Sterne Agee Lowers Estimates On Hudson City Bancorp

Sterne Agee has published a research report on Hudson City Bancorp

after the company announced its restructuring of borrowings is to be increasingly likely, thus allowing Sterne Agee to lower estimates. In the report, Sterne Agee writes "Hudson City is at a crossroads in our view. Longer duration high rate borrowings represent 49% of total funding. With asset yields drifting lower quarter after quarter, the company's net interest margin continues to get squeezed. While gain on sale income has offset some of this pressure more recently, core earnings power is about to reach a level that does not cover the company's $0.15 quarterly dividend. If no action is taken, the dividend will need to be reduced in our view. Alternatively, the company could restructure the borrowings, take the hit to book value and significantly improve the earnings power of the bank. In our view this is the more likely outcome. A restructuring which lowers the rate paid on wholesale borrowings and potentially the size of the overall balance sheet will not be cheap. A recent restructuring by a thrift peer Bank Mutual

($4.80, Neutral) resulted in a significant charge that will reduce tangible book value by upwards of 15%, by our estimate. Similar hits to book value are not unrealistic for Hudson if this strategy is elected." Sterne Agee maintains its Neutral rating on Hudson City Bancorp, which closed yesterday at $12.04.