Stocks: Tax Law and Economy Boost Connecticut Thrift Company

Shares of Mech Financial are gaining favor as analysts focus on a new tax law that is favorable to its mortgage business and on the continued resurgence of the Hartford, Conn., economy.

On Monday, Mech-the state's fourth-largest independent banking company - formed a passive investment unit that will let it reduce taxes and boost earnings per share by transferring mortgages into a special subsidiary. Shares rose 75 cents, to $28.75

A spokesman said the company would have reported 9.9%, or $727,000, more in net income for the first nine months of 1998 if the statute had been in effect. Earnings per share would have improved by 14 cents, to $1.55 share, the spokesman said. Mech Financial "anticipates realizing similar benefits in future years," the spokesman said.

The $960 million asset company, which owns Mechanics Savings Bank of Hartford, is also gaining from the area's "increasingly evident economic recovery," said James Ackor, banking analyst with Tucker Anthony.

"A pending deal to bring the New England Patriots to a new stadium in Hartford could continue the regional economic expansion into the next century," Mr. Ackor said.

Mech Financial's earnings per share will grow 14% next year and at least 12% in 2000, said Kevin Timmons, banking analyst with First Albany Corp.

Mr. Timmons cited benefits from the new tax law, an expected share repurchase plan, and strong core earnings for the positive outlook.

Mech Financial is a very attractive takeover target, the analyst said. In trading Monday the Standard & Poor's bank index dropped 0.48%, and the Dow Jones industrial average was up 0.60%. The Nasdaq bank index added 0.60% and the S&P 500 0.93%.

Chase Manhattan Corp. was up 8.75 cents, to $65. Citigroup fell 56.25 cents, to $49, and J.P.Morgan 87.5 cents, to $109.8125.

Among regionals, Fleet Financial Group fell $1.1875, to $40.9375; Mellon Banc Corp. 12.5 cents, to $66.875; and PNC 68.75 cents, to $52.75.

Shares of Klamath First Bancorp dipped 12.5 cents, to $18.625, after it announced plans to buy back nearly two million shares, or 20% of its outstanding stock. The Klamath Falls, Ore., banking company will pay between $18 and $20 a share in an auction-type transaction whose price will be chosen once shares have been tendered.

The $1 billion-asset company sees the move as a way of improving return on equity and earnings per share.

For reprint and licensing requests for this article, click here.
MORE FROM AMERICAN BANKER