By Colin Barr
November 1, 2010

Why bother with Europe when you can have Delaware?

M&T Bank put an Irish entanglement and some ardent Spanish suitors firmly behind it Monday, with an unexpected trip to scenic Wilmington, Del.

M&T

, itself based in that tourist trap Buffalo, N.Y.,  agreed Monday to take the wilting Wilmington Trust

corporate banking and wealth management franchise off its shareholders’ hands for a song.

M&T will pay $351 million in stock for Wilmington Trust, in an exchange that will leave Wilmington holders with one M&T share for every 20 or so Wilmington shares. At current prices that puts the value of the deal at $3.96 a Wilmington share – barely half the price they fetched Friday afternoon.

The low, low price of Monday’s deal is available because Wilmington has spent most of the past two years wheezing under an enormous load of bad loans made during the bubble.

The bank hasn’t reported a profit since the first quarter of 2009 and has spent this year futilely trying to persuade investors it is going to be able to outlive those mistakes. Wilmington raised $274 million in a stock offering in March and this month hired a new executive to oversee its audit function, in hopes of convincing shareholders the books are clean.

But the bank admitted defeat on those efforts Monday, reporting a $365 million loss and conceding that “we have little assurance that our loan portfolio will strengthen significantly in the near term, or that our capital position will not erode further.”

Into that breach stepped M&T, which is the 28th biggest bank holding company in the U.S. The purchase of Wilmington will make M&T the top deposit gatherer in Delaware and add to its strength in upstate New York, central Pennsylvania and the Mid-Atlantic region.

The agreement concludes a frantic stretch for M&T. It spent the summer considering a merger with Spain’s Banco Santander

, a deal that came to naught because among other things CEO Robert Wilmers didn’t want to surrender control of his bank, which has been among the financial industry’s best performers in recent years.

M&T also had its biggest shareholder, Allied Irish

, announce it would sell its 22% stake in M&T to raise capital. Questions about how Allied Irish would go about that sale led to some talk that M&T might end up being in play, but insiders control a fifth of the stock and Warren Buffett’s Berkshire Hathaway

holds a large position as well.

Allied Irish shareholders are to vote Monday on a plan to raise 900 million euros, or $1.25 billion, through the sale of the M&T stake.

M&T spokesman Michael Zabel says the conclusion of the Santander and Allied Irish episodes shows “we are in a position of strength” after all the tumult of the past year. “And this is an incredible strategic fit.”

Wall Street seems to agree: M&T was up 4% Monday at $78.

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