This S&L Says: Damn The Shorts

Savings-and-loans are still very much out of favor, particularly those in the depressed Northeast. But DS Bancor, the small holding company for Connecticut-based Derby Savings Bank, is an exception. Its stock has been rising since late November, from 7 to 14. What's the scoop?

One big investor says that with the cost of funds plummeting in the wake of the drop in interest rates, earnings should rebound sharply this year from 1991's depressed 37c a share. Doug Dreyer, an analyst at Advest, expects operating net to jump to $1.25 a share in 1992 and to about $2.25 in 1993--in line with DS' peak earnings of $2.23 in 1986, when the stock was at 24.

Some of the shorts are already running for cover. The short position in the stock came to about 600,000 shares in December--a big chunk of the 2.5 million shares outstanding. The shorts had been betting that New England's weak economy would force the bank to stop paying dividends. But no such luck--for them. The bank has continued to pay a quarterly dividend of 19c. And when the FDIC required the bank to write off $700,000 in bad commercial loans, DS went a step further--increasing its reserves by $2 million, to some $3.8 million. That means there will be fewer writedowns in the future, which enhances the earnings outlook, says one DS insider.

Meanwhile, board member Michael Daddona, who holds a 9.9% stake, is seeking permission to raise his position to 24.9%. Another stakeholder is Invesco, which owns 9.9%. One investor has heard whispers that a major bank is interested in buying DS. However, Chairman Gene Micci insists that DS is actively seeking acquisitions. "We have the capital to buy other banks," says Micci.

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