Industry analysts believe Maine-based Banknorth will enter NY

Long Island Business News, Mar 4, 2005 by David Reich-Hale

The Maine-based financial institution is making stock moves that analysts believe are a pre-cursor to an acquisition, with the New York market as a prime target. In the likely bull's-eye: Long Island's Astoria Financial Corp. and New York Community Bancorp.

Brooklyn-based Independence Community Bank Corp. is a third possibility, according to industry analysts.

Those three names represent meaningful franchises, so of course we're going to be mentioned, said Joseph Ficalora, president and chief executive officer of New York Community. So a bank that wants to have a real presence in the market is going to look at all of us.

Independence has been rumored to be for sale for months. Washington Mutual was reportedly close to buying the bank for about $4 billion, but that deal never materialized. Independence was close to buying New York Community, but that deal also fell apart.

Banknorth would salivate at having any one of those banks, said Art Loomis, president of Northeast Capital, an Albany-based investment bank. You'll see Banknorth in your area. They want to run up and down the East Coast, and the New York market is very fractional.

There isn't a concentration in the marketplace, and because of that, there's still plenty of opportunity for new providers.

Banknorth's pockets are bulging after shareholders approved Toronto-Dominion's purchase of 51 percent of Banknorth on Feb. 19. The $3.8 billion deal gives TD, the second-largest bank in Canada, controlling interest of $29 billion-asset Banknorth. It also gives Banknorth the capital to make a big purchase.

William Ryan, the chief executive of Banknorth, said in a statement that with TD as our major shareholder, we now have greater resources to continue with our growth strategy in New England and beyond.

Additional acquisition fuel is coming from debt refinancings and the buyback of more than 15 million of it own shares.

In a January conference call, Ryan said the bank could buy another institution with up to $20 billion in assets. New York Community, Astoria Financial and Independence fit that bill.

Of those three, 120-branch Independence could be the best fit, said Kevin T. Timmons, an analyst with Albany-based research boutique C.L. King & Associates.

Timmons said Independence, like Banknorth, has a commercial banking presence. New York Community does very little in commercial business, and Astoria, though growing in that area, is still a relative non-player there, he said.

But Timmons added that Banknorth has successfully acquired thrifts that don't have a commercial banking business in the past - and converted them to the Banknorth model.

It's possible they feel confident enough that they could do the same thing with Astoria Federal, Timmons said. But this would be on a much bigger scale, in a much tougher marketplace.

Astoria's in a market that already has some pretty big commercial players. Banknorth would have to take on Citibank, Chase, North Fork and others. It wouldn't be a very easy task, he added.

But Astoria is seeking a merger partner, according to James Dempsey, chief investment officer of U.S. Trust on Long Island.

Who buys them, I don't know, Dempsey said. But what works against Astoria, New York Community and any other bank that's reported to be seeking a deal, is that the serial acquirers are on the sideline. North Fork, for example, is still dealing with GreenPoint.

Then again, there's Citibank. They rarely sit still for too long.

Astoria Financial has a market capitalization of $2.8 billion and assets of $23 billion. Independence's market cap is $3.4 billion, with assets of $18 billion.

New York Community's market cap is $4.9 billion, though Loomis said that if I were representing New York Community, I'd be pretty clear that I think their stock is trading at a discount. I'd be asking for $8 billion.

New York Community was trading at $18.20 Wednesday morning, well below its 52-week high of $35.57.

I think if they can get a deal between $26 and $28, they might do it, Dempsey said. But at $21, I don't think a deal happens.

Dempsey recommends the stock to U.S. Trust investors at its current price, and added at $24 I'd vote against a deal.

Ficalora said that he'd be surprised if another financial institution offered $28 per share, unless they had a unique reason to hold the attributes we have. But I can't speculate on what the right price is.

Astoria Federal said it doesn't comment on market rumors, while Independence didn't return a call seeking comment.