Hudson City Bancorp (Nasdaq: HCBK) has recently restructured its balance sheet to lessen the cost of borrowing and interest rate risk. The company has paid off $12.5 billion in borrowings from the Federal Home Loan Bank of New York and some Wall Street financial houses. The restructuring effort cost the retail banking service provider an after-tax charge of $644 million. Hudson now says this may result in an annual net loss for 2011.

The numbers
To retire this debt, Hudson has borrowed $5 billion and sold $8.6 billion in mortgage-backed securities, and incurred a pre-tax charge of $1.17 billion. The paying off of the debt looks like a prudent step taken to do away with high interest expenses and avail cheaper loans instead. And yet these relatively uninspiring numbers belie what may actually be going on at the company: good stuff.

Hudson has been giving an impressive overall performance. It has navigated through difficult waters of the financial crisis and posted profits for 11 consecutive years. In fact, 2010's net income of $537.2 million was an all-time high. And even though the revenue growth rate has declined in the past two years, it is growing on an absolute year-on-year basis. This overhaul of its debt structure will further reduce its high interest on borrowings, which has been growing every year and stands at $1.21 billion for the year ended 2010. As long as the company manages its fresh debts effectively, it shouldn't be a problem.

The Foolish bottom line
Because of the restructuring charges, the first few quarters of 2011 may pose some challenges for this company in terms of margins and the bottom line. But as the interest rates on borrowings go down, the margins should revert, if not perk up completely. It shouldn't overlook the fact that Hudson is one of the few big banks in the U.S. that did not take a government bailout and remained upbeat amid the financial turmoil that sent bigger banks (with far greater access to private capital) such as Bank of America (NYSE: BAC) and Citigroup (NYSE: C) scurrying for cover.

Hudson's restructuring charges may prevent the company from posting a profit this year, but the company looks promising in the long term. If Hudson posts a net loss in 2011, it would be its first since its IPO. But the loss from restructuring of the balance sheet is not a recurring one and should set the stage for greater returns in the future.

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