Internet bank Net.B@nk seen pressured to find mate
investools.com
By Gilles Castonguay
NEW YORK, June 4 (Reuters) - Internet bank Net.B@nk Inc. (NTBK) might have to scramble to find a partner after this week's marriage between two of the country's biggest online banks and brokers, according to analysts.
In an increasingly competitive virtual world, Net.B@nk not only faces a competitor that will offer a wider range of services, analysts said. It must also compete against traditional banks that have begun encroaching on its market by offering their own online services, such as Wells Fargo & Co. (WFC).
The Atlanta, Ga., bank may also find itself an attractive takeover target for companies that want to go into banking without doing all the paperwork to get a charter.
On Tuesday, TeleBanc Financial Corp. (TBFC), the largest Internet bank, said it had agreed to be bought by E*Trade Group Inc. (EGRP), one of the top three online brokers, for $1.8 billion in stock.
"TeleBanc becomes a much broader service provider (with the merger)," said Christopher Kelley of Morgan Keegan & Co. "(And) I'm sure Net.B@nk has taken it under consideration."
Officials at Net.B@nk, which has online broker AmeriTrade Holding Corp.'s (AMTD) chairman on its board of directors and is the only other publicly traded Internet bank, declined to comment before completing a stock offering this week.
Other Internet banks such as CompuBank NA of Houston, Texas, are privately held and operate on a smaller scale.
One of their most attractive features is their ability to offer higher interest-bearing accounts than those at regular banks given their lower overhead costs.
Net.B@nk's share price has fallen since news of the merger, trading at $28.25. off $3.75 on the day Friday, compared with a Tuesday close of $41.31 on the Nasdaq market. It was also more than 50 percent lower than its year high of $78.31 on April 13, when investors were buying up Internet companies.
Jeff Runnfeldt, an analyst at First Security Van Kasper who has described Net.B@nk as overvalued, said TeleBanc's selling price had given investors a better idea of Net.B@nk's worth. "People are wondering if they would pay more than that for a company a third of its (TeleBanc's) size," he said.
E*Trade agreed to pay 2.1 shares for every TeleBanc share, an estimated 41-percent premium based on the May 28 market close, when TeleBanc ended at $66.50 and E*Trade at $44.50.
At the end of the first quarter, Net.B@nk had $526.5 million in total assets against TeleBanc's $2.6 billion.
Jean-Nicolas Ozoux of Lloyd Wade Securities said Net.B@nk and other Internet banks had nevertheless gotten a lot of attention from companies outside the banking sector.
Internet credit card issuer NextCard Inc. (NXCD), for example, has shown interest in entering the market.
"An online trader makes a lot of sense (as a potential acquirer)...(or) perhaps a mortgage company or someone that sells insurance," said Kelley at Morgan Keegan.
"With that thrift charter, they (Net.B@nk) have a lot of options," he added. "It's a nice selling feature for those who don't have it.
Runnfeldt said it was only going to get harder for Net.B@nk to go it alone, despite boosting its account base by more than 50 percent to 27,000 in the first four months of the year.
"We don't think there are significant market opportunities for branchless (banks)," he said, explaining how they offered too few perks and services. The idea of online banking was more feasible as one of many services offered by a company, whether it be a broker, banker or insurer, he said.
Kelley doubted that Net.B@nk would be able to convince more and more people to abandon the familiar branch on the street corner for a relatively unknown one in cyberspace.
"Ultimately, as all banks have Internet banking, it will get tougher and tougher to get the amount of customers that they've got," he said. "Maybe big growth will come with partnering with someone else."
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