NBD's Marks Range from Good to Great

Controversial times often demand noncontroversial stocks like NBD Bancorp. in Detroit.

Along with Wachovia Corp., NBD is considered by analysts to have the most pristine balance sheet among the nation's major banks.

"In short, NBD is a great defensive bank stock," said Frank R. DeSantis of Donaldson, Lufkin & Jenrette. For now, however, Mr. DeSantis is advising investors to purchase more aggressive names.

But other analysts are downright bullish on NBD. Analysts at Goldman, Sachs & Co., New York, recently termed NBD "the prototype of quality growth for the 1990s" and said the bank's second-quarter provisioning against losses despite few problems "understated its fundamental earnings power."

Cautious Expansion

Widely viewed as well managed and conservative, NBD has embarked on a careful course of expansion.

The company has focused on acquiring profitable banks in the affluent Chicago suburbs. Since these were smaller than NBD and NBD's stock is highly valued, the deals have been all been nondilutive to NBD's own shareholders.

Its stock has remained relatively stable over the past couple of years while the rest of the industry has ridden a roller coaster. NBD has risen only 33% since bank stocks hit bottom last October, tame compared with many other issues.

But NBD held on to hard-won gains better than nearly any other bank last year. It fell just 6% as the American Banker index of 225 bank stocks declined 25% and many bank equities lost more than half their value.

Bank earnings during the next two years "will be driven more by recovering asset quality than by asset growth," Mr. DeSantis said.

That puts NBD in the odd position of already being so good at what it does that there is little room for improvement.

"The slow-growth economic recovery that most economists are forecasting is not the most robust environment for a company like NBD," said Mr. DeSantis. The analyst projects that 1991 earnings will be roughly the same as last year's, and those in 1992 will be up only 7%.

And that, he notes, is probably already reflected in NDB stock, which sells at about 10 times earnings and 150% of book value. On Monday, NBD traded at $41.75, off 75 cents in a stock market buffeted by news from the Kremlin.

An Optimistic Scenario

The Detroit bank had no immediate comment on Mr. DeSantis' opinions, but other analysts take a far different view.

Analysts at Salomon Brothers Inc. said that NBD typifies the institutions "with high capital ratios, a diversified base of business, strong credit underwriting skills, and effective expense control that will be the winners in the banking industry during the 1990s."

They noted that "while most of its peers are still struggling with the effects of the national recession and real estate downturn, NBD turned in another solid performance" during the quarter.

The Detroit bank tallied operating earnings of 93 cents a share for the second quarter, up 3.3% over last year's 92 cents. Return on assets was 1.01% and return on equity was 14.17%.

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