Analyst Thinks Hudson City Could Go For $8.25

Matthew Kelley, an analyst at Sterne Agee, thinks Hudson City Bancorp ($HCBK) could go for $8.25 in a buyout, but only if the bank makes some big changes.

Kelly said that “earnings power at HCBK will continue to suffer in a sustained low interest rate environment, in our view,” and that the company was “expected to announce changes to its business plan (add mortgage banking),” and that a third restructuring of borrowings was “not out of the question.”

The analyst said that mortgage loan prepayments were continuing to pressure Hudson City’s margins, and that because Fannie Mae (FNMA) and Freddie Mac (FMCC) have raised their dollar limits on the “conforming” mortgage loans that they will buy, “the pool of jumbo mortgages which has wider spreads (without government guarantees),” and has been a traditional focus for the company, “is smaller.”

Going forward, options for Hudson City “include a push into a less capital-intensive mortgage banking,” focusing on quickly selling newly originated conforming mortgages to generate gains-on-sale,” according to Kelley, who added that the company “may also be considering a move into non-residential lending (multi-family and commercial real estate),” with which Sterne Agee “would be more concerned,” because of “the lack of infrastructure, history and expertise in these areas.”

Posted by on May 25th, 2012 at 4:58 pm

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