Traditional savings bank franchises remain valuable items if this week's deal by GreenPoint Financial Corp. is a guide.
GreenPoint startled some on Wall Street by paying $660 million, amounting to an 8% premium, for $8.3 billion of New York deposits in branches of Home Savings of America.
The New York thrift institution's stock slipped lower again on Wednesday as investors continued to weigh the consequences of the transaction for both GreenPoint and other thrifts in the region.
GreenPoint shares were off six cents to $22.06, or about 7.5% from a week earlier.
"I know the price was higher than some people expected, but it was within the range I had anticipated for New York City deals," said Kevin T. Timmons, an analyst at First Albany Corp. "Given the average branches sizes, the operating efficiencies that can be achieved and their good, stable core deposit bases, these franchises are pretty valuable.
"Those who thought deals like this were going to be done for 5% premiums or less are going to have to change their outlook."
The deal could enhance valuations of other New York thrifts, such as Dime Bancorp Inc. and Greater New York Savings Bank.
In contrast to savings and loan associations, the venerable savings banks of the Northeast have far longer relationships with customers. In New York State, they sold life insurance and offered transactions accounts long before S&Ls.
Most of the branches being bought by GreenPoint were once offices of New York's Bowery Savings Bank. Bowery was acquired in 1988 by H.F. Ahmanson & Co., Irwindale, Calif., the parent of Home Savings.
Ahmanson sold the New York branches in order to focus its deposit gathering activities on California, Texas, and Florida. The transaction makes GreenPoint, with $6.7 billion of assets, a major player in several areas around New York.
It will rank first in the populous and affluent suburbs of Nassau County. And it will be making a high-profile entrance into the city's business core, Manhattan, with large offices near both Grand Central Terminal and Pennsylvania Station.
In the deal, GreenPoint bought 60 branches and their deposits. It also got a securities portfolio, but no other assets, which is troubling to some analysts.
"I think the market is doing some collective head scratching," said Bruce W. Harting, an analyst at Salomon Brothers Inc., New York.
"They are going to have to work hard to match assets against those deposits. Finding that many loans is going to be a big job," noted Gary Ford, an analyst at H.C. Wainwright & Co., Boston. "They may have to do another deal."
Mr. Ford, who has an "accumulate" rating on the stock, said he had anticipated that GreenPoint would concentrate its expansion efforts in the mortgage loan origination sector.
Mr. Harting said he was "quite disappointed with the book value dilution" from the deal. GreenPoint's tangible book value will fall to $18.50 from $32, the largest one-time decline the analyst could ever recall.
"At the end of the day, thrift investors look at two things, price to earnings and price to book," said Mr. Harting. "At this point they are a little more attractive on a price-to-earnings basis, but a lot less attractive on price to book."
Mr. Harting thinks GreenPoint's stock will bounce back to the mid 20s. Its 52-week high is $25.12.
The analyst retains a "buy" on the stock and has raised his 1996 earnings estimate for the company to $3.10 per share, up from $2.80 previously.
But the Salomon analyst is cautious. "They've traded short-term gains in the stock for long-term strategic upside," he said. The safer formula calls for periodically repurchasing stock and selling out in three years.
"Only a handful (of thrift institutions) are going to be able to make strategic acquisitions and make money for the shareholders," he said. "That's not to say for a minute that this company can't do it, but it's a lot harder."