Fitch Affirms M&T Bank Corporation's LT IDR at 'A'; Outlook Stable

NEW YORK--()--Fitch Ratings has affirmed M&T Bank Corporation's (MTB) Long-Term Issuer Default Ratings (IDRs) and Viability Rating (VR) at 'A'. The Rating Outlook is Stable.

The rating action follows a periodic review of the large regional banking group, which includes M&T Bank Corporation (MTB), BB&T Corporation (BBT), Capital One Finance Corporation (COF), Citizens Financial Group, Inc. (CFG), Comerica Incorporated (CMA), Fifth Third Bancorp (FITB), Huntington Bancshares Inc. (HBAN), Keycorp (KEY), MUFG Americas Holding Corporation (MUAH), PNC Financial Services Group (PNC), Regions Financial Corporation (RF), SunTrust Banks Inc. (STI), US Bancorp (USB), Wells Fargo & Company (WFC), and Zions Bancorporation (ZION).

Company-specific rating rationales for the other banks are published separately, and for further discussion of the large regional bank sector in general, refer to the special report titled 'Large Regional Bank Periodic Review,' to be published shortly.

KEY RATING DRIVERS

IDRS, NATIONAL RATINGS AND SENIOR DEBT

MTB's rating affirmation is supported by the company's strengths such as solid performance during a difficult operating environment and through various economic downturns as well as its improving capital position. Additionally, Fitch views the company's strong franchise, veteran management team, and good revenue diversification favorably.

Fitch believes the company's core strengths and profile are solidly in-line with other 'A' rated peers. Although MTB's still has a written agreement due to BSA/AML outstanding, Fitch views it as neutral to the company's 'A' rating.

MTB's core earnings profile is considered to be one of the strongest of its peer group with no support from reserve releases. Further, MTB is one of the most consistent performers and financial measures have seen less volatility than most of its large regional peers. The company's earnings has one of the lowest 10-year standard deviation of ROA.

Overall the last two years, performance has been more in-line with its peer group. Some of this is reflecting the increase in IT spending for BSA compliance as well as other IT projects to improve certain platforms. Further, Fitch believes the Hudson City acquisition should provide a solid platform for future commercial growth. The company has also indicated that the deal is still in-line to achieve many of its projected targets.

Credit performance has also been consistently solid, despite the company's large exposure to commercial real-estate assets (CRE), which stood at 35% of total loans versus large regional peer average of 19% as of June 30, 2016. MTB's NCO's and NPAs measures have been superior versus most of its peer group through numerous economic and real estate downturns and indicative of the strong credit culture at the company. Additionally, Fitch believes the company's reserve coverage also provides good support given loss history. Although CRE lending, particularly multi-family, has been growing rapidly and competition has been aggressive for the industry, incorporated in Fitch's affirmation would be continued superior credit performance.

Fitch also recognizes that MTB has continued to build its capital compared to its historical levels and is in-line with similarly-rated peers. MTB's tangible common equity ratio stood at 8.49% versus a 6.41% 10-year average. While MTB's capital level is better than its past history, in Fitch's view, capital ratios will tend to fall on the lower-end of the large regional peer group averages. However, Fitch's believes the company's strong equity generation, good asset quality performance through various credit cycles, solid reserves when compared to net charge-offs (NCOs) and moderate dividend payout help offset the company's leaner capital position.

For CCAR 2016, MTB was the only bank to pass the Fed's stress test after making a revision to its capital request. M&T's CET1 ratio would be 5%, under the severe stress scenario, which ranks at the lowest of its peers. Although the company's historical credit losses through credit cycles have been steady, under the CCAR stress test, MTB's would 4.3 times its peak losses during the crisis.

Further, Fitch considers MTB's management team to be a rating strength given the stable, average tenure of 20+ years with the company. Further, despite a history of acquisitions, board composition has not changed dramatically. Roughly 12% of MTB's ownership is held by management and employees of the company, which creates a strong alignment between management and shareholders interest.

SUBORDINATED DEBT AND OTHER HYBRID SECURITIES

MTB's subordinated debt is notched one level below its VR for loss severity. MTB's preferred stock is notched five levels below its VR, two times for loss severity and three times for non-performance, while MTB's trust preferred securities are notched two times from the VR for loss severity and two times for non-performance. These ratings are in accordance with Fitch's criteria and assessment of the instruments non-performance and loss severity risk profiles and have thus been affirmed due to the affirmation of the VR.

LONG- AND SHORT-TERM DEPOSIT RATINGS

The uninsured deposit ratings of Manufacturers and Traders Trust Co, are rated one notch higher than MTB's IDR and senior unsecured debt because U.S. uninsured deposits benefit from depositor preference. U.S. depositor preference gives deposit liabilities superior recovery prospects in the event of default.

