Take this to the bank: Mergers will pick up Fund manager sees many industry targets

Investing

July 12, 1998|By BILL ATKINSON

EVER SINCE April's mega-merger frenzy that resulted in the marriages of Travelers Group with Citicorp and NationsBank with BankAmerica, an eerie silence has fallen over the banking industry.

But fund manager Gilbert R. Giordano is betting that the quiet is only a prelude to a storm of mergers and acquisitions.

Giordano, portfolio manager of the Titan Financial Services Fund, which invests heavily in banks and savings and loans, sees merger mania picking up again as banks, brokerages and insurance companies finish retooling their computer systems for the year 2000.

Over the next 12 years, Giordano expects the more than 9,000 U.S. banks to be whittled down to 200, a boon for investors who bet on acquisitions, he said.

"You are seeing an industry that is in a tremendous evolution," said Giordano, whose fund is based in Upper Marlboro and manages $34 million in assets.

Giordano opened Titan two years ago, and his timing couldn't have been better.

A strong economy, coupled with surging bank mergers and rampant speculation, drove banking stocks and Titan through the roof.

Titan returned 55.6 percent last year, making it the country's fourth best-performing financial services fund, according to New York-based Lipper Analytical Services.

But the fund has cooled off this year as many bank stocks have tumbled, partly because the rumor mill has ground to a halt. It was up 6.44 percent for the first six months of the year and 38 percent since inception.

The slowdown "is understandable," Giordano said. "It is healthy for the market."

But it won't last, because there are plenty of banks ripe for the picking, he said.

Pittsburgh-based Mellon Bank Corp. is one of his favorite targets because the company generates a lot of income from fees it charges customers for banking services and products.

"I clearly think their days are numbered," he said. "It fits well whether it is a money-center bank or one of our large regionals."

He sees Mellon being bought for as much as $110 a share. It's now trading in the $72 range.

New York-based Dime Bancorp is another that could be picked off because of its strong New York and New Jersey franchise. Other targets include Glendale, Calif.-based Golden State Bancorp, Republic Security Financial Corp. of West Palm Beach, Fla., and Fort Lauderdale, Fla.-based BankAtlantic Bancorp, which are all in prime areas for bank consolidation, he said.

In Maryland, he sees the state's two largest banking companies, Mercantile Bankshares Corp. and Provident Bankshares Corp., eventually merging with other institutions.

"Merc is a premier bank. It is probably one of the cleanest banks you'll find in Maryland," he said.

Of Provident, he says, "I think that there is great value to their franchise, and although they have been overlooked, that will not last long."

He expects mergers to pick up in Pennsylvania, New Jersey, California and Florida, especially among community banks.

"Everyone can merge a community bank," he said. "A half-billion [dollars in assets] bank fits into anyone's pocket."

His favorite bank is Charlotte, N.C.-based First Union Corp., which he sees as an acquirer. The bank is diversified and has built one of the largest franchises along the East Coast. It's also the "most undervalued regional bank in America," Giordano said.

The stock trades in the $62 range and has a price-earnings ratio of 19.82, meaning that investors pay nearly $20 for every dollar of earnings.

That's low when compared with the Standard & Poor's 500 index's price-earnings ratio of 27.95.

"It is a great franchise," Giordano said. "I would ride that stock to Hades."

Titan has 200 companies, and banks and thrifts make up about 50 percent of the holdings. But Giordano doesn't invest in Maryland or Virginia institutions because it would be a conflict of interest. He is chairman of First Virginia Banks Inc.'s Maryland subsidiary.

Giordano, 70, has been a banker for 32 years. He started United Bank & Trust Co. in Upper Marlboro in 1966 and sold it to First Virginia in 1987 for 3.6 times its book value.

He was well known in the community as a banker, and in the early 1990s he was asked to appear on a local financial radio talk show to give advice on banking stocks. Listeners liked what he said, and that persuaded him to start Titan, which opened with $3 million on May 22, 1996.

The fund took off, but six months after its inception Giordano was in a serious auto accident that severed his spinal cord, leaving him with no use of his legs and some feeling in his arms and hands.

He dedicated himself to the fund.

He was hospitalized for about six weeks and managed the fund all but the first two days, said Shawn Fitzmaurice, director of operations at Titan.

"It was amazing. I was sending him nightly feeds of information. He was literally picking the stocks and in charge," Fitzmaurice said.

Recently, Giordano has added more brokerage and insurance companies to Titan's holdings because he expects banks to pick off some of them to diversify.

His favorite brokerages include Bear Stearns Co. and Lehman Brothers Holding, which he says are "excellent buys" because their stocks are inexpensive and have plenty of growth potential.

Brokerage "is the only sector that will deliver a 20 percent growth this year," he said. "There is no other sector that will do that."

Pub Date: 7/12/98

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