The long-delayed acquisition of Hudson City Bancorp (Hudson City) by M&T Bank Corp. (M&T) has hit another roadblock due to compliance issues. While the deal has already been delayed since 2012 due to concerns over M&T’s AML controls, a CFPB examination of Hudson City’s Fair Lending compliance has introduced new complications into the pending transaction:
The Justice Department and Consumer Financial Protection Bureau are examining whether 147-year-old Hudson City violated the Fair Housing Act, the people said. A preliminary CFPB review concluded that the firm denied loans to people in minority communities, including those in the New York area, the people said…
It’s unclear how the investigation, which is in the preliminary stages, could affect the proposed transaction, which has been held up for almost three years because regulators weren’t satisfied with M&T’s anti-money-laundering controls. Both sides have a lot to lose if the deal doesn’t go through.
This recent development underscores the importance of compliance within the strategic goals of a financial institution. Poor compliance, in addition to yielding financial penalties, can substantially affect shareholder value by impairing the brand and delaying or preventing value-adding transactions like the M&T and Hudson City acquisition. When the deal was first announced in 2012, leaders from both institutions stated that compliance was satisfactory and would not hinder the transaction. The subsequent developments suggest these leaders were either trying to minimize the concerns or had a poor assessment of their institutions’ exposure to compliance risk.