Interesting post here...SVRN STRATEGY
I have worked in banking for the past 15 years and have heard it all, both via the rumors and after the fact...the actual"facts". I have been heavily invested in northeast bank stocks for the past 12 years.Combining the two factors has given me great insight via research reports, banking knowledge and conversations with other bankers that work or did work for different banks.
SVRN, from a banking standpoint, has been stuck in the middle of nowhere for two years. They have continued an aquisition strategy of small banks that has added pennies per share to earnings. SVRN could have continued to follow that same stategy forward, with the end result of a slowly appreciating stock price over the years. Obviously the big play and quick play would be to sell/merge the bank to give the quickest and best value to the shareholders. Believe me the Board's of all banks do monitor stock values and continually look at the potential sale/merger value of the bank in relation to the future value of the stock price if they continue to remain independent. The Board reviews these numbers in respect to their peer group and competition. The Board periodically reviews its potential as a aquisition, not just from a stock price, but also inregards to its potential versus its competition and peer group as competing aquisition targets. And this my friends is the heart of the problem that SVRN faced/faces. To keep the shareholders happy SVRN could not continue on its small bank aquisition strategy, adding pennies per share and nominal stock appreciation. They could not generate significant increases in earnings per share on their own due to a poor asset mix.(SVRN is still a S&L thrift on its balance sheet). When you reach that point were future stock appreciation is difficult to achieve, you consider the alternative strategies for maximizing shareholder value.... potentially a sale/merger. One and a half years ago, the time of the "Summit Bank" rumors SVRN had been considering different strategies to maximize shareholder value including discussions with "consultants" and brokers. At that time a rumor started that SVRN was "up for sale", and the rumor then became who? and somehow "Summit Bank" was the rumor. I can tell you that Summit Bank never had any interest, serious or oterwise of aquiring SVRN. But the rumor was temporarily good for the stock price. SVRN had and still has a terrible asset mix which does not make them , at that time, the most attractive takeover candidate of their peer group. Faced with no real buyers, buyers would be more interested in 5 or 6 other area banks before SVRN, SVRN's only choice was to continue on with small aquisitions (pennies per share). Looking to maximize shareholder value SVRN needed to change its asset mix and "its franchise" to become a more attractive takeover candidate. Otherwise they would continue on and no buyers would be seriously interested. ITS easy to say lets get rid of Jay(which I'm not totally opposed to) and sell the bank. The problem is to who? It takes a big fish to bite on a 20-30 billion dollar bank
and a big bank that is interested in a Philadelphia area franchise. IT's like saying why don't you sell your house lots of houses sell.... yes but many don't sell for a couple of years because no one is interested due to unique problems. A medium sized philadelpia S&L with stagnant earnings is not a hot commodity. That's has been SVRN's problem. To maximize shareholder value SVRN had to change the asset mix to EITHER enhance earnings or to become a takeover candidate. Plain and simple they were caught in the middle of nowhere. The Board of director's, who are trying to maximize shareholder value, had two choices for us and themselves,....1) continue small aquisitions and nominal stock price gains with no one interested in buying a stagnant S&L or....2) do something to change the asset mix and make SVRN more attractive. They elected to "do something" and that is always risky. SVRN's current price reflects the "Risk/Reward" relationship of investments. If the strategy works the Board will enhance earnings and more importantly change the asset mix and sell at a premium and the reward will be tremendous.If they come up short they will have a better asset mix that a large bank will be interested in but at not so large a premium, but certainly higher then the current price.
Although from a "Risk/Reward" standpoint the price is low, it is "the unknown" and time value that keeps investors and analysts guessing. At somepoint in time they will sell for 16-30 dollars a share depending on how well the "Fleet deal" works, but when? If we knew that we could value the stock more appropriately.
As a shareholder you should have some comfort to know that the Fed Bank Regulators constantly monitor the safety and soundness of the bank and must approve this branch aquisition from a capital requirement standpoint. With the memories of the S&L crisis forever in their minds, they have no interest in allowing "Jay" or anybody causing them a 30 BILLION Dollar problem. If and when they give the final approval, I assure you, they will be on this Board of Directors and on Jay like "white on rice". At the first sign of problems they will force Jay out or force the Board to sell to solve their problem.
Although I think SVRN has taken a risky course, and I wish I had sold all my stock from 16-26(I did sell alot from 16-25 7/8),I,as a shareholder,am glad they are "trying something" to get better value in the near and long term."Risk/Reward" the stock is a good value now. It is stupid to debate whether or not they can pull this off or not. Only time will tell....you can vote by buying or selling your shares.
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