Merger Speculation Sends Upstate N.Y. Banks Soaring

Upstate New York banking stocks surged Wednesday in the latest outbreak of merger fever among investors.

Market observers and banking industry watchers anticipate a heightened pace of consolidation in the large region above New York City, which has a modestly growing but stable economy.

"A number of banks are looking to get some foothold in that market, which they feel is attractive for the deposit gathering and the ability to attract low-cost funds," said analyst Frank J. Barkocy of Josephthal, Lyon & Ross Inc.

Banks in upstate New York "also have not commanded significant price-to- book ratios, so there are better value opportunities in these candidates as well," he said.

Such candidates include Onbancorp Inc., Syracuse; Albank Financial Corp., Albany; and Poughkeepsie Financial Corp., whose shares have enjoyed a significant run-up recently.

In Wednesday trading, shares of all three companies outpaced many other stocks on a day when the market itself was strong.

The gem of the group appears to be Onbancorp, whose stock rose 6.4% in the last week. Its shares jumped $1.25 to $58.50 in Wednesday market action.

Besides the bank's good financial performance, recent deal-making in the region has kindled interest. Notably, Charter One Financial Inc., the Ohio thrift, is buying RCSB Financial Inc., Rochester.

"Charter One is a new player interested in expanding its operations, and Onbancorp is definitely in its path," said analyst Chad Yonker of Fox-Pitt Kelton Inc. "I'm not saying it's going to happen, but a combination between the two would be very interesting."

Analyst Fred Cummings of McDonald & Co. in Cleveland, where Charter One is based, said he would not be surprised if the company makes another acquisition by the second quarter of next year.

Fifth Third Bancorp could also be another entrant into the upstate New York bank market, said Mr. Cummings. "They are looking to expand their banking franchise, and the demographics of upstate New York are very similar to the markets that they are already working in."

Elsewhere in the news, bank stocks surged significantly as a result of benign data from the National Association of Purchasing Managers. The association suggested the economy was growing slowly enough not to spark inflation, meaning interest rates need not rise.

The Standard & Poor's bank index increased 1.23%, outpacing the Dow Jones industrial average, which rose 0.88% The Nasdaq bank index grew 0.46%, while the S&P 500 increased 0.86%

One of the bigger gainers of the day was Synovus Financial Corp., whose shares jumped almost 9% in afternoon trading.

Analysts said that the stock's price was snapping back from a 183,000 block sale on Monday that drove the stock price down.

Officials at the Columbus, Ga.-based company were unavailable to comment. However, analysts dismissed theories of possible merger activity or shareholder dissatisfaction.

Analysts at Wheat First Butcher Singer downgraded Wachovia Corp. shares to "outperform" from "buy," citing the price.

Analyst Edward Narjarian said that he remains bullish on the company but pointed out that Wachovia's shares appreciated substantially in the last week. He raised his target price to $80 from $74.

Wachovia's shares rose 43.7 cents, to $72.437.

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