FleetBoston Financial (FBF)--formed by the 1999 merger of Fleet Financial and BankBoston and now the seventh-largest U.S. bank, with assets of $220 billion--may undergo another name change, if speculation that it's a takeover target holds true. Management insists FleetBoston is not for sale, but the plunge in its stock price, from 38 in mid-December to 23 lately, amid mounting woes, makes the bank "a logical buyout target," says John Maloney, president of M&R Capital Management, which has been accumulating shares. He says FleetBoston is undervalued, based on its assets and "turnaround potential." Management is under pressure, he notes, to resolve problems, mainly its $22 billion loan exposure in Latin America, including $10.4 billion in Brazil and $4.4 billion in Argentina. Unless the stock recovers, takeover threats will gain ground, says Maloney.
"This is the time to buy," he argues, before the stock snaps back and before a takeover materializes. He notes that rumors are swirling that London-based HSBC Group, with total assets of $746 billion, is out to buy the company or acquire a sizable stake. Based on a turnaround, the stock is easily worth 30 or 35, says Maloney. In a buyout, he figures it's worth more than twice book value, or 35 to 40. In the meantime, "you get paid for waiting, with a 6% dividend yield," he says. HSBC declined comment.
David Hilder of Bear Stearns, who rates the stock a buy, says FleetBoston can well maintain a yearly dividend of $1.40. With stability looming in Brazil, he thinks FleetBoston can meet management's forecast earnings of 55 cents to 65 cents a share in both the third and fourth quarter. He expects earnings of $1.79 a share in 2002 and of $2.74 in 2003, vs. 2001's $1.52. Bear Stearns has done banking for FleetBoston in the past 12 months. By Gene G. Marcial