Dime Plays It Cool While Merger Fever Heats Financial Sector

As chairman of metropolitan New York's largest thrift, Dime Bancorp, Lawrence J. Toal often finds himself at the center of a storm of merger gossip.

Mr. Toal recently lost a big potential acquisition, Long Island Bancorp, to George L. Engelke Jr. of Astoria Financial Corp. But he remains unfazed. In a recent interview, Mr. Toal said he does not "feel any great compulsion to do a deal," despite the merger mania and record stock market valuations.

He described the market as "very pricey" and questioned whether buyers would be able to justify the high prices by delivering high profits.

"There are some very aggressive assumptions in what is being sold to the Street," he said. "Even if you sell it to the Street, you still have to execute it."

Of course, Mr. Toal has not been shy when it comes to big deals of his own. Last year, he bought one of the nation's last remaining public mortgage banks, North American Mortgage Co., Santa Rosa, Calif., in a deal valued at $374 million.

The deal vaulted Dime into the top 10 among mortgage originators. Like Washington Mutual Inc., Seattle, Dime is now big enough to originate loans both for sale in the secondary market and for its own investment portfolio. In the first quarter, Dime originated $6.7 billion of home loans.

Like other thrifts, Dime is also working to boost profits by becoming more bank-like, building up its checking accounts and high-margin consumer loans.

But analysts, such as James Ackor of Tucker Anthony Inc., Portland, Maine, say these business strategies will not be enough for the long haul. Mr. Ackor said he would like to see Dime and New York's other big thrifts- Astoria and Greenpoint Financial Corp.-combine their often-overlapping franchises to form one big thrift that would be a tempting target for an out-of-state bank.

In a recent interview, Mr. Ackor said he was frustrated that the CEOs- Mr. Toal, as well as Mr. Engelke of Astoria and Thomas S. Johnson of Greenpoint-were not more eager to combine. He said he is worried that the economy could tank and take these stocks with it.

"In talking to many of them, I rarely come across anyone who has any urgency about what lies ahead," Mr. Ackor complained.

"I think analysts would like to have everyone combine," Mr. Toal said, but he maintained that the thrift is doing fine on its own. It continues to improve its market share and increase its interest margin as it restructures its balance sheet, Mr. Toal said. Dime's return on equity in the first quarter exceeded 17%.

Analyst Thomas O'Donnell of Salomon Smith Barney said Dime is among the few thrifts that can increase its revenue internally. "They'll be in charge of their own destiny-whether they want to sell out or not," he said.

Still, Dime is in the M&A game, Mr. O'Donnell said. He interpreted Mr. Toal's comments as the strategic pronouncements of a potential buyer who does not want to seem overeager.

Dime's stock price has doubled in the past two years. At midday Friday it was trading at $30.5625 a share. Mr. O'Donnell said he expects it to hit $40 within a year.

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