Despite spectacular third-quarter earnings at California's Bay View Capital , its profit prospects are an enigma on Wall Street.
The $6 billion-asset San Mateo banking company reported last week that net income in the third quarter soared to $9 million, up 80% from the year earlier. Yet its stock price has plunged 38% since Aug. 1 -- bottoming out at $11.75 Tuesday. And analysts have reduced earnings estimates for next year by as much as 45 cents per share.
Of chief concern to analysts and investors is Bay View's much-delayed deal to buy Franchise Mortgage Acceptance Corp., a Los Angeles originator of loans to fast-food restaurants, gas stations, and convenience stores.
The $282 million deal, which Bay View had been counting on to boost net income in 2000, was originally scheduled to close in August. In a conference call with analysts last week, Bay View officials conceded that the sale may not even close by its latest deadline, Nov. 1, due to an undisclosed dispute with Fannie Mae.
"We suspect that the uncertainty surrounding the Franchise Mortgage deal and its impact on earnings may hurt Bay View's near-term performance," Thomas F. Theurkauf, a bank analyst at Keefe, Bruyette & Woods Inc. in New York, wrote in a research note.
"There are a lot of moving parts to Bay View's numbers that could have a material impact on its net income," said Erick J. Reim, a bank analyst at U.S. Bancorp Piper Jaffray in Minneapolis.
Bay View's president and chief executive officer, Edward H. Sondker, acknowledged that the future is unclear.
The company had expected to earn significant revenues reselling loans originated by Franchise Mortgage, which expects volume of $1.8 billion per year. With the deal in limbo, however, and the market for secondary loans uncertain, Mr. Sondker said he could not predict how much Bay View would earn next year. For instance, spreads on loans it sells could range from 300 to 500 basis points.
"We're continuing to work on the numbers, and it will be tough on a quarter-by-quarter basis," said Mr. Sondker. "I think everyone is grappling with the same issue."
In a recent interview, he even suggested that the company could be a takeover candidate if its stock price continues to slide.
Mr. Sondker said he is optimistic that the Franchise Mortgage deal, once it closes, would add 15 cents to Bay View's earnings per share in the first full year afterward. This projection, however, was not enough to appease analysts, many of whom reduced per-share earnings estimates for 2000 after the conference call last Thursday.
Portland, Ore.-based Pacific Crest Securities, for example, dramatically cut its earnings estimate -- by 45 cents a share, to $1.75 -- Keefe Bruyette reduced its estimate by 35 cents, to $1.75; and U.S. Bancorp lopped 12 cents off its estimate, to $1.90.
