Updated from 11:27 a.m. EDT


Dime Bancorp


Friday announced bold moves aimed at boosting profits. The effort could help the New York institution resist a six-month-long hostile takeover bid by Long Island-based

North Fork Bank



Dime plans to cut annual pretax expenses by $50 million, by eliminating 400 jobs and repositioning its bond portfolio so that it contains higher-yielding securities. The company plans two pretax charges in the third quarter: a $38 million charge to cover severance expenses and an $87 million hit for losses incurred in the planned $2 billion of bond sales.

Stick a Fork in It

In March, North Fork launched an aggressive attempt to acquire Dime, which has vigorously opposed North Fork at every turn, even though many of its shareholders believe that selling out would make sense. North Fork is keen to build up its presence in metropolitan New York, where it feels large banks have ignored key customers, such as small businesses. Having Dime's operations in New York would immediately help North Fork.

Turning on a Dime
Dime rallies after North Fork bid

Source: BigCharts

Though it was widely expected to, Dime hasn't received a counterbid to rival North Fork's offer of 0.9302 North Fork shares plus $2 in cash. That offer would place a takeout price on Dime of $20.31, as of this morning. Dime's stock was trading slightly higher at $20.59, up 47 cents, or 2.3%. North Fork was down 13 cents Friday morning, or 0.6%, to $19.69.

North Fork shares rose sharply Thursday after the

American Banker

newspaper published an article that gave the impression that North Fork's CEO John Kanas was thinking of withdrawing his bid for Dime. He and Dime CEO Lawrence Toal have clashed acrimoniously during the past few months.


Dime's cost-cutting can be seen as way for the bank to win back shareholders who have become frustrated by its anti-North Fork defense tactics. One of Dime's ploys that didn't go down well was an offer to buy back shares for between $16 and $18, a range that is well below the sort of prices many investors think Dime could be sold for.

Kevin Timmons, banks analyst at

FAC Equities

, calculates that the expense cuts could add 29 cents to 2001 operating earnings. This assumes that the charges won't be included in operating earnings calculations, due to their one-time nature. Before the expense reduction program was announced, analysts surveyed by

First Call/Thomson Financial

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had forecast that Dime would earn $2.61 in 2001.

"Obviously, this is positive for Dime," says Timmons. And after angering shareholders by not entering deal negotiations, Dime "is trying to do right by shareholders on an operating basis," he adds. (FAC rates Dime a buy and it hasn't done any recent underwriting for the bank.)

It's possible that Dime is taking these efficiency measures to help it get a better price from North Fork or others. In May,

Kanas told


that he'd consider increasing his offer for Dime if it could "give us comfort" that it can earn more than $2.60 per share in 2001.


In an interview Friday, Kanas confirmed that North Fork is reassessing its bid for Dime. A final decision will be reached at a monthly board meeting on Sept. 26, he said. "Until then, we're trying to model every conceivable option," the executive said.

A number of developments have made Dime look financially less attractive, he says. At its current share price, Dime would cost $2.8 billion. But Kanas points out that, due to an array of deals and special agreements, North Fork would have to bear over $500 million in extra costs in any merger.

North Fork would have to honor existing severance packages totaling around $160 million, in addition to today's $38 million of layoff costs. Also, North Fork would have to pay as much as $90 million to

Hudson United


, the New Jersey bank that Dime had planned to merge with until that deal was scuttled by North Fork's hostile bid. When Dime pulled out the proposed merger with Hudson in April, it agreed to pay Hudson up to $92 million if Dime merged with another bank before Oct. 28, 2001.

In addition, North Fork would, at current prices, have to pay some $150 million to the merchant bank

Warburg Pincus

, which in July took a 12.5% stake in Dime. Finally, there's the $87 million to cover the bond portfolio losses, announced Friday.

Leveling Off

With all these costs in mind, "We have to think of valuation," Kanas said.

Jeff Miller, manager of the Villanova, Pa.-based


bank stock hedge fund, thinks Kanas will throw in the towel soon. He's not bothered, however. North Fork's stock could even rise as investors would no longer worry about integration risk arising from any North Fork-Dime merger and North Fork would be allowed to reinstate its stock buyback program. During this bid, North Fork isn't allowed to buy its own shares. (Acadia owns shares in Dime and North Fork.)

So even if North Fork is pulling back, the cuts could easily make Dime more attractive to another checkbook-wielding potential suitor in the near future.