Shares in CapitalSource Inc. leaped Monday after the lender said it killed its deal to buy TierOne Corp., a bank struggling with bad credit.
CapitalSource, a lender and investment manager based in Chevy Chase, Md., in May agreed to buy TierOne Corp. for stock worth $652 million at the time. The company, which manages $20.9 billion in investments, wanted to buy the Nebraska-based bank for its deposits.
Last week, the deal fell through. Each side claimed responsibility for squashing the agreement.
Regardless of who killed the deal, Friedman Billings Ramsey analyst Scott Valentin said it is good news for CapitalSource. Any benefit the company would have enjoyed from the bank's $2.4 billion in deposits would have been more than outpaced by the deteriorating credit quality of the bank's loan portfolio, he said.
Of TierOne's $3.34 billion loan portfolio, more than $1 billion are real estate loans, mainly loans to builders and developers. These loans have suffered a devastating decay in quality because of flagging property values.
The bank squirreled away $68 million to cover bad loans last year, a fivefold increase from 2006 and 2005 combined.
CapitalSource's stock jumped $1.15, or 11.2 percent, to close at $11.38 Monday.
Terms & Conditions
RSS Headlines
Fool UK