Hudson City Bancorp of Paramus, N.J., expects to raise $3.5 billion to $4.7 billion in its second-step conversion to a 100% stock-traded company.
It would be the largest conversion — first- or second-step — in banking history. The largest to date was by New Alliance Bancorp of New Haven, Conn., which raised $1 billion in March 2004.
Hudson City, the corporate parent of the 136-year-old Hudson City Savings Bank plans to sell the 68.5% stake that it owns to investors. Founded as a depositor-owned mutual savings bank, the $20.2 billion-asset company took the first step toward public ownership by selling 47% of itself in July 1999, raising more than $527 million. Stock buybacks have increased the company’s ownership stake since then.
Hudson City has not yet set a date for its stock sale, though it said its 2004 10-K report filed Friday with the Securities and Exchange Commission that it planned to complete the second-step conversion in the second quarter. Along with the 10-K report it filed an S-3 report detailing a plan to sell as many as 488.8 million shares at $10 each.
In a conversion stock sale depositors get the first opportunity to buy shares. The sale is then opened to residents in the company’s marketplace, and finally to institutional investors and the general public.
In the case of the $6.3 billion-asset New Alliance, its depositors bought all the 102.5 million shares it sold. But Theodore Kovaleff, an analyst with Sky Capital LLC in New York, said Hudson City’s proposed stock sale is too big for its depositors to absorb all the shares. For the company to sell all of the 488.8 million shares it is authorized to sell, institutional investors would have to buy a significant amount, he said.
Hudson City, whose plan to pursue a second-step conversion was announced in December, said it would use the proceeds of the stock sale for general corporate purposes.
Many former mutual thrifts have used the proceeds of their conversions to make acquisitions, but it appears unlikely that Hudson City will go that route. The company made no acquisitions after its first-step conversion, and in its annual report it said it would keep emphasizing organic growth.
“We have pursued a strategy of internally generated growth since our initial public offering in 1999 and plan to continue doing so following this offering,” the report said. The company’s business revolves around originating and purchasing fixed-rate residential mortgages; its loan portfolio consists “almost exclusively” of one-to-four-family mortgages, and the majority of those are fixed-rate, the 10-K said.
According to a report published Monday by Ryan Beck & Co. of Livingston, N.J., however, Hudson City plans to make more adjustable-rate loans. The report, by analyst Anthony R. Davis, said adjustable-rate loans would make up 50% of Hudson City’s production as the company seeks to minimize its exposure to interest rate risk. Last year it bought or originated about $5 billion of residential loans.
Hudson City, which operates 84 branches in northern and central New Jersey and one on Long Island, said it plans to open 10 to 15 branches a year “on an ongoing basis.” This year it expects to open branches in New Jersey, in Long Island’s Suffolk County, and on Staten Island.
Mr. Kovaleff predicted that Hudson City will continue expanding in the New York metropolitan area and also expand south, into Philadelphia’s suburbs.
