Yearend earnings season traditionally inspires Wall Street speculation about mergers, acquisitions, and repositionings, and the chatter concerning GreenPoint Financial Corp. is growing louder.
The New York company's two main businesses - a New York state-chartered savings bank, with 85 branches and $13 billion of deposits, and GreenPoint Mortgage Funding Inc., a home lending operation based in Novato, Calif. - tend to counteract one another, especially in periods of interest rate volatility.
The speculation has GreenPoint selling or spinning off the mortgage operation. Though it generates the bulk of the company's revenues, the unit is blamed for holding the stock's price/earnings multiple below those of other thrifts in the New York market.
As the thinking goes, without the mortgage unit, GreenPoint either would get a stronger currency with which to make deals or would become a more attractive target.
Analysts say GreenPoint's executives have repeatedly expressed frustration about their stock valuation, as have the top managers of purer-play mortgage companies. GreenPoint's shares currently trade at 10 times its earnings for the last four quarters, while Astoria Financial Corp. of Lake Success, N.Y., trades at 14 times earnings, and North Fork Bancorp Inc. of Melville at almost 16 times. Astoria, a thrift, and North Fork, a bank, are fierce competitors with GreenPoint on the retail banking side.
Investors tend to give mortgage companies lower valuations on the perception that their business is more volatile.
"Mortgage banking is viewed as an albatross," though GreenPoint does a good job managing the business, said James M. Ackor, an analyst with Royal Bank of Canada's RBC Capital Markets.
Observers say the drag on valuation makes it difficult for GreenPoint to make acquisitions - or, for that matter, to sell itself. Thomas S. Johnson, its 63-year-old chairman and chief executive, has repeatedly said that both are viable options.
Mr. Ackor said the stock's 3.6% jump in the last two weeks - outperforming shares of other mortgage lenders - suggests to Wall Street pundits that "something is brewing."
Some observers expect a spinoff to be announced soon, possibly in conjunction with the fourth-quarter earnings report, scheduled for Jan. 21. Other observers say that even if an announcement is not imminent, a spinoff is - and has been for some time - an ongoing consideration.
Rumors about GreenPoint's future have been circulating among bank stock traders ever since consolidation in metropolitan New York gained momentum in late spring. "We heard so many rumors about GreenPoint, we don't know what to believe," said Frank J. Barkocy, the director of research at Keefe Mangers Inc., a fund management firm specializing in financial services.
A GreenPoint spokesman would not comment Tuesday on the possibility of a breakup, but Mr. Barkocy said he gives the speculation some credence. In fact, he expects GreenPoint to be acquired "in the not so distant future."
Others consider it to be a buyer. Mr. Johnson has privately expressed disappointment that it has lacked the currency to participate in the recent New York merger wave.
In October, New York Community Bancorp Inc. of Westbury bought Roslyn Bancorp Inc. of Jericho, and a month later Independence Community Bank Corp. in Brooklyn agreed to buy Staten Island Bancorp Inc.
That deal may illustrate the advantages of a mortgage spinoff. Staten Island's sizable but troubled mortgage operation was not only a drag on the company's share price, but an obstacle for a number of potential buyers, analysts and investment bankers say.
John Adam Kanas, the chairman, president, and CEO of North Fork, said Wednesday, said he was "involved" in negotiations with Staten Island but "in the end opted not to stay in the process."
Independence got its financial adviser, Lehman Brothers, to take the mortgage operation off its hands. Still, Independence's stock suffered badly after the takeover was announced and has not recovered, because of shareholder unease with the transaction.
Joseph R. Ficalora, the CEO of New York Community, said he "had clear interest in the Staten Island franchise" but in the end was discouraged from biding, because of "the uncertainty of the disposition of the mortgage company."
GreenPoint would find itself in a different position, because its mortgage operation is viewed as well managed. In the third quarter the unit generated pretax income of $119.5 million, versus the $89.4 million generated from banking operations. The company, which in the past has used Keefe, Bruyette & Woods Inc. as its investment banker, could try to either find a solution similar to Independence's or sell itself, analysts said. Keefe Bruyette would not say whether GreenPoint is still a client.
Still, there are other developments that have some observers drawing lines to connect the dots.
GreenPoint announced Tuesday that it appointed Roman Martinez 4th, a retired Lehman investment banker, to its board. His "experience and expertise in financial services will be a terrific asset for our company," Mr. Johnson said in a press release.
And Capital One Financial Corp. of McLean, Va., which was named as a possible suitor after it said it wanted to expand into banking through branch openings or acquisitions, recently hired Robert Lacoursiere, a former Lehman bank analyst, to help it develop a game plan.
Without the mortgage part, the list of possible buyers would be virtually endless, including Citigroup Inc. or Washington Mutual Inc. or foreign banks, analysts say. In November speculation swept Wall Street that Barclays PLC of London had its eye on GreenPoint and others. (Interestingly, GreenPoint bought BarclaysAmerican/Mortgage Corp.'s the wholesale residential mortgage operation in 1995.)
Royal Bank of Scotland PLC has long been expected to buy another company in the Northeast or Middle Atlantic. It already owns Citizens Financial Group Inc. of Providence, R.I., and is constantly rumored to be going after Sovereign Bancorp Inc., a Philadelphia thrift.
Though most agree that spinning off the mortgage operation is an obvious choice, others say that may not persuade GreenPoint to do it. "If this is such a 'no brainer,' why haven't they done so?" one investment banker asked.
One banker, who, like the investment banker, asked not to be named, said Mr. Johnson has privately dismissed the option of selling the mortgage part. But the investment banker said numerous financial advisers have approached GreenPoint to propose such a plan.
Scott Valentin, an analyst with Friedman, Billings, Ramsey & Co. of Arlington, Va., said GreenPoint's mortgage operation makes its business less volatile and future earnings growth is unlikely to come from the thrift side, a mature business line. GreenPoint, which originates mortgages mostly though brokers, has a focus on certain specialty markets.
Besides, a potential buyer would not necessarily be rebuffed by the mortgage operation, since any buyer could arrange a spinoff as part of the deal, anyway, Mr. Valentin said.
