Astoria buoyed by Sovereign; Centex runs; Nabors spikes; Crystallex off; CANTV higher

By Ronda Fears

Memphis, Feb. 2 - The broader markets were mixed, but on whole traders said there was "a lot," with emphasis added, of frustration among short sellers with the market's overall ebullience. Bounces in the homebuilding and banking thrift sectors were particular sore spots Friday.

With homebuilding starts lagging and mortgage default rates climbing, many players have been betting on sharp declines in those stocks. But, traders said rumors of consolidation via takeovers and the like in those sectors are buoying many of the individual stock stories.

Sovereign Bancorp Inc. was bolstered by remarks from Santander Bancorp on Thursday that it was on the hunt for acquisitions; Santander already holds a 25% stake in Sovereign. That news also propped up Astoria Financial Corp., which lost a $436 million judgment on appeal Thursday, and essentially the bank of thrift stocks, traders said.

Even some very distressed bank names were moving sharply higher Friday, another trader added, specifically citing Meritor Savings Bank (Pink Sheets: MTOR), which marked a gain of 14 cents on the day, or 3.25%, to settle at $4.45.

Centex Corp. was making a run, too, as traders noted the range of homebuilder stocks breaking out into higher territory. There have been rumors that Centex has a buyout offer on the table, and one trader said the sale of its commercial construction unit Thursday may be paving the way for such a deal. Lennar Corp. is viewed as the most likely buyout candidate, he said, and it also was smartly higher. Centex shares (NYSE: CTX) were up $1.34, or 2.49%, to $55.10; Lennar shares (NYSE: LEN) advanced $1.09, or 1.98%, to $56.11.

In another sector that traders have been betting will be sinking, oilfield drilling, because of falling oil prices, Nabors Industries Inc. got a bounce Friday as rumors resurged on a possible leveraged buyout in the works, which has impacted the stock for weeks now. Nabors is slated to report financial results on Tuesday. The stock (NYSE: NBR) was up $1.35, or 4.4%, to $31.55.

Another distressed stock trader said there has been ongoing frustration among players in stocks with exposure to Venezuela, because of plans announced in January by re-elected president Hugo Chavez to nationalize the country's telecommunications, mining, energy and financial sectors.

Crystallex International Corp., a Toronto-based gold mining concern whose operations are largely concentrated in Venezuela, took a hit Friday because the market has interpreted its new chief executive officer as having a mission to sell the company, the distressed trader said. But, with its Venezuela exposure, he said such as effort may be severely hampered.

Yet, on the other hand, Venezuela phone company Compania Anonima Nacional Telefonos de Venezuela, or CANTV, (NYSE: VNT) was higher Friday by 28 cents, or 2.07%, at $13.83. The company was routed immediately after Chevez's re-election, then bounced back and took another hit last week amid overtures from Chavez of an immediate takeover of CANTV.

"Shorts have been very frustrated, not just with CANTV," the trader said.

"They keep shorting and the stocks keep going up. Somewhere it's got to end, and it doesn't look like it will be pretty."

Astoria judgment reversed

Investors basically shrugged off news from Astoria Financial that an appeals court has reversed the decisions awarding the company $435.8 million in damages stemming from an alleged fraud going back to the savings and loan fiasco of the early 1980s. Traders said it was a theme throughout the thrift sector, but nonetheless troublesome.

Astoria shares (NYSE: AF) gained 71 cents on the day, or 2.4%, to $30.29.

Lake Success, N.Y.-based Astoria announced late Thursday that its judgment for $435.8 million for breach of contract arising from the supervisory acquisition of Suffolk County Federal Savings and Loan Association by its successor Long Island Savings Bank FSB in August 1983 had been reversed on appeal.

The appellate court held that, due to the actions of the former chief executive of Long Island Savings Bank at the time of the acquisition of Suffolk County Federal, any contract claims against the government were forfeited, according to Astoria.

"We are obviously disappointed by the decision of the court," said Astoria's attorney, Alan Eggleston, in a statement. "We are currently reviewing the opinion and considering our alternatives."

Regarding the stock's bounce, one trader said it makes sense to add the stock now, and he saw the appellate ruling only as a small point related to specific fraud committed by the ex-chairman regarding his personal dealings at the bank, and not something affecting other cases pending.

