The stocks of savings banks in the New York City area have been popping lately on takeover speculation. Shares of Brooklyn-based Hamilton Bancorp, for example, have soared nearly 50% in the past month, to about $32.

What's going on? Thomas F. Theurkauf Jr. and Kevin D. Spinner, analysts at New York-based Keefe, Bruyette & Woods Inc., say the local savings banks are ripe for consolidation.

Smaller savings banks - those with assets of less than $2 billion - could soon find themselves courted by bigger savings banks and commercial banks, the analysts. suggest. They laid out their views this week in an interview with the American Banker.

Q.: Why is consolidation in the cards for the New York savings banks?

THEURKAUF: Though the economy has stabilized in the last few quarters, growth expectations in greater New York are very modest. An offshoot of that modest growth is that internally generated revenue activity, whether it be new loans or new fees, is hard to come by. Larger players are looking for incremental revenues, and we suspect they are going to use acquisitions to accomplish this while simultaneously redeploying excess capital.

Q.: What else is at work?

THEURKAUF: There's been a tremendous amount of capital raised in the greater New York thrift marketplace in the last 18 months. Based on our latest tally, which would include conversion activity, equity, offerings, rights offerings, there is $2.7 billion of new equity. So, you have some institutions that are siring on 16%, 18%, and 20% equity asset ratios.

The banking business is a relatively low-margin business, and it's darn near impossible to derive a respectable return on equity with that kind of capital base. Because of that, some newly converted thrifts are looking to do repurchase programs and to institute dividends. But they are also looking to do acquisitions to redeploy this capital. That's one very powerful force.

Q.: Which savings banks might be acquired?

SPINNER: In March, when we put a conference together, we put forward three companies we thought offered superb value on a go-forward basis. They were Hamilton, Fidelity New York, and North Side Savings.

Our view, was that each of those institutions had the incentives in place, had managements and boards that were at least willing to entertain the sale of the company. Each institution had recovered in terms of asset quality, and offered a low-risk target for any potential acquirer.

Q.: Who else?

SPINNER:. Brooklyn Bancorp, the old Crossland. As you know, it was acquired from the Federal Deposit Insurance Corp. by institutional investors.

Q.: Why is it a likely seller?

SPINNER: Based on our conversations* with the. company's management, we believe that the initial deal was predicated on an eventual sale of the company, and again, the incentives are in place and management intends to get maximum value. It is one of the top four depository institutions in both Brooklyn and Nassau counties, which is another attraction.

Q.: What about the buyers, who might they be?

THEURKAUF: Some of the names that we are most familiar with would include Green Point Savings and Anchor Bancorp. If it were a transaction in its surrounding market or neighborhood, I wouldn't rule out Dime Savings Bank as a buyer.

As you may recall, when Green Point was in the process of converting, Republic New York Corp. showed a very strong interest in that property. Does Republic resurface here? I can't rule that out.

Q.: Why would a company like Dime, for instance, be likely to take part in this consolidation?

THEURKAUF: The benefits of the transactions that we envision are the same as any in-market buyer would perceive: increased concentration, increased market share, and improved operating efficiencies. I think there will be branch closures, and I think expenses will be cut.

It behooves a Dime, an Anchor, a Green Point, and an Astoria Financial to look at these kinds of transactions because again they offer very tangible benefits to the buyer.

Q.: What else makes the smaller banks attractive targets?

THEURKAUF: The percentage of the deposits that are actually in passbook savings accounts. For example, Hamilton has 52% of deposits in house savings accounts and North Side has over 53%. Fifty percent or higher is good in this area. It's not that high in other areas of the country. In a rising interest rate environment, the value of those passbook accounts, as we see it, does nothing but grow.

Q.: Will the acquisitions be cash deals?

THEURKAUF: That's just mechanical. As an example, I'll use Astoria, which we perceive to be a buyer. Right now, they have plenty of ammunition. Their stock is trading at a discount to book value. They have, if anything, excess capital. All indicators point to a purchase acquisition using cash, instead of the issuance of new stock. So as heavily, if not excessively, capitalized institutions look at transactions, their specific capital structures will help drive the terms of the deals. You will see purchases and many of them will be on a cash basis.

Q.: Will the deals be accretive?

THEURKAUF: Our read is that with a cash deal, the all-in cost for the acquisition will be the funding cost - which, even though rates are up a bit, is still relatively modest - and then any goodwill amortization. It looks to us as though most of these deals - like cash deals in general - are in fact accretive to the buying company's shareholders.

So I wouldn't be surprised to see Astoria do one or more transactions that are, in fact, accretive, and maybe nicely accretive, that is, 5% or 10% accretive to the buying shareholders. So, it could be a win-win situation.

Mr. Wiggins is a freelance writer based in New Jersey.

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