Shares of Long Island Bancorp surged Wednesday on reports that North Fork Bancorp. is accumulating a substantial stake in the company.
Shares of Long Island Bancorp jumped more than 5% in value on four times its typical daily volume, during a generally robust session for bank and thrift stocks.
Long Island Bancorp's stock rose $2.062, to $40.75.
Traders said that rumors of a possible merger between North Fork, a $6.6 billion-asset commercial bank, and Long Island, a $5.8 billion-asset thrift, took off after three unusually large blocks of Long Island Bancorp shares were traded early Monday.
The 434,000-, 210,000-, and 100,000-share blocks traded between $37 and $38 a share. Traders said they believe that North Fork bought the blocks.
North Fork has a history of accumulating substantial positions in other banks and thrifts before making acquisition bids. It successfully acquired North Side Savings Bank and Metro Bancshares by similar techniques.
Recently, it announced its acquisition of Branford Savings Bank, a $187 million-asset company in Connecticut.
John Adam Kanas, chairman, president, and chief executive officer of North Fork, declined to comment on market reports, but was willing to speak about the company's expansion philosophy.
"We continue to be interested in expanding our franchise," he said. "But the market has taken bank stocks up the last two or three months over and beyond levels that we would make us (less) interested in buying."
Nevertheless, he said, "there are exceptions" and referred to First Union's recent, richly priced acquisition of Virginia's Signet Banking Corp. Long Island Bancorp declined comment on the matter.
Some analysts were doubtful that a merger between the two companies is in the making.
Bank and thrift analyst Chad Yonker of Fox-Pitt, Kelton Inc. said that it would be very difficult for North Fork to purchase the thriftbecause of Long Island Bancorp's pending goodwill lawsuit.
"We think their goodwill lawsuit could be worth $25 a share, which means that there is a hefty premium," said Mr. Yonker. "I don't think North Fork would pay that much. They have paid high prices in the past, but they have not necessarily overpaid."
Long Island Bancorp has expressed its willingness to remain independent, Mr. Yonker said, and he doubted that North Fork would attempt a hostile takeover.
"The only way that a takeover would be likely is if Long Island spun off its goodwill lawsuit into a separately traded security," said Mr. Yonker. "North Fork is looking to buy a banking franchise not a lawsuit."
Mr. Yonker said that Cal Fed Bancorp, a Los Angeles thrift spun off part of its goodwill lawsuit.
Bank analyst John M. Kline of M.A. Schapiro & Co. said he has no knowledge of a merger but pointed out that Long Island has been a focus of merger activity for the last three years.
"There is fierce competition out there, margins are thin, and the interest rate environment is making it more difficult to price loans," said Mr. Kline. "In the face of declining profits, it would not be unreasonable to see people sell out in a strong acquisition market. There are companies right now that have very good currency which enables them to do acquisitions that are less dilutive."