After raising billions by going public and then buying a Vermont company, People’s United Financial is not finished shopping just yet, market observers predict.
Bridgeport-based People’s raised $3.4 billion by converting from a mutual holding company to a public company, and then used part of those proceeds to buy Vermont-based Chittenden Corp. It still has almost $3 billion in excess capital, according to Standard and Poor’s.
People’s will probably use that extra capital to purchase another lender, S&P predicted. It will have many to choose from and will probably get a good price because many banks are short on capital and are struggling, one consultant said.
“People’s is ideally positioned to be an acquirer because of their abundance of capital from their recent conversion from mutual stock and because of their satisfactory integration of Chittenden Corp.,” said John Carusone, president of Bank Analysis Center in Hartford, a banking and investment consultant. “They have deep pockets and considerable management depth.”
Although bad loans are giving many lenders problems, People’s – the savings and loan holding company for People’s United Bank – would be able to perform due diligence to properly price a potential acquisition, Carusone said.
“They have a lot of practice in this process. This is not their first rodeo.”
Carusone predicted the company would seek a lender with complementary geography and business, and similar philosophy somewhere in the Westchester-Albany, N.Y., corridor. “They have an obligation to their shareholders to have their antenna up and look for a selective acquisition that makes sense.”
A People’s spokesman said the company would not comment on acquisition speculations. But Philip R. Sherringham, the company’s president and CEO, stated in his speech prepared for its annual shareholders meeting in April that the company would proceed from its stock offering to acquire similar banks in contiguous or near-contiguous markets.
“When it comes to capital deployment, acquisitions are currently an attractive option,” according to Sherringham.
However, potential buyers are more cautious.
“Indeed, while prices may seem more attractive than at other times,” Sherringham said, “potential buyers face the fact that they need to be exceptionally careful in order to know what they are getting.”
Stock Repurchase
While hunting for an acquisition target, the bank will repurchase shares to support its stock price, S&P predicted. Its board recently approved the repurchase of about 5 percent of its outstanding shares.
Even if People’s doesn’t find another acquisition, it will use its excess capital to expand its lending business, S&P said.
S&P gave People’s a five-star rating, its highest recommendation, citing high credit quality, excess liquidity and an excellent share price.
The rating agency calls People’s a conservative lender, requiring full documentation and low loan-to-values. Its annual charge-offs were only 0.08 percent of total loans in the first quarter, and actually declined from the fourth quarter. Its reserves were about 225 percent of nonperforming loans at the end of March, compared to about 125 percent for its peers. It has no exposure to subprime, low-document or structured investment vehicles.
Lenders that stuck to conservative lending standards during the housing bubble and that have surplus capital, such as People’s, will be able to take advantage of the weak banking industry by completing opportunistic acquisitions and expanding their business at the expense of competitors, according to S&P.
