Home mortgage lender PHH Corp., Mount Laurel, is making more money thanks to the recent home-refinancing boom and "less competition", which enables survivors like PHH to charge customers more, as rivals have gone out of business or pulled back from the market, writes bank analyst Paul J. Miller and his team at Friedman Billings Ramsey in Richmond, Va., in a note to clients today.
Also, Miller expects new PHH director James Egan and acting chief executive George Kilroy will "focus on creating shareholder value" more than former ceo Terry Edwards and Chairman A.B. Krongard, who left last month. He is boosting his PHH price target to $23 a share, from $13.
But in a separate report, Miller's team warns that recent mortgage and investment profits for banks generally won't likely continue. "If the jobs picture does not improve over the next couple of months, we believe credit costs will continue to rise at an alarming rate," they told clients. "We remain very cautious."
Friedman Billings' survey of analysts at mutual funds and pensions shows "over 90%" expect employment will top 10%, and half expect it will go above 11%, which would boost loan losses and drive bank stocks down. Miller tells clients to "avoid" high-priced bank stocks like Wells Fargo & Co. and PNC Financial Services Group.
Separately, Pennsylvania and South Jersey lender Susquehanna Bancshares is warning investors its loan losses rose sharply in the second quarter. Non-performing loans jumped to around $230 million, up from $156 million in the second quarter and triple last year's rate, the bank said in a preliminary report. Net charge-offs of uncollected loans zoomed to $25 milion, from $17 million.
"Accelerating asset quality deterioration" and "thin" capital will leave Susquehanna around $5 a share, says analyst Avi Barak at Sandler O'Neill + Partners in New York.
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