Bank of New York Gives Reason to Hope
Bank of New York's stock was a lackluster performer during the third quarter, but some analysts see a wealth of upside potential.
Along with last week's announcement of flat earnings, the bank reported some very good news: a $280 million reduction in nonperforming assets, mostly through the sale of $230 million of leveraged loans.
"The major concern overhanging this stock - highly leveraged transaction exposure - is fast becoming a nonissue," according to Christoph Kotowski, a bank analyst at Oppenheimer & Co., New York.
He thinks the stock's valuation will rise in coming quarters from below average to industry par, currently 123% of book value. That would put the shares at $43, or 35% above their Monday price of $32.50.
Bank of New York's shares dawdled between $30 and $31 from July through September as other bank equities advanced. On Monday the stock defied a down market and rose $1.125.
Professionals on Wall Street now think many banking stocks are "forming tops" and may trade around current levels at least for the rest of the year.
Veteran bank analyst Thomas H. Hanley of Salomon Brothers Inc. called the reduction in non-performers encouraging but "less impressive than appearances would suggest because it was accomplished by a [somewhat cosmetic] sale of loans at a discount." He estimated the discount at 40%.
Even without the sales, non-performers would have been flat, he said, which was an encouraging trend. Bank of New York has been one of the largest lenders to highly-leveraged borrowers and nervousness among investors about its exposure to such credits has hurt its stock for nearly a year.
In the third quarter, the bank earned 72 cents per share versus 90 cents a year ago, and 75 cents in the second quarter this year. The consensus estimate among analysts had been 78 cents.
That led Mr. Hanley to trim his 1991 estimate to $1.35 per share, from $1.70, and his 1992 expectation to $4, from $4.50.
Bank analysts at Goldman, Sachs & Co., New York, who are less bullish on the stock, cut their 1991 estimate to $1.20, from $1.40, and their 1992 forecast to $3, from $3.40.
In part, the estimates were lowered because of the weak economy of the New York City region, where Bank of New York's operations are concentrated.
PHOTO : Random Walk