Mayo Flips on Citi
One day after former Citigroup ( CEO) CEO Vikram Pandit abruptly resigned, after which CLSA analyst Mike Mayo said "the hand-off could not be more awkward for investors to digest - it is tough to get more positive on this stock on this information alone," the analyst changed his tune. Following a conference call late on with analysts by Citigroup Chairman Mike O'Neill and new CEO Michael Corbat, Mayo on Wednesday upgraded Citi to an "Outperform" rating from "Underperform," while raising his price target for the shares to $43 from $31.00. Mayo was impressed by the presentation by O'Neill and Corbat, and said that "a new three-year plan holds out hope for more restructuring, akin to actions taken by the Chair in his past jobs," and that "dividend reinstatement seems near-certain given mending of the regulatory credibility gap." The analyst said that "notwithstanding this poor transition, we can think of no better person as chairman of Citi than Michael O'Neill, who led the way with using economic value added concepts in the late 1990s when he restructured legacy Bank of America," and that O'Neill "was one of the first adopters of what we then termed 'addition by subtraction', or eliminating subpar businesses to add to returns. If there was ever a company where this could be successful, it is Citigroup today." Mayo's estimated "sum-of-the-parts" valuation for Citigroup is $52 a share. Citi's shares rose over 3% to close at $38.43. The shares have now returned 46% year-to-date, following a 44% decline during 2011. The shares trade for 0.7 times their reported Sept. 30 tangible book value of $52.70, and for eight times the consensus 2013 EPS estimate of $4.63. C data by YCharts
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Shares of M&T Bank ( MTB) of Buffalo, N.Y., rose 6% to close at $103.07, after the company reported third-quarter net income available to common shareholders of $273.9 million, or $2.18 a share, blowing past the consensus EPS estimate of $1.85, and increasing from $1.71 in the second quarter, and $1.32 during the third quarter of 2011. Tax-adjusted net interest income totaled $669 million in the third quarter, increasing from $655 million the previous quarter, and $616.7 million a year earlier. The company bucked the industry trend, with its net interest margin -- the difference between the average yield on loans and investments and the average cost for deposits and borrowings -- widening to 3.77% during the third quarter, from 3.74% in the second quarter, and 3.68% during September of last year. M&T's noninterest income increased to $445.7 million during the third quarter, from $391.7 million the previous quarter and $368.4 million a year earlier, with a large increase in mortgage revenue and lower impairment charges. The year-over-year improvement was partially offset by a decline in service charges on deposits accounts, with the Federal Reserve making the Durbin Amendment's cap on debit card interchange fees effective during the fourth quarter of 2011. The quarter-over-quarter improvement was partially offset by a decline trust income. With the wave of home refinancing continuing, M&T reported third-quarter mortgage banking revenue of $106.8 million, increasing from $69.5 million the previous quarter, and $38.1 million a year earlier. M&T's earnings improvement also reflected a significant reduction in expenses, "predominantly due to the integration of the operations obtained in the May 2011 acquisition of Wilmington Trust Corporation." Third-quarter noninterest expenses totaled $616.0 million, declining from $627.4 million during the second quarter, and $662.0 million, during the third quarter of 2011. The company's third-quarter return on average assets was 1.45% and its return on average common equity was 12.40%. The company in August agreed to acquire Hudson City Bancorp ( HCBK) of Paramus, N.J., for about $3.7 billion in stock and cash. The deal valued Hudson City at $7.22 a share, or 80% of its reported June 30 tangible book value of $9.08. Jefferies analyst Ken Usdin rates M&T Bank a "Hold, " with a $96 price target, and said that the company's third quarter was "solid across the board, " as "most core drivers were better-than-expected. "Overall, it's tough to poke any holes in 3Q results," Usdin said, "as core EPS easily beat estimates on
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Bank of New York Mellon
Shares of Bank of New York Mellon ( BK) rose 5.5% to close at $24.86, after the trust and custody giant reported third-quarter earnings applicable to common shareholders of $720 million, or 61 cents a share, beating the consensus estimate of a 54-cent profit, among analysts polled by Thomson Reuters. Earnings increased from 466 million, or 39 cents a share, during the second quarter (which included a $212 (18 cents a share) after-tax litigation charge), and $651 million, or 53 cents a share, during the third quarter of 2011. Third-quarter revenue also came in ahead of expectations, totaling $3.675 billion, increasing from $3.579 billion the previous quarter, and $3.683 billion, a year earlier. The company's third-quarter return on tangible common equity was a strong 22%. Bank of New York Mellon bought back $288 worth of common shares during the third quarter, and the company's estimated Basel III Tier 1 common equity ratio was a solid 9.3% as of Sept. 30. Jefferies analyst Ken Usdin called the company's third-quarter results a "decent beat" that was "supportive of
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