Inside Financial Services

M&T’s Revealing Shareholder Letter

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To get a real sense of what’s involved in running a large bank these days, you could do worse than read M&T Bank CEO Bob Wilmers’ 2014 letter to M&T shareholders, out last week. It’s extremely revealing.

I’ve long had a (perhaps unhealthy) enthusiasm for shareholder letters, of course. While most investors seem to ignore what CEOs have to say in their companies’ annual reports, I’ve always thought the letters are a great way to get inside a CEO’s head to find out what he thinks is important, where he sees opportunity and risk, and what his outlook for the future is. Some CEOs clearly don’t put much thought or effort into their letters (which is telling in itself), while a handful regularly publish real gems. In the latter category, Jamie Dimon comes to mind—as does Bob Wilmers. He obviously uses his annual letter-writing process as an opportunity to reflect deeply on his company and where it is headed.

Which is why Wilmers’ 2014 letter is so illuminating. If you didn’t know anything about the banking business and only had his letter to go by, you’d get the sense that the first, last, and only job of a bank’s management is . . . complying with myriad bank regulations. Roughly half of the 31-page letter is taken up with a discussion of what M&T is doing to build out and strengthen its compliance infrastructure. The march of the facts and figures is relentless.

“We spent $266 million in 2014 in a broad swath of efforts that will help M&T fulfill its regulatory obligation. . .” . . . “Enhancing our [anti-money-laundering] program consumed significant time, energy and money with investments of $151 million last year, in addition to the $60 million spent the prior year. . . ” . . . “In 2014, 630 colleagues were dedicated to [the anti-money laundering] program, as well as over 300 contractors and consultants; together they occupied nearly 10% of our total office space in downtown Buffalo . . .” . . .  “[The CCAR] team, dedicated to stress testing and the capital planning process, now includes 91 professionals—an increase of 32% over the team that supported the first submission.” . . . “Our growing Risk Management division—which numbers 727 colleagues—is more than five times as large as it was in 2009 and 56% larger than in 2013–at a cost of $181 million, an 84% increase over 2013.” . . . “Taken together, 190 committees produce nearly 7,600 pages of meeting minutes annually—more than twice that of five years ago. Last year the Risk Committee of our Board of Directors met 18 times while reviewing 4,445 pages of presentation materials.”

The cascade of numbers just doesn’t stop. Bank regulators will surely be impressed with M&T’s apparent commitment to do whatever it takes to ensure it follows all the rules. Investors, by contrast, are apt to be horrified. For all the time and money Wilmers says M&T is lavishing on its regulatory buildout, one has to wonder how many resources are left over to devote to actually running the business. And M&T, remember, is one of the best-, most conscientiously run banks in the country. One can only imagine what more run-of-the-mill institutions are having to do.

You’ll get no argument from me that effective regulation is vital to the proper functioning of the banking system. From everything from anti-money-laundering regulations, to liquidity requirements, to setting minimum capital standards, the financial system would be at great risk absent an external referee that ensures that banks are being run prudently, and bank managements aren’t crossing any lines. When the financial industry becomes unstable, the entire economy is at risk. So if banks have to spend inordinate amount of resources on compliance compared to companies in other industries, so be it. But when it gets to be the case (as it seems from the M&T letter) that regulatory compliance becomes management’s principal preoccupation, something is terribly out of whack. The banking industry’s mission in life is to create credit so that consumers can spend and businesses can grow and invest. Which is to say, banks exist to foster economic growth. If instead the people who run them are spending time and money to deal with their regulatory burden, credit creation is surely crimped and economic growth stunted.

It shouldn’t be this way. The regulatory pendulum has swing way too far in the direction of ultra-micromanagement. The sooner it starts to swing the other way, the better.

What do you think? Let me know!

9 Responses to “M&T’s Revealing Shareholder Letter”

  1. Art

    You’re right, Tom. The suffocating oversight foisted upon banks is absurd. Let’s us hope the pendulum starts in the other direction ~ very soon!

  2. Bill Demmin

    Outstanding summary of the costs of over regulation backlash from excesses in prior years.

  3. Dan

    No doubt the financial system needs adequate regulations given its systemic importance. However, one very real impact of the current overbearing regulatory micro-management is talent flight out of the industry. Every industry needs creativity and energy in order to have long term success. When a regulatory structure balloons to literally thousands of pages of rules and interpretations, it simply crushes creativity and all of that energy gets mired to understanding and following the rules. I know of several talented people that left the industry for other opportunities because of this burden.

  4. oy

    Unfortunately many banks seem to exist to feather the nests of their managers rather than to foster economic growth. If not for them, perhaps the regulatory onus could be reduced.

  5. Paul


    Sadly, you could insert any bank’s name in the place of M&T. The regulators, thinking they’re saving the industry, are actually killing it. It’s just another government entitlement program known as the “regulator full employment act.” In any other industry the strongest players would say “go to hell,” we don’t want or need your insurance, we’re going private and we’ll let the market decide who will still bank with us. Costs would be dramatically lower, prices would drop and the consumer would truly benefit. Instead, all of the banks’ cost of compliance are only being passed on to the consumer who in the end, loses.

  6. F. Sopron

    Let’s not forhet to thank Dodd and Franks for their involvement with the banking system, both to screw it up and then to “regulate” it.

  7. F. Sopron

    Let’s not forget to thank Dodd and Franks for their involvement with the banking system, both to screw it up and then to “regulate” it.

  8. william c mitchell -- retired commercial (not investment) banker

    It is past time to give credit where credit is due. When will it be made clear what Chris Dodd and Barney Frank did to originate a major portion of the real estate loan problems in the U. S.

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