Regulatory issues and profit uncertainty have pushed the stock of Hudson United Bancorp Inc. down more than 13% since a peak last November, but one analyst thinks the selloff may be near an end.
On Wednesday, Thomas J. Monaco of Moors & Cabot Capital Markets upgraded shares of the $9 billion-asset company to "hold" from "sell" because of "improved risk-reward characteristics." But he said nothing had altered his basic concerns about Hudson United.
Shares of the Mahwah, N.J., thrift have traded at $35 to $36 in recent weeks but have lost 7% of their value since mid-December, when Mr. Monaco initiated research coverage with a "sell" rating.
"Since our initiation, we've changed our tune primarily on valuation. I think the fundamental risks remain," Mr. Monaco said in an interview Wednesday.
Hudson United has struggled with earnings pressures and regulatory matters over the past year. It is occasionally mentioned as a potential takeover target, primarily for its network of about 200 branches in New Jersey, New York, Connecticut, and Pennsylvania.
Mr. Monaco said Monday's upgrade "doesn't reflect a belief that the company is going to be sold anytime soon."
Hudson United met analysts' expectations with fourth-quarter earnings per share of 73 cents, but with help from unusual items. It remains under a May cease-and-desist order from the Federal Deposit Insurance Corp. about shortcomings in compliance with the Bank Secrecy Act and anti-money-laundering rules.
The company agreed to improve controls and file suspicious activity reports for transactions conducted by an international correspondent banking unit it closed in 2003. It was not fined by the FDIC, though it paid a $5 million fine to the office of Manhattan District Attorney Robert M. Morgenthau, who ordered the unit shut.
Last month Hudson United defended itself from complaints of religious bias after it abruptly closed the accounts of an Islamic school in Hudson City, N.J. It said the school's religious affiliation was not a factor.
Most analysts are waiting for Hudson United's profit outlook and earnings quality to improve. The FDIC order also remains a major concern, mainly because it prohibits both acquisitions and new branch openings - two strategies the company has relied on for growth.
"The company has a number of challenges that it's confronting at this time, the cease-and-desist order being the biggest of them all," Gerard Cassidy, an analyst with Royal Bank of Canada's RBC Capital Markets, in Portland, Maine, said in an interview Wednesday.
Mr. Monaco of Moors & Cabot said that Hudson United's chairman, chief executive, and president, Kenneth Nielson, "has taken some steps to right the ship, and he's put a few new people in place to improve fundamentals."
But the analyst said the company still seems to have an "ever-evolving strategy" and "is not moving quickly enough."
Mr. Cassidy, who also has a "hold" rating on Hudson United shares, said its branch network - from Hartford, Conn., to Philadelphia - is too spread out. Though its return on equity has been consistently high, he said, quarterly earnings reports too often include nonbanking items.
On Wednesday in a generally depressed session for financial stocks, Mr. Monaco's upgrade was enough to boost Hudson United's stock. At midday it was up 1.4%, but it gave back a little in the afternoon and closed up 0.9%.
