If there are potential winners in the credit crisis, Barron's Leslie Norton sees one in People's United Financial (PBCT). The Connecticut-based regional bank, the largest in New England, has managed to steer clear of subprime loans, has a strong balance sheet, and is so well capitalized that it's looking for acquisitions as other lenders flounder.
Since becoming a publicly traded company in April 2007, People's shares have lost 17% to Friday's $17.06 close. Even so, the company is extremely well capitalized with cash holdings of $2.5B, an impressive 16.5% of assets and 2.75 times what the FDIC considers "well-capitalized." The bank's capitalization and avoidance of subprime loans (it hasn't made a single one) has been key - its stock is down only 6% this year, compared to the 34% loss for S&P 500 Regional Banks index.
People's earnings are understated since so much of its holdings are in low-yielding cash. CEO Philip Sherringham is eager to correct this with a major acquisition. With a purchase, he says, "the bank's earnings could potentially double over the next two to three years. We have a capital base that will allow us to at least double our asset size." Speculation about potential buyout targets include Valley National Bancorp (VLY) and Fulton Financial (FULT).
The 2009 earnings forecast is $0.75 per share vs. $0.57 in 2008. "The stock has about 20% upside," Norton says.
CEO Sherringham told Reuters last week, "We have too much capital." People's isn't shy to deal when it sees an opportunity: On June 28, 2007 People's agreed to buy Chittenden (CHZ) for $1.9B, saying the combined rate of returns was greater than its cost of capital. Still, the deal has some critics, who say it will have to be more mindful next time: "People's acquisition of Chittenden was very expensive. They paid a high price. If in future they continue doing this, that might prove to be a downside for them," Sterne Agee's Matthew Kelley says. Sherringham's response: "I'm loath to fritter away [capital] on a poorly thought-out and poorly timed buyback."
Recently, Jim Cramer called People's "second best - after Hudson City Bancorp (HCBK)." Other key competitors include Northwest Bancorp (NWSB), The Bancorp (TBBK), Downey Financial (DSL), and First Niagara Financial Group (FNFG).