District Banker

Hudson City and Wells Fargo - Two Attractive Picks

Ugh - the total lack of fundamentals in this analysis is disturbing. Read HCBK's 10-Q: a great deal of their mortgage portfolio is purchased, and 1/3 of it is NOT from NY/NJ/CT. I do credit you for pointing out that the NY/NJ/CT portion of the book is heavily leveraged to the financial services sector, given they are jumbo mortgages.

On WFC, I think it is a better bank than, say - BAC. But it also trades like it! It is an expensive stock, and they will have plenty of problems on the commercial side of their loan book (ask almost any bank analyst how WB's underwriting was...).

If you like paying a high P/TBV multiple for a suspect balance sheet (just because they have a name you recognize) - that's your prerogative. I suggest finding smaller gems that have been thrown out with the sector.

Hudson City: Banking on a TARP-Free Stock

Here's a risk the author failed to mention:

NYC/NJ/CT mortgage market slows even further, as job losses continue to pour out of Wall St. HCBK proves to be leveraged to the Wall St types, as the vast majority of their book is jumbo mortgages. Additionally, thanks to the real estate woes in much of the rest of the country - their purchased mortgages (1/3 of total book) softens considerably. 2Q earnings show credit weakness and investors sell the stock on worries of 3Q numbers, and because they wake up and realize that 125% TBV is not cheap for an under-reserved thrift in this environment. The stock trades down to $8-$9, you get killed.

(Disclosure: I do not have a position in HCBK, but do have a very large one in common sense).

How To Buy a Bank (and Other Beaten-Down Stocks)

You really want to pay 2x TBV for HCBK, a company that generates 8% ROTE? Oh, and don't forget that over half of their 1-4 book is purchased (1/3 of which is NOT in NJ, NY, CT). Anyway, enjoy your investment in Interest-Only (they underwrite those), Low Doc/No Doc (yep, they're in those too) mortgages scattered across the country. Their 30 bps of reserves won't cover the losses, but their capital probably will.