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Why M&T Bank Is One of the Biggest Warren Buffett Stocks

By Amanda Alix - Oct 28, 2014 at 8:39AM

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Despite recent headwinds, this Buffett favorite is still one of banking’s best performers

Much has been made of Warren Buffett's investment in big banks like Bank of America and Wells Fargo, but less flashy banks also hold a special allure for the savvy billionaire. M&T Bank (MTB 4.38%) is one of those holdings that Buffett's Berkshire Hathaway (BRK.A 3.75%) (BRK.B 4.02%) holds dear -- for several very good reasons.

A solid banking history
Headquartered in Buffalo, the big regional bank has been part of Berkshire Hathaway's portfolio for more than 20 years, when Buffett's original stake of $40 million in preferred stock in 1991 was converted into common stock five years later. The bank has been extremely profitable for the last 30 years, and its stock performance has been outstanding. Its quarterly dividend of $0.70 per share has been notably stable since late 2007, right through the financial crisis. 

Buffett has an enduring respect for M&T CEO Robert Wilmers, who became the bank's chief and chairman in 1983, when M&T was the primary subsidiary of First Empire State Corporation.

Buffet undoubtedly finds Wilmers' gumption appealing, as he has led M&T to decades of growth through strategic acquisitions. Several of these purchases occurred during and after the crisis, including Wilmington Trust, which M&T scooped up at a 46% discount to market value in 2011.

Recent troubles
The past year or two have been somewhat frustrating for M&T, as its efforts to merge with Hudson City Bancorp (NASDAQ: HCBK) has been met with resistance from federal regulators. At the heart of the problem was official concern over M&T's money laundering controls, which the bank has been working to resolve. The merger agreement between the parties has been extended twice, with the most recent extension expiring at the end of this year. 

More recently, M&T ponied up $18.5 million on behalf of Wilmington Trust, which was fingered by the Securities and Exchange Commission in 2010 for underreporting the full amount of past-due construction loans from the last two quarters of 2009. The settlement closes that particular chapter of Wilmington's history of huge loan losses suffered during the aftermath of the financial crisis. 

As for the merger with Hudson City, M&T officials expressed a mutual commitment to the plan by both parties in its recent earnings conference call -- though management could not offer a definite timeline for the issue's resolution.

A strong balance sheet
Still, these recent problems are more or less a blip on M&T's radar, and the bank continues to exhibit the kind of strength that Buffett admires.

The bank's Tier 1 capital ratio continues to strengthen, reaching 9.77% at the end of the third quarter, compared with 9.08% in the year ago quarter. Deposits surged by 12% year over year, and now total $74.3 billion. Nonperforming assets dropped by 9%, to just over $915 million. At the end of the third quarter, M&T had grown its total assets to more than $97 billion -- compared with just $84.4 billion one year ago. 

Despite the current issues with regulatory compliance and the merger with Hudson City, M&T has proved to be a steady, sturdy bank that has shown the ability to expand quickly, yet still maintain a strong balance sheet -- two significant factors that no doubt make M&T attractive to successful investors like Warren Buffett.

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Stocks Mentioned

Berkshire Hathaway Inc. Stock Quote
Berkshire Hathaway Inc.
$417,401.43 (3.75%) $15,101.43
Berkshire Hathaway Inc. Stock Quote
Berkshire Hathaway Inc.
$278.28 (4.02%) $10.76
M&T Bank Corporation Stock Quote
M&T Bank Corporation
$166.64 (4.38%) $7.00
Bank of America Corporation Stock Quote
Bank of America Corporation
$32.31 (0.72%) $0.23
Wells Fargo & Company Stock Quote
Wells Fargo & Company
$40.76 (7.55%) $2.86

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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