Shares of Webster Financial Corp. got a brief boost today after an RBC Capital Markets analyst upgraded the stock, citing the Waterbury regional bank’s improved capital position.
Shares of Webster Bank’s parent rose 27 cents, or about 2.1 percent, to $13.06 in morning trading. By mid-afternoon, however, shares had fallen 23 cents, or 1.8 percent, to $12.56. The stock has lost half its value in the past 52 weeks.
Gerard Cassidy raised his rating to “outperform” from “sector perform,” saying the stock’s current price overestimates risks from credit deterioration. Large credit losses over the next year to two years are a “low probability,” he said, given losses Webster has already incurred, Cassidy said in a research note.
For example, in the six months ended in June, the provision for credit losses amounted to $151 million, up from $40.8 million in the same time during 2008.
Cassidy said the bank’s credit challenges are “in the early stages of stabilization,” and a recent $115 million capital infusion by private-equity company Warburg Pincus makes the potential for a common stock sale by Webster “minimal.” Such an offering would dilute the value of existing shareholders’ stock.
Cassidy adjusted his full-year estimates to a loss of $1.34 this year, narrower from his earlier estimate of a loss of $1.37 per share, and scaled back his estimate of Webster’s 2010 profit to 37 cents per share, down from his previous 40 cents per share.
Cassidy said he expects Webster will see its nonperforming assets continue to grow into the first half of next year, with net charge-offs — account balances written off as uncollectable — peaking next year.
During the second quarter, nonperforming assets increased by 10 percent, or $36 million, of which $24 million were restructured loans. (AP)
