The Mid-April Surprise: M&T's Bob Wilmers and His Annual Report

by / Mar. 11, 2015 12am EST

When Robert Wilmers delivers his annual report to shareholders every April, it’s the Buffalo version of a presidential State of the Union address. People who own stock in the bank he runs are physically present in the 10th-floor conference room of the handsome Minoru Yamasaki building in which the bank is headquartered. Reporters cover it as a major event. As chairman and chief executive officer of M&T Bank, which is the largest bank in the region, one of the largest private employers in the region, and consistently, for at least two decades, the most influential business institution in the region, Wilmers commands attention. 

Wilmers has been effectively in charge of the business community here since the mid-1980s, largely because so many firms here do business with M&T Bank, but also because almost 40 percent of the bank’s business is in commercial real estate, which has become the driving force of politics here. Politically astute, allied with ambitious and politically connected debtors, an enduring presence over three decades while former competitor HSBC changed its Buffalo leadership every three years, Wilmers has led his bank to grow its capital almost 50 times over since he and his investor group purchased it in 1982. His personal net worth, as measured by his disclosed holdings in M&T Bank stock, nears the half-billion mark in a company that was capitalized at just $2 billion when he joined it. His personal compensation, which is disclosed in filings to federal regulatory agencies, is consistently at or near the top of the list of executives in this region, and amounts to at least $60 million since 2005. 

The bank has an outsize presence as a donor to and highly visible supporter of cultural and philanthropic activities here, and a growing presence elsewhere—especially in Baltimore, Maryland, where the NFL’s Ravens play in M&T Bank Stadium. It’s a big outfit: M&T Bank has 3.6 million customers who have 5.4 million accounts. And the out-of-market presence is not just about recent acquisitions of various smaller regional banks on the Eastern seaboard, including the pending Hudson Bank purchase in New Jersey. It’s also personal: Wilmers received the American Banker lifetime achievement award in 200, and was named Banker of the Year in 2011.

There are other successful business persons here, including the leaders of family-owned, privately held companies like Rich Products and Delaware North. And there are other large employers here—the large grocery chains, a temporary-employment agency with almost 7,000 employees, the Kaleida Health and the Catholic hospital systems, and of course the state university system, making the various offices of the state government the biggest overall employer in the region. M&T Bank is the largest employer downtown, and with more than 6,000 employees, arguably the largest private employer in the region. But it is no longer just a hometown operation: Most of M&T Bank’s more than 15,000 employees are to be found outside New York State.

It’s big. It’s successful. Its brand identity is well established. Its executives serve on the boards of every major and many minor cultural, community, and educational organizations in the region. Its leader enjoyed a close, active, and consequential comradeship with Stanford Lipsey, now the publisher emeritus of the Buffalo News. Until two years ago, and for the previous 30 years, Lipsey was the very hands-on leader of the sole regional daily newspaper. 

Thus in April, when M&T Bank’s annual report is released, many here will sit up and attend closely to the document that Robert WIlmers uses as a platform to address public policy. 

But before the meeting, the bank publishes Wilmers’s letter to shareholders.

The thinker

Through his annual reports, Wilmers has become, arguably, the most influential public intellectual in this part of the world. He’s not a columnist. He’s not a professor. He’s not a politician making arguments via 30-second TV spots or frequent media soundbites. His speeches are rare and for small audiences.

His latest letter to shareholders was published last week. Much of his text addresses the steps that M&T Bank has had to take to deal with cyber-crime and to comply with the extensive new regulations enacted by Congress in the aftermath of the crash of 2008. Wilmers reports hiring hundreds of new technicians and officers, spending millions on sending his employees to a program to educate them on the risk profiles of M&T Bank’s customers, and spending today more than four times as much on compliance with these new rules than the bank did just three years ago. And he again, for the sixth year in a row, called for Washington to distinguish between “Main Street” banks—even big ones like M&T—and the Wall Street banks whose actions brought the world to its knees not so very long ago.

“Simply put,” he writes, “the 6,482 community and regional banks of Main Street have a very different business model than the five large U.S. banks that dominate the activities traditionally associated with Wall Street.”

That was the gist of his message last April, too. He wrote extended commentary on the culture of “those days,” by which WIlmers means the build-up to the financial crisis of 2008. That crisis was principally a result of the massive over-leveraging of millions of mortgages that had been extended by so-called Main Street banks, like M&T, to homebuyers who couldn’t pay their bills. Journalists Gretchen Morgenson and Joshua Rosner explain in their book Reckless Endangerment how both Republicans and Democrats in Washington gleefully pushed Main Street banks to dive headlong into the business of extending credit to people who had never before been deemed credit-worthy.

