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Wall Street’s valuations for BankUnited will likely rise if the company successfully moves past its government loan guarantees. (Eliot J. Schechter/Bloomberg)
Wall Street’s valuations for BankUnited will likely rise if the company successfully moves past its government loan guarantees. (Eliot J. Schechter/Bloomberg)

Stock to watch: BankUnited poised for growth, takeout potential Add to ...

BankUnited Inc.

Tuesday’s close: $25.09, up 19 cents, or 0.7 per cent

52-week trading range: $22.01 to $28.69 a share

Annual dividend: 84 cents a share for a yield of 3.3 per cent

Analysts’ ratings: There were 5 buys, 3 holds and no sell ratings, according to Bloomberg data. Target prices ranged from $25 a share as estimated by three analysts to $30 a share by RBC Dominion Securities analyst Gerard Cassidy.

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Recent history: Shares of the Miami Lakes, Fla.-based BankUnited have gained 6.6 per cent (including dividends) over the past year as investors have started to warm up to growth prospects for the once-failed regional bank. Its stock hit a 52-week high at around $28 a share in early March before pulling back after its private equity owners made a secondary share offering at $25.25 per share. In 2009, U.S. federal regulators seized the assets of the bank after its parent filed for bankruptcy during the financial crisis. Toronto-Dominion Bank lost a bid to buy BankUnited to a private equity group led by John Kanas, now its chief executive officer and a former CEO of North Fork Bank. After BankUnited was recapitalized by the consortium, which included turnaround specialist Wilbur Ross, Blackstone Group, Carlyle Group and Centerbridge Partners, it did an initial public offering at $27 a share in 2011. The bank, which now has more than $12-billion in assets, acquired Herald National Bank last year in a bid to expand into the New York market. When BankUnited reported first-quarter results in April, it posted earnings of 47 cents a share versus consensus estimates of 46 cents.

Manager insight: BankUnited shares have more potential upside because earnings are expected to rise as it expands from its Florida base to the New York banking world, suggests Norman Levine, a managing director with Toronto-based Portfolio Management Corp. “This is an early-stage story. We think it will be 2015 before the earnings growth starts kicking in...We [also] expect interest rates to go up, which will aid their bottom line.”

The bank could also eventually be a takeover candidate as the private investors, including the 66-year-old Mr. Kanas, “may want to realize their gains,” said Mr. Levine, who bought BankUnited shares when they fell in March. “BankUnited also increased its dividend twice last year. I would expect them to do it again at some point this year.”

BankUnited was on the auction block in early 2012, but was pulled off the market after offers came below what its board of directors thought that the business, which included more than 90 branches in Florida, was worth.

Mr. Levine has confidence in Mr. Kanas’s new growth strategy because of the veteran banker’s track record. He was at the helm of New York-based North Fork when it was sold for $14.6-billion, or at a 23-per-cent premium, to Capital One Financial Corp. “at the top of the market” in 2006, he said. “He made his shareholders a lot of money.”

North Fork was the third-largest deposit institution in the New York area when it was purchased, Mr. Levine recalled. “He [Mr. Kanas] built it up very well. We expect him to do something like that again with BankUnited...The bank has been scrubbed clean, has substantial excess capital and is now Florida’s second-largest bank by deposits.”

Because Mr. Kanas’ non-competition agreement with Capital One has expired, he has been hiring key executives to help BankUnited grow in New York and nearby states of New Jersey and Connecticut. For example, he has wooed away Sam Giarrusso, a go-to-guy in commercial real estate lending in the New York area, from M&T Bank.

Shares of BankUnited are a bargain versus other regional banks as it trades at 1.36 times tangible book value compared with a median of 1.59 times for its peers, Mr. Levine noted. There is a risk in that the bank’s growth strategy, which is highly concentrated in Florida and the New York area, may not work, he acknowledged, but “we have a lot of faith in Mr. Kanas.”

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