The Federal Reserve’s Approval Order Highlights the Regulatory Implications of Transactions to Potential Buyers and Sellers


Earlier today, the Board of Governors of the Federal Reserve System (the “Federal Reserve”) issued its order (the “Order”)1 approving M&T Bank Corporation’s (“M&T”) acquisition of Hudson City Bancorp, Inc. and its wholly owned subsidiary, Hudson City Savings Bank (collectively “Hudson City”).2 This acquisition transaction has been long-pending and much watched.

The Order comes over three years after the transaction was announced publicly and the related application with the Federal Reserve was filed. The Order highlights the regulatory implications of transactions to potential buyers and sellers, including the possibility of being forced to disclose compliance issues publicly. The circumstances that led to the delayed approval also reinforce the importance of carefully evaluating regulatory risks presented by merger transactions and counterparties.

However, as noted in our recent Memorandum to Clients here, the transaction’s time to approval is a major outlier given that over 90% of the applications approved by the Federal Reserve Board itself are approved within 6 to 12 months.


On August 27, 2012, M&T and Hudson City announced that they had entered into a definitive agreement to merge and filed an application with the Federal Reserve shortly thereafter. Following that filing, M&T’s examiners and supervisors identified a number of weaknesses that affected the Federal Reserve’s analysis of managerial factors required to be considered under the Bank Holding Company Act of 1956. These regulatory findings, first announced publicly by M&T and Hudson City in 2013, related to anti- money laundering and Bank Secrecy Act compliance and consumer compliance. As a consequence of these issues, the Federal Reserve suspended processing of the application for a period of time to allow M&T to remediate the identified weaknesses and, critically, to demonstrate to its regulators the effectiveness of that remediation.3

In addition to the issues identified at M&T, Hudson City announced on September 24, 2015 that it had reached a settlement with the Department of Justice and the Consumer Financial Protection Bureau to resolve the agencies’ claims related to certain alleged violations of the Fair Housing Act and Equal Credit Opportunity Act in majority-Black and Hispanic assessment areas during the years 2009 through 2013.

As a result of the delays in the processing of the application, M&T and Hudson City extended the “drop dead” date of their merger agreement three times, most recently until October 31, 2015.


The Federal Reserve included this statement in the Order regarding the extended processing time:

The [Federal Reserve] expects that a banking organization will resolve all material weaknesses identified by examiners before applying to engage in expansionary activity. See, e.g., SR Letters 14-2 and 13-7. As noted, M&T’s issues largely arose during processing of this application, and the [Federal Reserve] took the highly unusual step of permitting the case to pend while M&T addressed its weaknesses. The [Federal Reserve] does not expect to take such action in future cases. Rather, in the future, if issues arise during processing of an application, the [Federal Reserve] expects that a banking organization will withdraw its application pending resolution of any supervisory concerns.4

This is an important statement of Federal Reserve policy, as the withdrawal of an application is a public (and relatively uncommon) event and will inevitably attract attention. A withdrawal could prove troublesome given that examination results, supervisory criticisms and memoranda of understanding with Federal banking agencies generally are (or include) “confidential supervisory information” that the applicant financial institution may not be permitted to disclose in response to questions about the withdrawal. Despite these limitations, as in the M&T-Hudson City transaction, the potential buyer or seller may need to or feel compelled to disclose publicly the compliance issues or other regulatory concerns that prompted the withdrawal and that would have otherwise remained confidential.

The Federal Reserve’s policy highlights the important regulatory implications of transactions for potential buyers and sellers and underscores the high degree of focus that potential buyers and sellers should exercise in evaluating merger transactions and counterparties, notwithstanding the difficulties faced by parties given the restrictions on disclosure of confidential supervisory information.