HCBK (MM)

The long-delayed merger between M&T Bank Corp. and Hudson City Bancorp Inc. was approved by the Federal Reserve on Wednesday, clearing a major hurdle to the deal's completion.

M&T's purchase of Hudson City was originally announced more than three years ago but was stalled by regulatory issues. Many say the delay has chilled the deal making environment in the banking industry broadly.

The deal, initially valued at $3.7 billion, is the longest-delayed U.S. bank deal of more than $100 million on record, according to Dealogic.

The long wait means Buffalo, N.Y.-based M&T is now set to pay more for less: The value of the stock-and-cash deal has grown as M&T shares have risen, while Hudson City's deposits and loans have both shrunk since the initial announcement.

"We are fully committed to this merger, because we continue to believe strongly that it remains an extremely beneficial opportunity for both companies, including the shareholders, customers and communities we serve," M&T Chief Executive Robert Wilmers said in an April news release.

Paramus, N.J.-based Hudson City and M&T first reached a merger agreement in August 2012 for a stock-and-cash deal, but the two companies have extended the deadline several times. M&T has said that it expects the deal to give the lender a bigger presence in New Jersey.

The deal hit a snag in early 2013, when M&T learned that the Federal Reserve had concerns about its anti-money-laundering procedures. The central bank ordered improvements and M&T invested millions of dollars to implement them.

M&T Chief Financial Officer René Jones said on an earnings call in July that the bank had reached a number of "milestones" in the revamp of its anti-money-laundering program.

M&T said in a securities filing that the Hudson City purchase was valued at about $5.5 billion at the end of the second quarter, more than $1 billion more than the initial price. Later in the summer M&T shares hit all-time highs after an earnings report that beat expectations and included higher revenue and loans.

Hudson City's loans and deposits, meanwhile, have both decreased since the tie-up was announced. When the deal was announced, M&T said it expected to gain $25 billion in deposits and $28 billion in loans from the merger. At the end of the second quarter, Hudson City had about $18 billion in deposits and $20 billion in loans.

The merger would make M&T the 25th-largest depository organization in the U.S. with more than $132 billion in assets, according to the Fed.

M&T shareholder Paul Durnan probed M&T Chief Executive Bob Wilmers on the deal at a recent annual meeting and was worried a denial from the Fed could make it difficult for the bank to do any deals in the future.

Nevertheless, the Burlington, Ontario, native supports the acquisition. "It extends M&T's reach into suburban New York City in a major way. I think it's still a good deal," he said earlier this week.

The Fed's approval comes just in time: The merger agreement expires Oct. 31.

Write to Rachel Louise Ensign at rachel.ensign@wsj.com

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(END) Dow Jones Newswires

September 30, 2015 13:15 ET (17:15 GMT)

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