In his message to shareholders in 2014, and again this year, Wilmers writes of that history. He notes that, starting in the 1980s, there was the beginning of the end of a long period of stability, “in which prudent regulations established in the wake of the Great Depression shielded exuberant entrepreneurial spirits from ill-considered risk-taking,” like extending credit to people with bad credit, or, worse, packaging up risky mortgages into derivative securities, especially collateralized mortgage obligations (CMOs), then selling them to investors. 

Concurrently, Wilmers writes, “those days” of the late 1990s and the early 2000s were the era of entrepreneurship, of startups, of brand-new tech firms, in which speculation was “fueled by stock options.” What comes to mind is the Silicon Valley paradigm of techies living like graduate students, on diets of ramen and wardrobes of denim, in the days before abruptly becoming zillionaires. 

Perhaps surprisingly, perhaps not, in several years of annual reports decrying “those days,” Wilmers doesn’t mention that he himself took tens of millions of dollars worth of stock options as compensation from M&T Bank. His critique of the practice has won him applause in the press: A New York Times columnist especially liked when Wilmers wrote critically of “exorbitant executive compensation that further fueled uninhibited risk-taking.”

It is as if M&T Bank and its chairman and chief executive officer, who in 2002 alone exercised $24 million in stock options, were mere spectators on all this recent history. In fact, as court documents show, M&T Bank worked closely with the largest Wall Street bank to create a package of more than 6,000 high-risk mortgages, precisely during the years Wilmers now criticizes as “those days,” and almost succeeded in off-loading the risk of a $277 million collateralized mortgage obligation to unwitting buyers.


The fraud case no one knows

Given M&T Bank’s size, its success, and its extremely low ratio of non-performing or “non-accrual” loans, it’s just weird that this organization ever entered into the Wall Street world of derivatives that Robert Wilmers criticizes year after year in such great and compelling detail.

 In 2013, the Appellate Division of the First Department of New York State Supreme Court found that M&T Bank, along with Wall Street powerhouse Goldman Sachs, had to go back to court and defend itself against a claim by CIFG Insurance that M&T had engaged in “fraudulent inducement.”

The fraud, court documents say, happened when M&T essentially sold bad mortgages claiming that they were good—and not only claiming that they were good, but also stating that M&T would buy them back if they turned out not to be. 

The case had originally been brought in 2011, but the initial deal happened back in the summer of 2007, in the middle of “those days.” 

It’s not that complicated: The insurance company CIFG had agreed to insure a bundle of more than 6,200 mortgages that had been issued by several banks, including M&T Bank. All those Main Street mortgage-writers were, in 2007, hot to unload their risky paper, and Wall Street found buyers for that paper—investors who were eager to get a higher yield so long as the risk was manageable. 

So Goldman Sachs set up a trust, a vehicle for holding mortgages like the ones M&T Bank had issued. Investors in the trust were supposed to be paid their principal and interest payments by the people back home in Buffalo, Pennsylvania, and Maryland who’d been given mortgages. When those folks with bad credit, iffy incomes, or bad luck stopped paying their mortgages, the insurance company, CIFG, was on the hook.

Not surprisingly, given the language in the agreement, CIFG wanted its money when it found some M&T mortgages were non-performing, i.e., that people weren’t making their payments. The trial court described what happened next: 

“On June 16, 2011, CIFG, through counsel, made a demand to M&T Bank that it repurchase 98 Loans originated by M&T Bank, with an aggregate principal amount of approximately $5,622,253. 

“M&T Bank did not respond to the demand.”

So CIFG sued in August 2011. They complained, in essence, that Goldman Sachs and M&T Bank lied. They “sang the praises” of the mortgages, and made “broad indemnification and promises to buy back loans found to be not in accordance with the representations and warranties set forth in the agreement.” The trial court in 2012 denied them relief, so they appealed.

And they won. Unanimously. A five-judge panel of the New York State Appellate Division overturned the trial court’s decision in May 2013 and reinstated CIFG’s claim of “fraudulent inducement” against M&T Bank. 

The case was settled sometime later in 2013 for an undisclosed amount. From reading the various M&T Bank filings with the Securities and Exchange Commission and other regulatory bodies, it’s not clear whether the settlement involved reincorporating the non-performing mortgages into M&T’s portfolio or if there was a cash payout.

M&T Bank originated less than 25 percent of the $277 million in mortgages. There is no public record of the size of the settlement. The only hint of how big it might have been comes in a subtle change in some federal regulatory filings in 2013, when the previous boilerplate about litigation exposure for this large and growing regional bank was upped from $40 million to $70 million.

What’s so remarkable about the case is not only that the bank’s leader made no mention of it but that the bank customarily carries a portfolio of nonperforming or delinquent loans that is many times larger than its one-quarter share of 6,200 pieces of bad paper. 

