has better managed its loan portfolio and has emerged as one of the stronger U.S. regional banks after the financial crisis.

That strength will help them absorb Delaware-based Wilmington, said Gary Townsend, chief executive and portfolio manager at Hill-Townsend Capital.

"They have the wherewithal and the heft, even if they have to go back into markets and raise some additional capital of their own," he said.

The deal is a sign there will be further consolidation among U.S. banks, analysts said, as weaker players struggle amid higher regulatory costs and continued loan losses, while larger banks are better able to absorb regulatory costs and are starting to make new loans again.

"We will see substantially more consolidation and this takes us in this direction," said Townsend. "It's an example of what we should expect in the next couple of years.

Buying Wilmington is attractive to M&T because its wealth management unit has been a steady earner even amid the crisis.

Based on M&T's closing share price on Friday, the deal values Wilmington shares at $3.84, a 46 percent discount from their closing price on Friday, but equal to their tangible book value at the end of September. Wilmington shareholders will get 0.051372 M&T shares for each share they hold.

LOAN LOSSES

Wilmington's former chief executive, Ted Cecala, abruptly retired in June after 31 years at the bank, and director and former ITT Corp (ITT.N) treasurer Donald Foley stepped in to lead the bank. Talk emerged in October it was looking to sell itself and Bloomberg reported Wilmington had approached several bigger banks. [ID:nSGE69O0JB]

Founded 107 years ago as a manager for the DuPont family fortune, Wilmington in recent years expanded its lending business beyond its retail base in Delaware by pairing commercial lenders with its wealth managers in other states.

On Monday, Wilmington reported a third-quarter loss of $365.3 million [ID:nASA00XVM]. The company said its nonperforming assets jumped to $988.6 million, which is just over 12 percent of its total loans and owned real estate portfolio.

The bank had to essentially write down expected future tax benefits by nearly $200 million. These write downs, known as "deferred tax asset valuation allowances," must be taken if a company does not expect to generate enough taxable income to realize future benefits.

In other words, Wilmington Trust's management evidently had real questions about the company's future profitability. Regulators have been pressing banks to write these assets down where appropriate. [ID:nN13463779]

The deal saddles M&T with just over $1 billion to repay in total bailout money from the U.S. Treasury. M&T executives said on a call with analysts that they have not begun talking with regulators about repaying their bailout funds, but expect to do this next year.

The bank will retain the Wilmington Trust brand for wealth advisory and corporate services businesses and will pick up 48 branch locations in Delaware. Those locations have no overlap with its existing branches in the U.S. mid-Atlantic region.

Wilmington's lead financial adviser was Lazard (LAZ.N), and Morgan Stanley (MS.N) offered a fairness opinion on the deal. Its legal advisers were Skadden, Arps, Slate, Meagher & Flom.

M&T's financial adviser was RBC Capital Markets. Its legal adviser was Lipton, Rosen & Katz.

Wilmington shares were down 42.2 percent at $4.11 in morning trading. M&T shares were up 3.4 percent at $77.35. (Reporting by Elinor Comlay in New York and Sweta Singh in Bangalore; Editing by Unnikrishnan Nair, Lisa Von Ahn, Dave Zimmerman)

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