HOLDING COMPANY

MTB's IDR and VR are equalized with those of its operating companies and bank, reflecting its role as the bank holding company, which is mandated in the U.S. to act as a source of strength for its bank subsidiaries. Ratings are also equalized reflecting the very close correlation between holding company and subsidiary failure and default probabilities.

SUPPORT RATING AND SUPPORT RATING FLOOR

MTB has a Support Rating of '5' and Support Rating Floor of 'NF'. In Fitch's view, MTB is not systemically important and therefore, the probability of support is unlikely. IDRs and VRs do not incorporate any support.

RATING SENSITIVITIES

VR, IDRs, AND SENIOR DEBT

MTB's ratings are at the high end of the range given performance and profile of the company. Although not envisioned over the rating horizon, MTB's ratings could have positive momentum should it develop a more diversified franchise through strengthening its consumer/retail penetration and product offerings along with further geographic diversification of its commercial lending book, while successfully integrating Hudson City. This would also entail maintaining peer leading profitability and asset quality measures.

Incorporated in the rating upgrade is the view that MTB will not incur any material regulatory fines and/or restrictions related to its BSA/AML written agreement. Additionally, MTB will be in full compliance with the regulatory order's remediation actions, which should lead to the written agreement being lifted.

Conversely, negative rating drivers would be a more aggressive approach to capital management, and/or announcing an acquisition in the near term given the sizeable Hudson City transaction. In addition, unexpected changes to current business strategy or key executive management would also be viewed negatively.

SUBORDINATED DEBT AND OTHER HYBRID SECURITIES

The ratings for MTB and its operating companies' subordinated debt and preferred stock are sensitive to any change to MTB's VR.

LONG- AND SHORT-TERM DEPOSIT RATINGS

The long- and short-term deposit ratings are sensitive to any change to KEY's long- and short-term IDR.

HOLDING COMPANY

Should MTB's holding company begin to exhibit signs of weakness, demonstrate trouble accessing the capital markets, or have inadequate cash flow coverage to meet near-term obligations, there is the potential that Fitch could notch the holding company IDR and VR from the ratings of the operating companies.

SUPPORT RATING AND SUPPORT RATING FLOOR

Since MTB's Support and Support Rating Floors are '5' and 'NF', respectively, there is limited likelihood that these ratings will change over the foreseeable future.

Fitch has affirmed the following ratings:

M&T Bank Corporation

--Long-term IDR at 'A'; Outlook Stable;

--Viability at 'a';

--Preferred stock at 'BB+'.

Manufacturers and Traders Trust Co

--Long-term IDR at 'A'; Outlook Stable;

--Viability at 'a';

--Senior unsecured debt at 'A';

--Subordinated debt at 'A-';

--Long-term deposits at 'A+'.

Wilmington Trust, N.A. (formerly M&T Bank, NA)

--Long-term IDR at 'A'; Outlook Stable;

--Viability at 'a';

--Long-term deposits at 'A+'.

Wilmington Trust Corporation

--Long-term IDR at 'A'; Outlook Stable;

--Subordinated debt at 'A-';

--Viability at 'a'.

Wilmington Trust Company

--Long-term IDR at 'A'; Outlook Stable;

--Viability at 'a'.

Provident (MD) Capital Trust I

--Preferred stock at 'BBB-'.

Fitch has affirmed the following ratings:

M&T Bank Corporation

--Short-term IDR at 'F1';

--Support at '5';

--Support floor 'NF'.

Manufacturers and Traders Trust Co

--Short-term IDR at 'F1';

--Short-term deposits at 'F1';

--Support at '5';

--Support floor 'NF'.

Wilmington Trust, N.A. (formerly M&T Bank, NA)

--Short-term IDR at 'F1';

--Short-term deposits at 'F1';

--Support at '5';

--Support floor 'NF'.

Wilmington Trust Corporation

--Short-term IDR at 'F1';

--Support at '5';

--Support floor at `NF'.

Wilmington Trust Company

--Short-term IDR at 'F1';

--Support at '5';

--Support floor at 'NF'.

Additional information is available on www.fitchratings.com

Applicable Criteria

Global Bank Rating Criteria (pub. 15 Jul 2016)
https://www.fitchratings.com/site/re/884135

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https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=1012651

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or
Secondary Analyst:
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Senior Director
or
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Contacts

Fitch Ratings
Primary Analyst:
Doriana Gamboa, +1-212-908-0865
Senior Director
Fitch Ratings, Inc.
33 Whitehall Street
New York, NY 10004
or
Secondary Analyst:
Justin Fuller, +1-312-368-2057
Senior Director
or
Committee Chairperson:
Christopher Wolfe, +1-212-908-0771
Managing Director
or
Media Relations:
Hannah James, +1-646-582-4947
New York
hannah.james@fitchratings.com