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U.S. won't prosecute Philly's biggest bank; shares pop

Beneficial rises

Shares of Beneficial Mutual Bancorp, the largest bank still based in Philadelphia, hit a five-year high of $11.78, up 70 cents from yesterday's closing, in trading this morning after Beneficial said the U.S. Department of Justice has finished a loan-discrimination investigation without recommending any charges against the company.

Investors have been waiting for Beneficial (which has $6.8 billion in loans, investments and other assets, 60 branches in NJ and Pa., and 800 workers) to escape the shadow of a possible government prosecution, which it disclosed last April, so the bank can get FDIC approval to complete its conversion from a depositor-owned mutual savings bank to a shareholder-owned institution. As a fully-public company, Beneficial could more easily raise capital for expansion -- or sell at a premium price to new owners, enriching shareholders.

After reporting a drop in profits from 2012, Beneficial told investors: "In late January, we received correspondence from the [Department of Justice] indicating that the DOJ had completed its review and determined that the matter did not require enforcement action by the DOJ and was being referred back to the Federal Deposit Insurance Corporation (FDIC). We are not able to determine whether further action will be taken" by FDIC, and won't be asking regulators' permission or selling shares "until this matter is resolved."

Though profits were down, Beneficial still reported higher profits than some analysts expected, wrote Matthew Breese ina report to clients of Sterne, Agee & Leach Inc., Birmingham, Ala. Loans rose very slightly, after falling for more than a year. But investors focused more on the "positive step" toward a share sale, than recent profits, he added.

Beneficial's profits were actually weaker than Sandler O'Neill + Partners' Frank Schiraldi had projected. But "more important than the earnings trends" was Justice's "no enforcement action" decision, he told clients in a report this morning. Since Beneficial also noted it has already spent more than $700,000 preparing a "second-step" share sale, the disclosure probably moves the sale forward by several months, he figures. Beneficial has also been  buying back its own shares to prop up the price, Schiraldi noted.