We are reaffirming our Neutral recommendation on
Hudson City Bancorp
), based on its fundamentals, current operating environment and the
recent deal, under which
M&T Bank Corp.
) will takeover Hudson City.
The company reported second quarter 2012 earnings of 15 cents per
share, a penny ahead of the Zacks Consensus Estimate. However,
results compared unfavorably with prior-year quarter's earnings of
19 cents per share.
Hudson City's results were aided by a decrease in expense as well
as an expansion in fee income. Yet, net interest income moved down
and the continuation of the low interest rate environment impacted
its net interest margin.
Notably, in August, M&T agreed to takeover Hudson City in a
cash and stock deal worth $3.7 billion, based on M&T's closing
stock price on August 24. As per the deal terms, each Hudson City
share will get consideration valued at 0.08403 of an M&T share
in the form of either M&T stock or cash. The transaction is
likely to close in the second quarter of 2013.
Amidst a low interest rate environment and despite restructuring,
Hudson City's business model encountered challenges in its growth
trajectory. Though it recently announced initiatives to diversify,
it did not have adequate flexibility with respect to its balance
sheet. Hence, this deal is a strategic fit for Hudson City.
The deal would combine Hudson City's retail network with M&T's
full service commercial banking suite and help in expanding the
premier community banking franchise in eastern U.S. and give
M&T the fourth largest deposit share in New Jersey. Hence, the
shareholders can benefit from this enhanced scale of business of
the combined entity.
However, credit metrics at Hudson City have been a matter of
concern over the last couple of years. Moreover, along with the
pressure on net interest margin, the reduction in the size of its
balance sheet from the restructuring transaction, would lead to a
reduction of its net interest income.
Moreover, Hudson City currently retains its Zacks #3 Rank, which
translates into a short-term Hold rating.
HUDSON CITY BCP (HCBK): Free Stock Analysis
M&T BANK CORP (MTB): Free Stock Analysis
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