20 New England Banks, S&Ls Make Analyst's |Nibble List'
Late August finds First Albany Corp.'s Don Kauth struggling over which banks to add to his "nibble list."
The previous version of the list, Nibble III, published last month, touts 20 of the 80 small New England banks and thrifts Mr. Kauth follows. That's up from the nine listed in Nibble I at the end of 1990. And Mr. Kauth expects the quarterly list to grow again, with economic recovery apparently closer at hand.
A regional economic recovery is six to nine months away, Mr. Kauth said. Meanwhile, "it's a race between the nonperformers and capital," he said.
Worst Appears Over
Mr. Kauth is hardly alone in trying to pick survivors from the New England rubble. He and other analysts say substantial risks remain for investors in New England, especially if there is a double-dip recession, but they are beginning to see potential bargains among the banks that have survived what appears to be the worst of the region's downturn.
"I'm assuming the ones that are left are survivors," said Gary Gordon, a thrift analyst for PaineWebber. But he said he looks for strong earnings potential in addition to undervaluation before he recommends a New England bank stock.
Atop Mr. Kauth's list are Massbank Corp. and Portsmouth Bank, which were trading at just over half of book value when the list came out. They enjoyed tangible equity equal to nearly 20% of assets, and their nonperformers were below 1%.
A Possible Addition
Another 13 banks are listed on Nibble III as having even better potential for gains in price, but higher risk. Five more apprear in an even higher-potential, higher-risk category. In this group, stock traded at an average of only 40% of book value adjusted for loan problems, while the level of nonperformers averaged 6.8% and tangible equity 8.6%.
Mr. Kauth on Monday said he was weighing the merits of adding People's Heritage Savings Bank to this last list.
In the bank's favor, he said, the economy of Maine, where it does most of its business, is better off than the rest of New England.
Moreover, its shares are trading at under $3, meaning investors could triple or even quadruple their money before the shares recover to a level closer to book value of about $19.
On the other hand, the bank's nonperformers outweight its tangible equity, 7.5% to just over 5%, Mr. Kauth said, meaning the risk may simply be too great. "I haven't made up my mind."
Generally, in order to make it onto the list, the bank's share price must be severely depressed compared with book value, and its tangible equity must be sufficient to carry the company through whatever additional hard times remain.
Mr. Gordon said his earnings-based criteria have led him to recommend BankWorcester, Cooperative Bank of Concord, and Boston Bancorp - none of which appear on Mr. Kauth's nibble list.