Astoria Needs a Friend

Astoria's stock looks rich compared to its peers. It's trading at a price-to-earnings multiple of 15.83 times current earnings, compared to an average P/E of 14.65 for other savings and loans, according to Thomson Financial.

The thrift trades at a price that's roughly 2.39 times its book value -- assets minus debts and liabilities. By contrast, North Fork Bancorp(NFB)" EXCHANGE="NYSE" PRIMARY="NO"/>, the New York-area thrift that Capital One is paying $14.6 billion to acquire, trades at a price/book ratio of 1.5. The deal for North Fork carried a 22% premium.

North Fork's price/book ratio is unusually low. But it's hard to imagine any buyers paying that much more for Astoria.

However, others say that with North Fork being taken out by Capital One and Sovereign Bancorp's(SOV) purchase of Independence Community Bank, there aren't too many sizable franchises left in the New York market besides Astoria. That "scarcity value" could boost Astoria's takeout price.

"Their branches have been built up over a long period of time," says Mark Fitzgibbon, the director of research at Sandler O'Neill. "They have been very selective where they have opened and are in very densely populated areas."

Still, Fitzgibbon downgraded the stock Friday to hold from buy because he expects continued net interest margin compression next year.

Large banks such as Citigroup(C), JPMorgan Chase(JPM) and Wachovia(WB) are possible buyers. But smaller regional players such as TD Banknorth(BNK) of Portland, Maine, also could be suitors.

Despite all the noise surrounding Astoria's fate, George Engelke, the bank's chairman and CEO, is not ready to concede defeat.

"We keep fighting a good fight and we will win," said Engelke in a conference call Friday to discuss third-quarter earnings.

>To order reprints of this article, click here: Reprints