Morningstar | Fee income growth is the key to M&T's continued success.
M&T Bank's management team has proved its mettle through multiple recessions. With its long-delayed acquisition of Hudson City Bancorp finally completed and its standing with regulators improved, the company will be turning its attention toward performance. M&T's results suffered--at least when compared with returns achieved a decade ago--as the bank brought some of its policies and procedures up to speed in the wake of the financial crisis. Its capital planning and customer activity monitoring were deficient in the eyes of regulators, leading to an increase in expenses and declining efficiency. The company has spent several hundred million dollars remedying these problems since 2013, and we expect higher spending to persist at higher levels for years to come. All banks will be spending more on technology and compliance as the industry transitions to a digital environment and remains under regulatory scrutiny. Massive institutions like Bank of America and JPMorgan Chase possess valuable economies of scale in these areas, leaving smaller firms like M&T struggling to keep up. M&T's growing presence in competitive markets like Washington, D.C., and New York will also require to bank to step up its game as it faces off against large regional and national financial institutions as well as increasingly aggressive online banks.That said, M&T's competitive advantages are intact. Its conservative credit culture is unlikely to change, given the consistency of corporate culture, boosting returns and providing security to shareholders in the event of an economic downturn. At the same time, we think M&T is well positioned for mergers and acquisitions, despite its problems with Hudson City. The company is building capital, consolidation in the Mid-Atlantic is likely as economies of scale become more important, and M&T has a long history of turning around the struggling operations of its acquisitions.With rising rates boosting profitability, controlled expenses, a friendlier regulatory environment, and the potential to return excess capital, we like the outlook for M&T's profitability. We also expect the bank's lending conservatism to pay off for shareholders in the future.M&T Bank is a bank holding company. Through its subsidiaries, the company provides individuals, corporations and other businesses, and institutions with commercial and retail banking services, including loans and deposits, trust, mortgage banking, asset management, insurance and other financial services. Banking activities are primarily focused on consumers residing in New York State, Maryland, New Jersey, Pennsylvania, Delaware, Connecticut, Virginia, West Virginia and the District of Columbia and on small and medium-size businesses based in those areas. Certain subsidiaries also conduct activities in other areas.
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