Now that the question of whether Hudson City Bancorp’s much-anticipated second-step conversion will take place has been answered, speculation has shifted to what the Paramus, N.J., company will do with all that money.
Hudson City, the country’s biggest mutual holding company, with $19.3 billion of assets, stands to receive as much as $4 billion from the stock sale, which it announced Thursday evening. Even if it sells only the minimum amount of shares, its stock sale would easily be the largest ever by a thrift.
The company completed its first-step conversion on July 13, 1999, raising $527.3 million. Since then the market had been eagerly awaiting its second step.
The billions it is likely to raise would give it more than enough to accelerate its branch building or to buy some banks, on New York’s Long Island and in New Jersey, according to Jared Shaw, an analyst with Keefe, Bruyette & Woods Inc. in New York.
“I think they’ll definitely consider some acquisitions,” Mr. Shaw said.
Hudson City is 136 years old and has never made an acquisition. This year it announced plans to open four branches on Long Island, its first outside of northern New Jersey.
Theodore P. Kovaleff, an analyst with Sky Capital LLC in New York, said Hudson City would be a good match for potential sellers that prefer cash to stock. It could buy the $494 million-asset Unity Bancorp Inc. of Clinton, N.J., as soon as it gets the money, he said.
If Hudson City chooses to wait a year or two, it could bid for the $1.8 billion-asset Provident Bancorp Inc. of Montebello, N.Y., or the $965 million-asset Sound Federal Bancorp Inc. in White Plains, N.Y., Mr. Kovaleff said.
Laurie Hunsicker, an analyst with Friedman, Billings, Ramsey & Co. Inc. in Arlington, Va., said share buybacks and dividends have played a major role in Hudson City’s capital management strategy, but she added that with another $3 billion or $4 billion, those methods would no longer be sufficient.
Though most analysts say they expect Hudson City to look at doing some deals, James Ackor, an analyst with the Royal Bank of Canada’s RBC Capital Markets in Portland, Maine, said it is very possible that the company will make no big strategic moves.
In the past five years the New Jersey company has “deployed its capital very effectively” without doing deals or starting new business lines, Mr. Ackor said. If it keeps on that course “I think shareholders would still be very happy five years from now,” he said.
Richard D. Weiss, an analyst with Janney Montgomery Scott LLC in Philadelphia, agreed.
“Hudson City doesn’t do any commercial real estate or small business lending on its own, so why would it buy another company that does?” he said.
According to Mr. Weiss, the only thing Hudson City is likely to do differently as a result of the second step is to build branches faster, adding more on Long Island and entering Staten Island, a part of New York City.
In the five years since its first-step conversion, Hudson City’s asset size has grown by 135% and the company has racked up $890 million of net income.
Ronald E. Hermance Jr., its president and chief executive officer, said Friday that a Securities and Exchange Commission-imposed “quiet period” prevented him from discussing the second-step or how the company plans to deploy the capital it is expected to raise.
Speaking earlier this year in New York at an investor conference organized by America’s Community Bankers, Mr. Hermance signaled that plans for a second-step conversion were in the works. “Being a mutual holding company forever isn’t in anyone’s plans,” he said.
Hudson City has not disclosed when its second-step conversion will take place. When the stock sale does happen, though, the company will dissolve its mutual holding company and sell the entire stake it owns — some 66% — to the public. According to Ms. Hunsicker, the conversion will result in the sale of about 400 million shares.
At the same time it announced its second-step conversion, Hudson City said Mr. Hermance, who has served as the president of the company since 1999 and chief executive officer since Jan. 1, 2002, would become its chairman Jan. 1. He will succeed Leonard S. Gudelski, who will remain a director.
