The market has generally not rewarded banks who’ve announced whole bank acquisitions, and particularly mergers of equals. In keeping with that, Webster Financial (WBS) shares have underperformed the regional bank index by about 500bp since the April announced of its merger of equals with metro NYC Sterling Bancorp (STL).
I understand the rationale for the deal, but I can also understand why investors would be disappointed that Webster became a hunter instead of the hunted, and I can likewise understand some concern about buying into the NYC multifamily market, though I think Sterling is often not really appreciated by the market for the changes it has been making to strategically reposition itself for the long term.
With second quarter earnings in hand, I think Webster is undervalued to a pretty significant degree, and I think that unless there are serious issues in integrating the two banks, investors can reasonably expect a double-digit total annualized long-term from these levels.
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