BUFFALO, N.Y. (WKBW) - The Federal Reserve's concerns about M&T Bank Corp.'s anti-money laundering compliance program is likely to delay the Buffalo bank's proposed acquisition of Hudson City Bancorp Inc. in New Jersey.
M&T announced April 12 that the Fed - during its review of M&T's latest acquisition plans - has "identified certain regulatory concerns" regarding M&T's Bank Secrecy Act and anti-money laundering compliance program.
In response, the bank has formed a "major initiative" to improve policies, procedures and technology related to the compliance program. It has also hired an outside consulting firm.
M&T Bank President Mark Czarnecki said in a telephone interview that the Fed's concerns do not involve money laundering issues with customers. Instead, the regulators want to see a more "robust" and "sophisticated" compliance program to identify money laundering issues.
Czarnecki declined to say when M&T was informed of the Fed's concerns. He did say the bank started working with the consulting firm earlier this year, but he would not name the firm.
"We began in January with an outside consultant to evaluate and look at the whole program to improve effectiveness and make it more robust," Czarnecki said. "Then we laid out a timeline that we think can get us (to a closure date)."
M&T had expected to complete the $3.7 billion acquisition of Hudson City sometime before June 30. Now, officials do not know when the transaction might close, but both sides agree the time frame "will be extended substantially beyond the date previously expected," according to a news release.
The termination date - the date by which either party can walk away from the deal if it has not closed - has been extended from Aug. 27 to Jan. 31, 2014, the release said. But there are "no assurances" the acquisition will be wrapped up by then, the bank added.
In Buffalo, the anticipated hiring of new back-office workers as a result of the acquisition is likely to be put on hold, at least partially, Czarnecki said.
The bank said the consideration and exchange ratio of shares set forth in the acquisition agreement will remain the same.
M&T shareholders are still expected to vote on the pending acquisition during a special meeting on April 16, the bank said. Hudson City shareholders are planning to vote on the proposal on April 18.
M&T announced the deal with Hudson City, parent of Hudson City Savings Bank, back in August. The tri-state transaction is set to include 97 branches in New Jersey, 29 branches in downstate New York and nine branches in Connecticut - plus $25 billion in deposits and $28 billion in loans.
The Fed review and subsequent delay of the deal doesn't legally preclude M&T from pursuing other acquisition opportunities in the near future, Czarnecki said. But the bank "just very committed" to completing the current transaction, he said.
"We need to do this to get this transaction done," he said.
The Bank Secrecy Act requires banks and other financial institutions to assist the U.S. government in identifying and preventing money laundering. Other large banks have experienced similar enforcement actions recently.
M&T (NYSE: MTB) shares were down 4.32 percent to $100.39 in Friday trading. The bank is scheduled to issue its first-quarter earnings report on April 15.