Flagstar Bancorp (FBC), mcap=$2bn, price $37.12 vs $35.00

– Mid-cap bank merger that is expected to result in multiple re-rating from 0.9x to 1.5x TBV for the combined entity.
– $FCB shares are to be exchanged into $NYCB at 4.015 ratios.
– Regulatory approval is pending, but likely to be received.
– Limited expense synergies with merger benefits mostly coming from new markets for lending opportunities and $FBC’s lower cost funding base.
– Protected downside: excess capital (>35% of mcap) expected to be returned as dividends/buybacks in case the merger fails.

– Currently trades below peers and historical levels.
– At 7.0x ’23 EPS of $5 and 0.9x TBV.
– Excluding excess capital trades at 5x PE provides good downside protection.
– At 9-10x ’23 projected pro forma EPS and 1.5x TBV, $NYCB would be $16 stock (equivalent to $64/share for $FBC).

Exp. gain: +60% to $16 per $NYCB share.

Full $FBC write-up (free guest account required):

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