In previous annual reports, Wilmers didn’t sugarcoat M&T Bank’s big losses in trading complex derivatives. Indeed, he was very tough on his own outfit for getting away from its core competency—basically, serving as a normal Main Street bank, albeit one whose biggest single chunk of business is in making commercial real-estate loans. 

Wherein lies the rub.

Finance sprawl, blame city teachers

This year’s annual report continues the critique of the culture of “those days.” Somewhat uncharacteristically, it lacks a pointed discussion of the policy issues in Buffalo and Upstate New York in which Robert Wilmers has taken such a visible interest. 

In previous annual reports, Wilmers has given local voice to positions and data frequently set forth in the pages of the right-wing Manhattan Institute’s publications. (One of his forner speechwriters is a longtime contributor to and fellow of that think-tank.) Wilmers is an ardent advocate for charter schools, an ardent critic of the public sector in New York State, and an opponent of regional or metropolitan government.

Wilmers has also made a name for himself as a social critic, making measured and precisely calculated arguments against excessive executive compensation. He does so again in this year’s letter, noting that compensation at the Big Five banks is, on average, twice the money paid to the average employee of a Main Street bank. His critique of big-money banking culture won him favorable comment in the New York Times, the Baltimore Sun, the Buffalo News, and in banking industry publications. Wilmers’s critique has been well received even though his own pay is, by local measure anyway, stratospheric. He has used his reports to inveigh against the excesses of Wall Street, and has repeatedly criticized a post-crash banking reform regime that sweeps regional and mid-size Main Street banks into the same regulatory net that should, he argues, go fishing for the Big Five banks, the “too big to fail” banks whose actions crashed the world economy seven years ago. 

In January, Wilmers delivered a lengthy speech about the Buffalo Public Schools to a large, invitation-only audience at Canisius College. The speech deserves a parsing, not only because it was delivered expressly for the purpose of shaping elite discourse here about the future of education inside the city limits of Buffalo, but because Wilmers and M&T Bank have invested heavily for more than a decade in the former Buffalo Public School now known as Westminster Charter School, and so there is a substantial dataset to review.

But it’s a given that what’s of great local interest—Upstate’s economy, New York State taxes, Buffalo’s schools—may not be of interest to either shareholders or customers of a bank that now has three times as many depositors, and five times as many accounts, as the combined population of Erie and Niagara Counties.

The rest of the story is, however, about how this bank has acted as this region has reshaped. When Wilmers and his fellow investors acquired control of M&T Bank in 1982, the latest Census had the Buffalo metro area population as 1,242,826. By the 2010 Census, the metro area had declined to 1,135,509. The City of Buffalo itself was 357,870 in 1980. In 2010, the Census in the city was 261,310. The regional population of children has dropped dramatically, as has the population of young adults of child-bearing age. The regional economy has grown, at least as measured by the gross value of all goods and services totted up by the federal Bureau of Economic Analysis, to over $47 billion this year—but the workforce has shrunk, income polarization has grown here (as across the United States), and the share of household income derived from transfer payments here has grown. There have been nearly 60,000 new houses built in the metro area but only 1,900 in Buffalo. M&T Bank has grown an enormous commercial real-estate portfolio in the regional market and outside it, too, but that market has radically sprawled since 1980. Of the nearly $50 billion of total assessed value of real estate in Erie County, Buffalo accounts for only $6.7 billion. 

The Buffalo area’s largest commercial bank did not create the rules for sprawl, nor the conditions for depopulation. Nor did it engineer racial polarization, nor income segregation, nor the suburbanization of retail trade. The very neighborhood where M&T Bank is headquartered is burdened with a vast oversupply of commercial office space, an oversupply that the departure of HSBC radically exacerbated.

Without question, M&T Bank’s victory in this marketplace, its expansion, and its measurable success have been extremely good for its shareholders. Whether this bank and its leadership have shaped outcomes, or have simply acted as financiers of the economic, social, spatial, and institutional choices of others, is a complex case. Outcomes in Cleveland, Syracuse, Dayton, Detroit, Milwaukee, and other Rust Belt cities where M&T Bank has little or no presence look similar to those in Buffalo-Niagara Falls. There, too, the sprawl dynamic, and deindustrialization, and racial and income segregation, have radically enriched other Main Street banks and real-estate developers.

What’s curious about M&T Bank, however, is the radical engagement of its leader, over the course of decades. And so it’s important to understand what he has said, and done, and would see happen, in the public policy areas that have seen him most engaged—especially public education.

Next: Wilmers and the schools.

Bruce Fisher is visiting professor of economics at SUNY Buffalo State and director of the Center for Economic and Policy Studies.