The sale of its Metavante Technologies Inc. subsidiary in the fourth quarter put a $525 million bandage on Marshall & Ilsley Corp.’s fourth quarter, momentarily shielding the Milwaukee-based bank’s money-losing exposures to the collapsing housing market.
Many jaws dropped when the notoriously conservative company announced that it had lost $235.1 million in its provisions for loan and lease losses in the fourth quarter, as the volatile housing markets in Arizona and Florida imploded.
M&I does not have another Metavante to sell this year. The housing market is not poised for an instant turnaround. Still, analysts predict that the bank’s earnings per share in 2008 will be higher than those of 2007.
Analysts with Raymond James & Associates Inc. estimate that M&I will earn 59 cents per share in the first quarter and 61 cents during the second quarter. The firm predicts that the bank will earn $2.48 per share during the entire fiscal year.
Stifel, Nicolaus & Co. also sees potential for decent earnings at M&I, with a projected 59 and 60 cents earned per share for the first and second quarters of 2008. The firm predicts that M&I will earn $2.45 per share in 2008.
David Long, an analyst with William Blair & Co. LLC, also believes that M&I will earn 59 cents per share in the first quarter, and about $2.60 per share for the year.
Uncertainties in certain housing markets could change those projections, he said.
"Given the risks that are regional in Arizona and Florida, the credit costs may be higher than we currently estimate," Long told SBT. "That’s the major risk I see in 2008."
David George, a senior research analyst with R.W. Baird & Co., agreed.
"One portfolio that does have some exposure to some of the markets which have experienced some development expansion is Arizona, Nevada and Florida," George said. "The weakness in the housing market has resulted in higher volumes in those markets. The near-term outlook for M&I and many banks is challenging and deterioration (of the housing market) is a quality issue that many are dealing with now."
George believes M&I will earn about 58 cents per share during the first and second quarters of 2008.
M&I’s stock is trading near 52-week lows of $22 per share. Analysts said the bank could be an attractive target for acquisition, but do not see one on the horizon for M&I.
"Hostile takeovers in financial services are very difficult," George said. "Banks are usually sold, not bought. It takes a willing seller."
Neither George nor Long believe that M&I is interested in being acquired.
"I view M&I as an attractive franchise for a larger institution, either a domestic or foreign institution looking to gain access (to the market it is in)," Long said. "That said, I believe that M&I’s management can maneuver it through a challenging environment and produce better-than-peer returns for shareholders. As a result, I do not expect management to entertain offers for the bank."
Greg Smith, chief financial officer of M&I Corp., told SBT that the bank has no plans to be acquired.
"This is a company that has been independent for 160 years, it’s been one that has performed better than its peer group and it’s earned the right to remain independent," Smith said.
M&I, which acquired several smaller banks during 2007, will likely slow its acquisitions process this year, Smith said.
"Given the risks that are out there in the banking business today, it’s more difficult today to evaluate the risk in other people’s portfolios," he said. "We have been acquisitive, and not it is time for us to focus on making our acquisitions come online well and our conversions go smoothly."
Partially because of the Metavante sale, M&I now has more than $1.3 billion in excess capital, a 13.9 percent increase from the end of 2006.
"That capital is really giving us a strategic advantage where we are investing in our bank and wealth management," Smith said. "As far as our expansion plans, we are investing in the franchise. As we look into 2008, we’re expecting a good source (of expansion) to come from our de novo plans. We’re looking at a variety of opportunities across the franchise."
