- Key insight: M&T Bank's Wilmington Trust subsidiary plans to defend itself against allegations that it didn't appropriately fulfill its duties as custodian to several Tricolor-related trusts.
- What's at stake: The collapse of the subprime auto lender in September led to hundreds of millions of dollars in losses across lenders and investors. Federal prosecutors have brought fraud charges against several former Tricolor executives.
- Forward look: Wilmington Trust may take a financial hit, though the company hasn't specified how big those losses could be.
M&T Bank may take losses from a legal battle with a group of investors who claim the company's trust subsidiary failed to protect them from the collapse of subprime auto lender Tricolor Holdings.
Wilmington Trust, an M&T-owned entity, will "vigorously defend itself" against the legal action, the Buffalo, New York-based company said Wednesday in a securities filing.
The lawsuit, filed in a New York state court on Jan. 12, alleges that Wilmington breached contracts and its fiduciary duties, costing the plaintiffs millions of dollars.
The group of plaintiffs, which includes some 10 different entities' investment vehicles, also claims that Wilmington, along with loan-servicer and co-defendant Vervent, have failed to distribute tens of millions of dollars that the investors are due.
The plaintiffs are requesting that the court grant them unspecified monetary damages, along with prejudgment interest of 9% and all expenses and fees related to the suit.
M&T said in its latest annual report, filed Wednesday, that it isn't currently possible to estimate its "potential legal or other liability" in relation to the Tricolor business. But the bank said that "such losses, if any" aren't expected to be "material" to its financial position as of Dec. 31, 2025.
The bank also said that "reasonably possible losses" for any pending or threatened litigation, without specifying Tricolor, isn't likely to exceed $25 million beyond any already-recorded liability, but noted that "actual losses may vary significantly."
An M&T spokesperson told American Banker Thursday that due to the ongoing litigation, the company can't comment on the matter beyond its securities filing.
In the fourth quarter of last year, M&T's professional services expenses increased by $24 million from the prior quarter, to $105 million, due to higher "legal and review costs." In 2025, professional services expenses made up about 6% of the company's total noninterest costs.
Dallas-based Tricolor
M&T said in October that neither its banking subsidiary nor Wilmington Trust had any loans or loan commitments outstanding to Tricolor. But the company also noted at the time that litigation connected to its role as corporate custodian was "probable."
In December,
Chu and the company's chief operating officer have pleaded not guilty, while two other Tricolor executives have pleaded guilty to fraud charges and are cooperating with the government.
Wilmington, as custodian of several trusts, managed the securitization of auto loans originated by Tricolor, which were then sold as asset-backed notes to investors, including the plaintiffs. The plaintiffs allege that Wilmington was responsible for ensuring that auto loans originated by Tricolor were legitimate.
"Unfortunately for plaintiffs, Wilmington was asleep at the wheel," the suit says. "It made no meaningful effort to verify receipt of the receivables files as required under the governing agreements, and this failure was an important factor in allowing Tricolor's fraudulent enterprise to flourish unchecked and undetected."
The plaintiffs allege that Wilmington would have seen through Tricolor's schemes if it had "diligently performed its custodial duties," such as by reviewing the loans and verifying evidence of the cars serving as collateral.
Tricolor delivered more than $675 million of double-pledged and fictitious collateral to the trusts and certain financing facilities, according to the suit.
The plaintiffs allege that Wilmington has "all but admitted its responsibility for leaving noteholders woefully unprotected."
The trust bank, per the lawsuit, has "reportedly begun to undertake steps" to close shop on its non-mortgage custodial business. But a source familiar with the matter, who spoke on condition of anonymity, denied the claim that Wilmington is shutting down its non-mortgage custodial business, saying that the unit is accepting new clients.
The lawsuit also claims that Wilmington Trust has "disciplined" the individual responsible for overseeing the bank's relationship with the Tricolor trusts.
Wilmington acted as custodian on seven trusts connected to Tricolor from 2018 to 2025, which issued more than $1.8 billion of asset-backed notes, according to the plaintiffs.
M&T has reported that trust income from institutional services totaled $382 million in 2025, up 9% from 2024, though it has attributed that growth to sales and fees from its global capital markets business.
Last week, Wilmington filed a motion to move the lawsuit from New York state court to federal court in New York. It pointed to the fact that Tricolor's bankruptcy case is pending in federal court in Texas.
