M&T Bank is the new face of U.S. finance

December 20, 2008|By JAY HANCOCK

Meet the new American lender. M&T Bank Corp., which said yesterday that it will buy Baltimore's Provident Bankshares, will typify U.S. finance in the next few years.

Big. Based somewhere else. But something that looks like an old-fashioned bank, with branch offices and lollipops next to the teller. FDIC-insured.

No investment banking division. No Masters of the Universe deal makers. No 30 dollars borrowed for every one dollar of capital. A lineup that recently would have seemed terribly dull for consumers as well as shareholders now looks very attractive. At the end of this cataclysmic year, tradition and safety are the most exciting things of all.

Not that Buffalo-based M&T is wholly traditional. The traditional Baltimore bank was the Bank of Baltimore, or First National Bank of Maryland, or Maryland National Bank. Based in town. Hiring, lending, donating, buying legal services and showering other benefits almost exclusively locally.

All have been absorbed by M&T and its rivals in the past two decades. M&T bought Allfirst Financial, formerly First National, in 2003. What's now Bank of America bought Maryland National. Bank of Baltimore got bought by First Fidelity, which got bought by First Union, which merged with Wachovia, which is about to be bought by Wells Fargo.

Sign-making companies, not banks, were the place to invest your money.

After interstate banking barriers fell in the 1980s, the key to staying independent was avoiding goofs so you could be the buyer instead of the acquired when things got rough.

In this regard, major Baltimore banks have a nearly perfect record of failure.

Provident is no exception. It weathered the most recent financial storm better than some competitors, which is to say its shareholders weren't wiped out. But at M&T's buyout price of $10.50 per share, Provident stockholders have lost a third of their stake over the past 10 years, if you assume reinvested dividends. M&T shareholders are up by half, based on the same scenario.

Provident avoided subprime loans, the worst of the toxic mortgages. But like many financial companies it was lured by the apparent promise of "alternative-A" mortgages, which weren't bottom of the barrel but not upper crust, either.

At a time when default rates have been rising even on prime loans to the most creditworthy customers, Alt-A was not the place to be.

Worse, for the most part Provident wasn't making home loans to Marylanders it knew but instead was buying securities backed by mortgages in other parts of the country. As we have seen, that kind of decision hasn't worked out very well.

"Relationship banking" is a cliche many in the industry like to use. Now they'll start practicing it again.

And that's not the only retro aspect of the new banking fashion.

The "shadow banking system," the New York-centered world of bonds, testosterone, million-dollar bonuses and unregulated finance, is fading.

To save themselves, investment houses Goldman Sachs and Morgan Stanley scrambled three months ago to obtain traditional banking charters. Merrill Lynch agreed to sell itself to Bank of America, which accomplished the same thing. Those houses are laying off tens of thousands of employees no longer needed for the exotic, globe-girdling deals they once did.

The immediate future of finance will involve paying interest on deposits, lending them out at higher interest to trustworthy borrowers and earning profits on the difference. It's a radical concept. John Marshall, the Portuguese sailor who founded Provident in 1882, would have been quite familiar with it.

Provident's disappearance will be very painful for those who lose jobs. And it'll put pressure on downtown office vacancies. But it won't be a macroeconomic catastrophe like the buyout of Maryland National, which happened after the last real estate crisis. Most Provident employees will land with M&T.

As a portion of the regional economy Provident isn't nearly as significant as Maryland National was.

Ideally, you would like to have national or "super-regional" banking companies to be based in your town so lending officers return your calls and highly paid headquarters employees buy and donate locally. But Baltimore missed that wave.

M&T - Manufacturers and Traders, a solid, traditional banking name - is a good second-best. It has shown sensitivity to Baltimore concerns and has set up a significant operation here - more than just a skeleton of branches. It should be a better-than-average steward of the Provident franchise. (And believe me, Buffalo needs corporate banking jobs more than we do, anyway.)

At this particular point in time, Baltimore would rather have a significant regional division of M&T based here than Merrill Lynch, Morgan Stanley and Goldman Sachs put together.

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