A Bank Merger Sure to Leave a Little Extra Money in Everyone's Pocket

Since the crash, it's not often that bank investors get to count themselves among the day's market gainers. But thanks to a generous buyout offer from M&T Bank (NYS: MTB) , investors in Hudson City Bancorp (NAS: HCBK) have found themselves in the unusual position of being able to sit back, count their significant winnings, and stop beating themselves up over why they ever thought financial stocks were a good idea in the first place.

An offer they couldn't refuse
M&T announced yesterday that it's buying Hudson City for $3.7 billion, to be paid in cash or M&T stock, whichever Hudson City shareholders prefer. The buyout price is at a healthy 16% premium over Hudson City's Aug. 24 closing price of $6.43 per share.

For its money, M&T will get Hudson City's 135 branch offices. The new, combined network of 870 locations will stretch from Connecticut to Virginia -- a healthy swath of wealth-laden territory.


Unfortunately, also as part of the deal, M&T will be expected to pay off about $13 billion of Hudson City's debt. This will be balanced out by the $25 billion in deposits and $28 billion M&T expects to receive, which will give the newly bigger M&T Bank the fourth-largest deposit base in New Jersey.

Encouraging signs of actual thinking
According to the statement announcing the merger, there's very little overlap between M&T's existing branch network and Hudson City's. That's obviously good news and an encouraging sign that the parties behind the merger have thought things through.

And while the two banks have distinct styles, they're complementary, at least as M&T sees it. Being a thrift, Hudson City is focused mainly on deposits and mortgages. M&T says it will take that loyal base and offer it a wider range of banking services, including the premium wealth management and corporate trust solutions that it offers to its current customers. "To the customers and communities now served by Hudson City," M&T CEO Robert G. Wilmers said, "M&T brings a wider array of banking products and services."

This mixing and matching of thrift banking and commercial banking may or may not be an ideal match, but having extra services at your customers' disposal never hurts, so long as the thrift customers aren't forgotten about in the rush to expand.

When you have lemons ...
While Hudson actually did quite well through the darkest days of the financial crisis, of late it's been struggling, just as other banks are starting to pull themselves back together. Goldman Sachs (NYS: GS) , for instance, which was forced to give up its pure investment-banking status during the crisis, has recently decided to make the most of its bank-holding company status by opening a private bank-within-a-bank to serve its wealthy clients around the world.

And in the face of new regulation -- i.e., the Dodd-Frank financial reforms of 2010 -- other big banks such as JPMorgan Chase (NYS: JPM) and Morgan Stanley (NYS: MS) are finding their own ways to make lemonade out of lemons. Essentially, they're winding down the big proprietary trading operations that had become the banks' raison d'etre and refocusing on client services -- banks' real raison d'etre as it existed for centuries before the explosive rise of trading and investment banking beginning in the 1980s.

Hudson City investors got an instant 16% gain from this M&T buyout offer. M&T Investors picked up 4.5% on news of the deal. Reiterating what was suggested already, so long as M&T doesn't get delusions of grandeur from the merger and begin treating its new and existing clients like mere stepping stones just for the sake of getting bigger and bigger, this looks to be a satisfying move -- one beneficial to all parties, even consumers. How often does that happen?

Here's to big banks that keep their noses clean and act as financial stewards and guardians of the economy. They're the kind of banks that can still be good investments. Learn all about just such a bank in this Motley Fool special free report: "The Only Big Bank Built to Last." It's one of the few big banks today that can be recommended as a good investment for just about any investor. Download it while it's still available.

The article A Bank Merger Sure to Leave a Little Extra Money in Everyone's Pocket originally appeared on Fool.com.

Fool contributor John Grgurich wonders whether Goldman Sachs will be giving away toasters to its new passbook savings account holders. Otherwise, John holds no positions in any of the companies mentioned in this column. Follow John's dispatches from the front lines of capitalism on Twitter, @TMFGrgurich.Motley Fool newsletter services have recommended buying shares of Goldman Sachs. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days. The Motley Fool has a gripping disclosure policy.

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