Tuesday, April 20, 2010

Bank Franchise


People's United To Acquire Butler, A Failed Massachusetts Bank
The Hartford Courant
April 17, 2010

Under pressure to expand its franchise, the parent of Bridgeport-based People's United Bank announced late Friday that it will take over a failed community bank north of Boston from the Federal Deposit Insurance Corp.

The acquisition of Butler Bank, closed down by Massachusetts bank regulators who appointed the FDIC as receiver, is tiny considering People's United Financial Inc. has about $22 billion in assets and 300 branches. Butler has $237 million in assets and four branches.

While it will allow People's United to expand into the Boston area, from beachheads in Springfield and Worcester, is it enough to quell investor concern that the bank isn't moving to build shareholder value and push up the stock price?

"I wouldn't say this is a game changer for People's," said Damon DelMonte, an analyst at Keefe, Bruyette & Woods Inc. in Hartford. "But this is a step in the right direction to build out their New England franchise."

People's shares closed at $16.65 Friday, off 25 cents. That's 18 percent below the $20 a share offering price when the bank converted to a fully public company in 2007.

People's United does not pay a price as in a merger between two healthy partners. Instead, it guarantees depositors will have access to their funds. The bank also shares responsibility with the FDIC for loan losses and foreclosed real estate. The FDIC is responsible for 80 percent, the bank 20 percent.

The acquisition "represents an excellent opportunity to expand into an attractive, high-density market in the Greater Boston area," said People's United chief executive Philip R. Sherringham.

Sherringham told analysts on the bank's first-quarter earnings conference call Friday morning that the bank was close to making an acquisition.

The takeover of Butler, however, does not chip away meaningfully at deploying the $2.5 billion that remains from the 2007 offering.

People's United has focused on building a franchise from Maine to Washington, D.C. The bank also has said it is open to both traditional acquisitions and government-assisted takeovers of troubled banks, unsuccessfully bidding on two.

People's United raised $3.4 billion in the offering that accompanied the conversion. In 2008, about $1.9 billion was spent to acquire Chittenden Corp., which allowed People's United to expand into northern New England. In February, the bank acquired Financial Federal Corp., for $738 million.

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