Shares of Doral Financial Corp. soared 28.2% after the San Juan, Puerto Rico, company said it agreed to sell 11 branches and some accounts for an pretax gain of $10 million.
Doral, which has been dealing with accounting troubles for two years, is facing potential default on $625 million of debt due in July.
Joseph Gladue, an analyst at Cohen & Co., wrote in a research note Friday that the sale would generate only about 12% of what the company needs to raise but “could help smooth the way to refunding.”
The buyer, New York Community Bancorp Inc. of Westbury, said it would fold the assets into its commercial banking unit. About 40% of the $230 million of loans it agreed to buy from Doral are taxi medallion ones, a niche known for historically strong credit quality.
New York Community also is buying $370 million of deposits. Its shares rose 0.4% Friday.
A Department of Labor report on the consumer price index indicated that the Federal Reserve Board might not be in a position to raise rates when it meets this month. The report depressed the broad market.
The index rose 0.4% last month. John B. Norris, the chief economist of Regions Financial Corp.’s Morgan Keegan & Co. Inc., wrote in a research note Friday that the index beat expectations by 10 basis points.
“While hardly Carter-era inflation fun, it is still something to watch,” he wrote. “The higher the CPI and other inflation gauges, the less likely the Fed is going to cut the overnight lending target.”
However, the core consumer price index, which excludes food and energy prices, rose 0.2%. Mr. Norris wrote that the core index might be “a little more concerning to the Fed,” because it has not receded since July.
The Standard & Poor’s 500 fell 0.38% Friday, and the Dow Jones industrial declined 0.41%. The American Banker 225 index dipped 0.55%, while the index of top 50 banking companies fell 0.65%. However, the American Banker thrift index gained 0.47%.
Shares of Sovereign Bancorp Inc. gained as much as 9% during Friday trading, after wire reports picked up on a proxy statement filed Wednesday with the Securities and Exchange Commission that contains a provision that would allow Banco Santander Central Hispano SA of Madrid to make a bid for Sovereign sooner than expected.
Richard Weiss, an analyst at Janney Montgomery Scott LLC, said the proposal was not new but was formalized by its addition to the proxy statement.
Sovereign’s shares ended Friday up 5.7%. The Philadelphia company’s volume was more than seven times its average.
Santander already owns almost 25% of Sovereign and has an option to acquire it outright after June 2008. Sovereign’s board can invite the Madrid company to make an offer at any time.
Downey Financial Corp. of Newport Beach, Calif., rose 0.6%.
Frederick Cannon, an analyst at KBW Inc.’s Keefe, Bruyette & Woods Inc., upgraded the stock to “outperform,” from “market perform,” because of valuation. Downey’s shares have dropped 10% this year.
“We believe that Downey and its management team, with 50 years of experience running a Southern California thrift, have somehow been confused with a faddish subprime mortgage bank,” Mr. Cannon wrote.
However, he lowered his 2007 earnings estimate for Downey by 30 cents, to $7 a share, because of a contracting balance sheet and an expected increase in nonperforming assets.
In another research note, Mr. Cannon lowered his 2007 earnings estimate for First Horizon National Corp. of Memphis by 12 cents, to $2.80 a share, “to reflect the current challenges in mortgage banking.”
Shares of First Horizon fell 0.3% Friday.
Mr. Cannon wrote that he expects the company’s gain-on-sale margins to contract 12 basis points this year, to 84 basis points. He also pointed out that subprime mortgages make up about 4% of First Horizon’s loan portfolio.
Freddie Mac and Fannie Mae dropped on news that the government-sponsored enterprises might face stricter federal regulation. Freddie dropped 2.1%, and Fannie slid 0.6%.
The gainers included Ocwen Financial Corp. of West Palm Beach, Fla., which rose 4.4%, First Bancorp of San Juan, which rose 4.3%, and Metrocorp Bancshares Inc. of Houston, which rose 4%.