Stocks: Dime, Astoria Shares Soar on Merger Rumor

Trading in shares of Dime Bancorp and Astoria Financial Corp. surged Thursday as investors speculated the two New York thrifts would merge.

Sources said Dime had bid an unsolicited $60 a share for Astoria.

Dime rose 2.63%, and Astoria 2.33% after giving back some ground. Officials at Astoria and Dime did not return phone calls.

Thrift analysts said they doubted a deal was imminent but said a merger of the two companies "makes sense" from a Wall Street perspective.

Dime and Astoria together would have the No. 1 deposit market share on Long Island, according to analyst Salvatore J. DiMartino of Advest Inc. "The combined entity would have a deposit market share of 16.1%, 139 branches, and $17 billion of assets," he said.

The companies are of equivalent size, focus on residential lending, have similar deposit bases, and have strong mortgage banking operations, other analysts said.

Both companies have expressed an interest in possible mergers with other partners in the past, analysts said.

"The only reason why they have not gotten together in the past is because they could never figure out who would head the combined company," said an analyst who asked not to be named.

But a deal may not be close. "I don't think anything is imminent right now because they (Astoria) still have to integrate Long Island Savings," Mr. DiMartino said.

Astoria completed that $1.2 billion stock purchase Oct. 1. The deal made Astoria the second-largest thrift in New York.

Meanwhile, bank stocks rallied Thursday as investors snapped up undervalued stocks.

Investors are searching for value plays or bank stocks that have been unfairly beaten up during the downturn, said bank analyst Michael L. Mayo of Credit Suisse First Boston.

The S&P bank index rose 0.74%, and the Dow Jones industrial average 0.17%.

The S&P 500 gained 0.71%, and the Nasdaq bank index 0.21%.

Investors found regional banks to be most attractive.

Gainers included First Union Corp. 68.75 cents, to $61.6875; PNC Bank Corp. $1.5625, to $51.25; and Wachovia Corp. $1.75, to $92.375.

Buy-side analyst Francis X. Suozzo of Alliance Capital Management LP said that improvement in the global capital markets has made investors much more optimistic about the market.

More banks are buying back stocks, and Brazil and Japan are taking steps to shore up their economic troubles, said Mr. Suozzo.

"Investors are beginning to believe the world is a little bit safer," he said.

Bank analyst Eric E. Rothmann of Stephens Inc., Little Rock, Ark., said investors are looking for "high-quality ideas or bank stories they may have focused on in the past."

Some traders said a few institutional players sat out the recent rally because bank stock valuations continued to be too high. As a result, they missed the significant run-up in bank stock prices in the last few weeks, these traders said.

"Many investors are holding cash and scratching their heads," said one bank stock trader. "No one wants to get in at these levels."

Market experts added that portfolio managers are less likely to make big plays during the fourth quarter.