ANALYST SAYS CALGZ HAS UPSIDE OF UP TO $58!
Thrifts Still Likely to Reap Damages Despite Wells Fargo
Decision, Friedman, Billings, Ramsey Continues Buy
Recommendations
ARLINGTON, Va., July 10 /PRNewswire/ -- Despite last week's federal appeals court
ruling in the Wells Fargo (NYSE: WFC) breach of contract lawsuit, thrifts are still likely to
recover significant damages stemming from the Supreme Court's decision in Winstar
(Nasdaq-NNM: WCII), according to Friedman, Billings, Ramsey analyst Claire Fleming.
The two suits are different although they both focus on breach of contract issues. However,
the appeals court's decision focuses the lower court on the issue of foreseeability. "If affected
thrifts can document losses that are directly related to the government's breach of contract,
then they should still be able to recoup damages," Fleming said.
"The legal litmus test for recovery of damages is whether they were reasonably foreseeable
by the parties at the time the contract was made. In the Wells Fargo case, the appeals court
found that a general leveraging loss by the bank was not foreseeable in the event of a default
on the loan guarantee by the government," Fleming said.
In the Winstar case, lost future profits were more foreseeable and are more attributable to
the breach of contract brought about by FIRREA. "The failing thrifts would never have been
acquired without the accounting treatment for good will. The whole purpose of the agreement
was to leverage capital," she said.
As a result of the FBR reading of these two cases, combined with research on the amount of
potential damage awards, Friedman, Billings, Ramsey reiterates its buy recommendations on
the following companies:
California Federal Bank (CAL-$18) -- At the current price, Calfed trades at less than 10
times 1997 estimated reported earnings. According to our model, Calfed could receive in
excess of $18 per share. We therefore recommend the purchase of the stock up to $21 per
share. With an ultimate potential upside of $58 per share according to our model, the Calfed
warrants (CALGZ) are also an interesting play.
Coast Savings Financial (CSA-$32) -- With $2.64 in estimated 1997 earnings and a
potential takeout price of $40 per share, this company also has enormous supervisory
goodwill exposure of $32.29 per share, according to our model. We recommend purchase of
this stock up to $39 per share.
Dime Bancorp (DME-$12.75) -- At approximately 10 times 1997 earnings, Dime is trading
about in line with where it should be without the goodwill issue. According to our model,
Dime has $8.58 in damages. We recommend the purchase of this stock up to $15.
Glendale Federal Bank of California (GLN-$17.625) -- We continue to recommend the
purchase of Glendale under $20. According to our damage model, Glendale could receive
$12.69 per share in damages (after tax).
Long Island Bancorp (LISB-$29.875) -- With up to $24 in damages, according to our model,
Long Island remains attractive up to the $34 range.
While a long delay in resolution of the damage awards could have a negative affect on these
securities, the potential investment gains in these thrifts is significant, and these stocks
remain extraordinarily attractive at current prices. |
