M&T Bank draws downgrade on 'mixed bag' from lower interest rates

By Steve Gelsi

Wells Fargo cuts rating on regional bank to underweight on its exposure to reduced interest rates

M&T Bank Corp. was downgraded to underweight from equal-weight at Wells Fargo on Thursday as one analyst said the regional-banking giant faces potential downside from its exposure to lower interest rates and competition from larger players in mid-tier cities.

Wells Fargo analyst Mike Mayo cut his price target for M&T Bank (MTB) to $165 a share from $170 a share and said the bank's "plain vanilla" business model overly emphasizes traditional net interest income, which is the profit banks make from loans after making interest payments for deposits.

While lower interest rates will reduce the cost of capital for banks, they will also limit bank profits from loans.

"Lower rates imply less net interest income (NII) upside for the industry...and MTB has more than average NII-to-revenues," Mayo said in a research note.

M&T bank's emphasis on mid-tier cities and borrowers in the small- and middle-market arena may hit headwinds as industry loan growth remains challenged, Mayo said.

The Buffalo, N.Y.-based lender also faces inroads from larger banks eyeing growth from smaller markets, he said.

"MTB operates in one of the slowest-growing bank footprints based on annual estimated annual population growth," Mayo said. "Larger bank competitors, including super regionals, increasingly target MTB's mid-tier type of city."

As an example, Mayo said the U.S.'s largest bank, JPMorgan Chase & Co. (JPM), has been talking about growing its branch network in rural areas.

Credit risks also remain on the radar for M&T Bank partly due to exposure to commercial real estate that's larger than at other banks, Mayo said.

M&T Bank's stock rose 1.6% on Thursday as the broad equities market rallied on healthy retail sales data.

Including its latest moves, M&T Bank's stock is up 18.5% in 2024, compared to a 15.8% gain by the S&P 500 SPX and a 15.6% rise by the Financial Select SPDR ETF XLF.

With about $214.7 billion in assets as of March 1, M&T Bank ranked No. 16 among the U.S's largest banks, according to data from the U.S. Federal Reserve bank.

Also read: JPMorgan Chase's $1.2B cash-reserve boost leads big banks as lenders brace for slowing economy

-Steve Gelsi

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08-15-24 1456ET

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