On January 7, we reiterated our Neutral recommendation on
Hudson City Bancorp, Inc.
) based on its strong capital ratios and decline in interest
expenses. However, the pressure on net interest income and net
interest margin remained the headwinds.
CARDINAL FINL (CFNL): Free Stock Analysis
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HUDSON CITY BCP (HCBK): Free Stock Analysis
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Why the Neutral Stance?
Hudson City's third-quarter revenues of $206.3 million as well as
earnings per share of 12 cents missed the Zacks Consensus
Estimates of $221 million and 14 cents, respectively. However,
estimates for Hudson City - a bank holding company that provides
retail banking services - have been stable over the last 30 days.
M&T has agreed to takeover Hudson City in a cash-and-stock
deal worth $3.7 billion. The deal would combine Hudson City's
retail network with M&T's full-service commercial banking
suite and help expanding the premier community banking franchise
in the eastern U.S.
Further, Hudson City was not required to participate in the aid
provided by the government during the height of the financial
crisis, and therefore it has no loans to pay off. Additionally,
Hudson City Savings Bank - the company's only subsidiary -
maintains a healthy capital position.
On the flipside, though the restructuring initiatives taken by
the company in the fourth quarter of 2011 boosted its net
interest margin (NIM) by 42 basis points in the subsequent
quarter, it has declined from that level in the recent past.
Notably, in the second and third quarters of 2012, NIM has
declined to 2.12% and 2.02%, respectively, from 2.15%.
We believe that the current low interest rate environment would
compress the net interest margin further from its higher level,
which resulted from the restructuring. Moreover, sluggish
economic recovery and uncertainty surrounding the new and
anticipated regulations are likely to serve as the headwinds.
Other Stocks to Consider
Other banking stocks that are currently performing well include
Cardinal Financial Corp.
First Interstate Bancsystem Inc.
). Both carry Zacks Rank #1 (Strong Buy).