Sovereign Bancorp Sets EPS Target of $2.00 Per Share Within Five Years
Strategy Targeting a Stock Price That is 3X Higher, Outlined in the 2000 Annual Report
PHILADELPHIA--(BUSINESS WIRE)--March 27, 2001--Sovereign Bancorp, Inc. (``Sovereign'') (NASDAQ/NMS:SVRN - news), parent company of Sovereign Bank (``Bank''), today announced a five year plan to achieve an average growth rate of about 15% in operating EPS and to increase shareholder value by about 300 percent over current levels within five years.
In the company's 2000 Annual Report that is being mailed to shareholders tomorrow, March 28, 2001, Sovereign outlines the reasons it believes it has formed a strong foundation for higher growth through a community-oriented commercial bank model.
This model includes a balanced $22 billion loan portfolio that is equally distributed between commercial, consumer and residential loans, a low cost $24 billion deposit base yielding margins in the 3.5% to 4.0% range and a dominant market position in all geographic markets the bank services between Boston and Philadelphia.
During 2000, Sovereign integrated the strategic FleetBoston line of business acquisition. Sovereign believes this acquisition, which was acquired at only about seven times earnings, resulted in a dramatically improved franchise and balance sheet.
This acquisition included substantially all of the Fleet Bank consumer and small to middle market commercial banking franchise in eastern Massachusetts and southern New Hampshire, substantially all of the Bank Boston franchise in Rhode Island, and significant parts of the Bank Boston franchise in western Massachusetts and Connecticut.
The acquisition included about $12 billion in deposits, $8 billion in loans and about 3,500 team members.
``Our goal has always been and remains to deliver above average returns for our shareholders over the longer haul. With the FleetBoston acquisition, we took substantial integration and capital risk in the short run that resulted in a significantly lower P/E multiple and, hence, a lower stock price. Now that we have proven to the marketplace that our team has successfully completed the integration and that capital levels are being restored more quickly than anticipated by the market, we believe Sovereign is poised to achieve higher average returns to our shareholders,'' stated Jay S. Sidhu, Sovereign's President and CEO.
Sidhu added, ``We believe we have established a solid foundation for future growth. We are very clear about our strategy and are totally focused on executing a five point plan to achieve our financial and business goals''.
The five point plan is follows:
Increasing fee-based revenues by approximately 15 percent on average a year.
Growing low cost core deposits in the 7 percent to 10 percent range annually.
Growing consumer and corporate banking loans in the range of 8 percent to 10 percent annually.
Paying down about $1 billion in holding company debt by 2005.
Maintaining an absolute focus on our four critical success factors. Those being, superior asset quality, low interest rate risk, high productivity levels and superior sales and customer service through experienced and committed team members.
``We have also invested heavily in developing superior cash management, trade finance and capital market products. We now look to above average returns from these investments''. Sidhu continued.
In addition to the enhanced franchise and line of business initiatives, Sovereign has significantly repositioned and strengthened its balance sheet over the past few months. Several initiatives were implemented in 2000, including a reduction of $6 billion in high cost borrowings and an improvement in the mix of earning assets.
This was followed by the recently announced $150 million increase in common equity through the issuance of 20 million shares of Sovereign common stock and the refinancing of the $400 million credit facility arranged by Citibank with the Bank of Scotland at a lower interest rate and more favorable terms.
Sovereign believes it is now positioned to internally generate tangible common equity of over $500 million between now and year-end 2002, without any new offerings. ``We are not planning any more capital offerings. We are now totally focused on simply executing our strategy and quickly increasing our equity capital,'' Sidhu commented.
Sidhu noted, ``The $500 million of internally generated tangible equity we anticipate over the next several quarters would strengthen our capital base while significantly reducing our holding company debt and accelerating our earnings. We expect that the annual run rate of internally generated tangible equity after October 2001 would be about $400 million, restoring capital at Sovereign very quickly. We deferred paying about $340 million to Fleet for the FleetBoston acquisition pursuant to a non-solicitation agreement, which will be fully paid by October 2001. After that date, we hope to generate approximately $35 to $40 million of tangible equity capital each month.''
As a result of this focused and differentiated strategy of combining the best of a smaller community-oriented commercial bank with the best of a large bank, Sovereign anticipates achieving approximately $2.00 per share in earnings by 2005 for hopefully an implied stock price in the range of $24 to $30 a share.
``We do not envision straight line growth in EPS or our stock price. It's a longer term target that the company is totally focused on achieving,'' commented Sidhu.
``We believe this is a realistic expectation and is supported by the fact that Sovereign has historically provided our shareholders with a 25 percent total annual return to shareholders over the past ten years. We believe we have an excellent management team at Sovereign and these initiatives will again put us among the top performing companies in the country,'' stated Richard E. Mohn, Chairman of the Board, Sovereign Bancorp, Inc.
Sidhu concluded, ``We have a tremendous amount of optimism and excitement at Sovereign as we look to build upon our foundation. We envision making about $12.5 billion in loans to small and medium size business in our market area over the next five years, and an additional similar amount to consumers. Our mortgage banking operations, which are more cyclical in nature, may originate up to $10 billion in loans over this time period also. We envision opening well over 200,000 new checking accounts each year for our customers and having among the best internet banking operations in the marketplace.'' |
