Cashing out

Baltimore's struggling Provident sells itself to M&T Bank

December 20, 2008|By Laura Smitherman and Hanah Cho | Laura Smitherman and Hanah Cho,laura.smitherman@baltsun.com and hanah.cho@baltsun.com

Provident Bankshares Corp., the largest remaining Baltimore-based bank, squeezed by competition and losses, announced yesterday that it is selling itself to New York-based M&T Bank Corp., a dominant player in the Mid-Atlantic that is working to expand its foothold in a city where its name adorns the biggest sports stadium.

The $401 million stock deal could lead to some layoffs among Provident's 1,660 employees as the banks merge operations and eliminate redundant operations, according to banking analysts and consultants. M&T officials, who said they hope to absorb most Provident employees, already have a regional headquarters in Baltimore's financial district and about 150 branches in Maryland.

With the deal, M&T solidifies its position in Baltimore, where it made major inroads when it bought Allfirst Financial Inc. six years ago as that bank was reeling from a trading scandal. And Provident, which has been in Baltimore since the late 1800s, gets financial backing from a parent 10 times its size after declines in real estate investments and a recent problem with its auditor.

"We were the largest independent bank in Maryland, and we were very proud of that," Provident Chief Executive Officer Gary N. Geisel said in an interview. "On the other hand, we're eager for a new beginning. And we think the new beginning is really good for customers, employees and certainly our shareholders."

Upheaval in the banking industry has prompted a frenzy of mergers, a trend spurred in part by the infusion of federal bailout money. Provident has not been immune to the market turmoil and has seen its stock price plummet, giving M&T the opportunity to swoop in with a stock-for-stock offer that values Provident shares at about one-third of what they were last year.

"This gives Provident an exit strategy because I think they were finding it more and more difficult to compete in the marketplace," said Stuart Greenberg, a Baltimore-based banking consultant, adding that M&T is getting the bank at a "cheap" price. "You could you say that they are being put out of their misery."

The Provident acquisition catapults M&T to second in terms of market share among banks in Maryland, behind only Bank of America Corp. And it gives the Buffalo-based bank a greater footprint in the Baltimore-Washington area and in Virginia. It also leaves Susquehanna Bank and Sandy Spring Bank as the largest independent banks still in Maryland.

Geisel said yesterday that talks about a possible deal with Michael P. Pinto, chairman and CEO of M&T's Mid-Atlantic Division, began around Thanksgiving. The two executives have known each other for the past five years.

Both boards of directors approved the merger in recent days, and M&T executives alerted Gov. Martin O'Malley and Baltimore City Hall officials yesterday morning. The deal, subject to regulatory and shareholder approval, is expected to close by June.

Under terms based on the closing price of M&T stock earlier this week, the shares were valued at $10.50 each. Shareholders will get 0.17 shares of M&T stock for each of their shares. Provident shares rose almost 61 percent, or $3.53, to close at $9.33 yesterday.

Investors appeared to believe the deal was more favorable to Provident than to M&T as stock in the acquirer fell more than 6 percent, or $3.76, to close at $55.96 yesterday. Some analysts said that while the deal made strategic sense for M&T, the bank could have paid less or waited for Provident to fall into greater distress and garner a better bargain.

While Baltimore is losing a corporate headquarters, M&T officials pledged to sustain Provident's community involvement and to match its charitable giving - $700,000 last year - for at least the next three years. M&T also noted its contributions of more than $25 million in the Mid-Atlantic during the past five years and citations from Baltimore Magazine as one of the area's most generous companies.

"M&T has been a great partner," Baltimore Mayor Sheila Dixon said.

M&T has concentrated expansion efforts in the Mid-Atlantic region. After it acquired Allfirst from Allied Irish Banks PLC, one of Ireland's largest banks, in the wake of a $691 million currency-trading scandal that rocked Baltimore's financial district, the company signed a 15-year, $75 million naming-rights deal for the Ravens football stadium. M&T also purchased First Horizon Bank's retail operations last year.

"The one thing we won't do is we won't rebrand Provident's legacy of what they have done for this community," said Atwood "Woody" Collins III, an M&T executive active in local civic organizations. "We are not going to change the commitment to this community. The community needs us now more than ever to be consistent."

But the impact on Provident's employees, customers and its infrastructure is unclear.

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