Investors Bid Up Baltimore Banks, Spying Takeover Opportunities

The stocks of some Baltimore-area banks and thrifts have sizzled in the past month as investors looked for more takeover plays after the purchase of two of the region's larger thrifts.

First Union Corp.'s purchase of Columbia First Bank in northern Virginia and last week's purchase of Baltimore-based Loyola Capital Corp. by Crestar Financial Corp. sparked takeover speculation in southern Maryland and Baltimore.

Shares of Provident Bankshares, Citizens Bancorp, and Maryland Federal have all surged since early April.

Notably absent from the run-up is Mercantile Bankshares, the largest independent bank in Maryland, which has emphatically resisted takeover overtures.

If you want to invest in a merger candidate, "you've got to look at Maryland Federal, Provident, and Citizens following these deals," said John Heffern, a bank analyst in Natwest Securities Inc.'s Baltimore office.

Shares of Provident, which has struggled with weak earnings, have outperformed the market especially strongly, he said. Since April 6, shares of the bank have risen 10%, compared with an overall 4% rise in the American Banker bank index.

Late last year the $2 billion-asset bank instituted a poison pill in an effort to avoid being acquired. And some have noted that Provident may not be that attractive as a takeover candidate because many of its branches are located in low-income neighborhoods, and because as a bank that converted from a thrift, its franchise is not as valuable.

Still, Provident would be a cheaper target than a typical bank. Banks have sold for 1.78 times book value in Maryland, and thrifts for 1.5 times book.

Logical acquirers would be Crestar, which could use the acquisition to move up from its seventh place ranking in Baltimore market share, and First Fidelity Bancorp., currently ranked fourth in the market.

"Is Crestar going to be content with seventh? Clearly not," said Merrill Ross, an analyst with Wheat First Butcher Singer. "Clearly it is going to be an acquirer."

The region's takeover prize is Citizen's Bancorp, nestled between Baltimore and Washington in Laurel, Md.

With $3 billion of assets in wealthy Montgomery and Prince Georges counties, the bank would be an attractive takeover candidate, analysts agree.

Crestar owns little between its new base in Baltimore and Washington, said Mr. Heffern. Citizens would be a natural "fill-in" acquisition, he added.

A takeover of Citizens could be problematic because management owns more than 17% of the company. Still, shares of the company have risen 6% since early April.

A more cautious view comes from one of the region's best-known investment bankers, Donald Delson, director of the financial institutions group at Alex. Brown & Sons. Mr. Delson has advised many of the region's banks and thrifts on selling, including Loyola.

Because the region is already picked over, he said, there probably won't be a major acceleration of mergers and acquisitions.

"Some of the major acquirers have the positions in the market that they wanted to achieve," he said, referring to companies like Signet Banking Corp. and NationsBank Corp.

"New market entrants are going to have to wait for the remaining significant companies to choose to participate, and there is no way to predict when and if that could occur," he added. "The major remaining opportunities are Mercantile, Citizens and Provident, which have all stated a desire to remain independent."

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In trading Friday, rumors of an imminent sale to U.S. Bancorp, Portland, Ore., drove up the price of West One Bancorp shares. Stock in the $8 billion-asset bank in Boise, Idaho, soared $4.625 to $32.125. More than 1.85 million shares were traded, compared with average daily volume of 136,127 shares.

West One did not return calls. A U.S. Bancorp spokesperson declined to comment.

Meanwhile a broad bank rally continued on news that suggested the economy is slowing enough to discourage further rate hikes by the Federal Reserve Board.

A higher-than-expected April unemployment figure sent bond prices soaring - and helped bank stocks outperform the market. The 30-year Treasury bond was up more than 50 basis points at midday, with a yield of 7.09%.

The Standard & Poor's bank index rose .85%, compared with the overall S&P decline of .08%.

Money-centers were among the big gainers. Citicorp shares rose 75 cents to $49.375, while First Chicago Corp. rose 12.5 cents to $56.375.

Republic New York Corp. rose $1 to $49.625, after announcing a major new cost-cutting initiative and receiving an upgrade from Merrill Lynch & Co. to "near-term buy" from "average."

Investors, however, reacted with a yawn to Chase Manhattan Corp.'s hiring of cost-cutting guru Tandrika Tandon of Tandon & Associates. Chase, which has been under pressure from activist shareholder Michael Price to deliver better returns, finished up only 37.5 cents to $44.375.

Credit card companies also rose significantly. MBNA Corp. was up $1.375 to $33.625, and First USA Corp. rose $1.125 to $44.

Shares of the Student Loan Marketing Association soared $3.875 to $45.125 after the company announced at the close of trading on Thursday that it would repurchase 27% of its shares.

Like Chase, Sallie Mae also has come under pressure from shareholders to deliver returns and reorient its strategy.

As part of the effort to soothe frayed shareholder nerves, the government-sponsored enterprise said it would form a shareholder committee.

However, the company said it would continue to proceed with its plans to privatize, which runs counter to the position the main dissident shareholders have taken. The two sides will offer different directors slates at the May 25 shareholders' meeting.

BayBanks Inc. rose $1.875 to $67, a new 52-week high.

Savings and loans also boomed Friday, led by H.F. Ahmanson & Co., which rose $1.875 to $23.50.

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