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Hudson City Bancorp - an alternative analysis - HCBK

|Includes: Hudson City Bancorp, Inc. (HCBK)
Another way of looking at HCBK and gauging its real estate risks - and truly an odd one - is to look at the company it keeps, the level of troubles in other banks its trade area: NJ, NY and CT.

My investment premise: You can be smart, but if everybody's getting hit eventually you will too. (Never tell this to a real estate guy, 100% of them are much smarter than average.)

Let's look at Hudson City's trade area. About 1 bank in 12 in NJ and NY has a troubled asset ratio over 50%; NY. Its only 1 in 20 in CT. Compare these ratios with Florida and NV, 4 out of 10 banks with high TAR ratios; AZ, 1 out of 2. CA, 1 out of 5. 

Loosely, TAR compares bad stuff to good stuff -- bad debts plus foreclosed real estate to capital plus reserves. A higher ratio is bad. TAR is another flavor of Texas-type ratio that correlates to bank troubles.  Although TAR isn't an FDIC statistic, if its over 100%, its a warning signal that the FDIC may soon come knockin' at the door.  

The numbers suggest that there are fewer real estate troubles in HCBK's trade area compared to other areas, especially those hit hard by the subprime crisis. IMHO, when picking banks, all other things being equal, the less asset trouble in your trade area, the better.

FWIW- As of December 31, 2009, HCBK's TAR ratio was about 13.1%, slightly below the national average of 14.50% and well under the 50-100% danger zone.

In spite of HCBK's decent fundamentals (13 PE, 4% dividend yield, low 60%  payout ratio), I've been disappointed with HCBK's lackluster performance... particularly with its consistently good press. Maybe with the regionals finally looking up, HCBK will perk up.

Just my opinion.

Per cent of Banks in selected states with TAR Ratios over 50%, as of 3Q2009:

HCBK trade area
CT - 5.4%
NJ - 8.1%
NY - 7.9%

AZ - 54.3%
FL - 43.3%
NV - 39.5%
GA - 38.6%
CA - 18.6%

Source: American University & MSNBC

Disclosure: Long HCBK