Bailout banks to merge

M&T Bank Corp., which was approved for $600 million in taxpayer capital through the Treasury Department's Troubled Asset Relief Program, announced Friday that it had agreed to buy Provident Bankshares Corp., another recipient of bailout cash.

M&T, which has headquarters in Buffalo, N.Y., said it would buy Provident with $401 million in stock. The bank has operations in New York, New Jersey, Pennsylvania, Virginia and several other states.

Provident, of Baltimore, has been hit hard by the real estate slump and other economic pressures. It posted a loss of $12.8 million for the first nine months of 2008, compared with a profit of $47.6 million in the same period last year.

Provident took $88 million in charges in first three quarters of this year to reflect the reduced value of its mortgage-backed securities and other investments. The bank announced in November that it would sell $151 million in preferred stock to the Treasury Department through the TARP program.

At the time, Chairman Gary N. Geisel made no mention of Provident seeking a merger partner.

"This investment will further strengthen our capital position, increase our ability to finance attractive lending opportunities and enable Provident to provide additional support for economic growth in our local markets,'' he said in a statement then.

Provident said in a Securities and Exchange Commission filing outlining the merger that the value of $10.50 a share placed on the deal represented a 37.5 percent premium for the bank's shareholders over the 20-day average share price.

M&T had $65.2 billion in assets as of Sept. 30, compared with $6.4 billion for Provident. Together, the two banks would have more than $41 billion in deposits. The banks said they expected to complete their merger in the second quarter of 2009.