Shares of several West Coast mortgage lenders rallied Monday on news of Wachovia Corp.'s deal announced Sunday to buy Golden West Financial Corp. for $25.5 billion.
Downey Financial Corp. of Newport Beach, Calif., rose 5.6%, and IndyMac Bancorp Inc. of Pasadena, Calif., 3.3%. Washington Mutual Inc. of Seattle rose 1.8% and Countrywide Financial Corp. of Calabasas, Calif., 1%.
Paul J. Miller Jr., an analyst with Friedman, Billings, Ramsey & Co. Inc., wrote in a note issued Monday that "the stocks stand to benefit from positive spillover" from the Wachovia-Golden West news.
Several mortgage lenders may now be viewed as acquisition candidates, Mr. Miller wrote. But he wrote that he does not think any of them will be sold anytime soon and that he does not anticipate a "wave of acquisitions" in the options adjustable-rate mortgage business.
Mr. Miller said in an interview that many investors were shorting the stocks, particularly those of the smaller mortgage lenders.
Downey, IndyMac, and Countrywide did not return phone calls. Washington Mutual declined to comment on the speculation.
The Wachovia deal got a mixed reaction from analysts; at least three downgraded the buyer's shares Monday over concerns about Golden West's sizeable options ARM operations.
Others said the deal for Golden West, of Oakland, Calif., is in keeping with the $542 billion-asset Wachovia's stated goal of getting bigger in consumer banking. At least two analysts downgraded the $128 billion-asset Golden West.
Golden West's stock rose 7.7% in early trading and closed at $74.90, up 6.2%. Wachovia fell 6.7%, to $55.43.
The American Banker index of the top 225 bank stocks fell 0.93%. The thrift index rose 1.39%, and the S&P 500 fell 0.08%, to 1,324.66. The Dow Jones industrial average rose 0.06%, to 11,584.54.
Northern Trust Corp. shares rose more than 1% in early trading but closed up just 0.05% after getting an upgrade and a downgrade.
Mike Mayo of Prudential Equity Group LLC raised his rating on the Chicago company to "overweight" from "neutral weight."
If the equity markets remain positive, Northern Trust stands to benefit because it is both an active asset manager and a custodian, Mr. Mayo wrote. The company has also cited improvements in its private banking business, has a solid institutional business arm, and its global business is growing twice as fast as its domestic business, he added.
But Goldman Sachs' Lori B. Appelbaum said in a note that many asset managers are trading at "peak" valuation levels and that some have started to correct themselves. She cut her rating on Northern Trust to "underperform" from "in-line."
Ms. Appelbaum said in her note that she expects Northern Trust's valuation to drop as well. The "fundamentals are clearly strong at Northern Trust, but we view this as priced in at current levels," she wrote.
Northern Trust declined to comment on the notes.
Other decliners Monday included two San Juan, Puerto Rico, companies: R&G Financial Corp., down 3.7%, and Oriental Financial Group, down 3.6%.