Yet, Bear Stearns analyst Salvatore J. DiMartino said the news seems to put a kink in the speculation of Astoria being a takeover target, which he sees the market having priced fully into the stock.

"Many short-term investors have been playing this in one of two ways. Some felt the receipt of such a large award would be a prelude to a sale, while others thought the proceeds could be used to do an additional sizable buyback, a special dividend, or leverage the balance sheet to grow earnings," DiMartino said.

"Obviously, these actions are now off the table - or at least delayed for a period of time. As for a sale, we would ask: Who's the buyer at these levels? In our opinion, there are few, if any, buyers at current levels."

The trader conceded that without a takeover prospect, Astoria's valuation is high, trading at 2.3 times book value, which is out of line for the sector.

"A portfolio manager I spoke to just now says Astoria is a piece of crap, mismanaged, and is up because some folks expect now that this ruling [is] out of way, it will be sold," he said.

"But, [with] a $3 billion market cap at 2.3 times book value, he cannot imagine anyone in their right minds seeing anything attractive here. Look at New York Community Bank, Sovereign. He says it's a horrible company [but] they have a bunch of smart folks who hold it fooled."

Another trader concurred, noting that "all the thrifts are doing well today."

"I don't quite understand it," he continued.

"These vintage mortgages from 2006 are doing so poorly and there is so much fraud at origination companies. They say $1.5 trillion of subprime mortgages are going to re-price over the next two years. But there is a rush for yield in the market right now and a rising ship floats all boats."

Rates on about $600 billion of subprime home loans will start adjusting in 2007, according to Bear Stearns. Mortgage defaults in November surpassed levels reached during the last recession in 2001, according to a report by Friedman Billings Ramsey Group Inc. on Friday. Subprime mortgages packaged delinquent by 90 days or more, in foreclosure or already seized rose to 10.09% from 9.08% in October, according to the report.

Sovereign up on Santander

Sovereign Bancorp was higher as well Friday, which traders attributed to remarks from majority stockholder Santander, the Spanish banking giant, which announced in the face of a 22% rise in 2006 net profit on Thursday that it was still eyeing possible purchases.

Sovereign shares (NYSE: SOV) gained 33 cents, or 1.3%, to $25.73.

Santander shares (NYSE: SBP) also were higher, adding 16 cents, or 0.85%, to settle at $18.97 after trading in a band of $18.90 to $19.25 on Friday.

On Thursday, Santander chairman Emilio Botin said the bank's financial strength meant it had its "jaws open," but any deal would have to pass strict profitability hurdles and not involve either share issues or buybacks.

As Santander already owns 25% of Sovereign, traders said it was considered a "nice, easy" target for Santander.

Crystallex off on new CEO

Gold mining concern Crystallex took another dive Friday as gold prices retreated, but traders said the selling pressure was more likely due to skepticism about the company's prospects given its exposure to Venezuela.

Crystallex shares (Amex: KRY) fell 9 cents, or 3.08%, to $2.83 on Friday.

The April contract for Gold on Friday lost $11.50 to $651.50 an ounce on the New York Mercantile Exchange, coming back from an intraday low of $648. Gold gained $5.10 on Thursday, marking the third straight winning session, trading as high as $667 - the strongest intraday level since Aug. 9.

Toronto based Crystallex on Thursday unexpectedly replaced its chief executive, appointing a new chief with a strong history in the financial services sector, which one distressed stock trader said was being interpreted as a move to put the company up for sale. Crystallex did not explain why the change was made.

Todd Bruce, president and CEO since 2003, is being replaced by Gordon Thompson, who the trader described as having more than 30 years of experience in financial services, including project finance, and raising debt and equity.

The change comes as Crystallex continues to wait for the final permit needed to start work on its giant Las Cristinas gold project in Venezuela.

"Exactly what I'm thinking is that Gordo is there to get the Venezuela permit, then sell the company," the trader said. "There is huge overhang here, but gold is a good business and there may be more than one big player interested in the 13-18 million reserves offered by Las Cristinas."

He said, however, that there are Crystallex investors who saw the old chief Bruce as "the only guy holding the Las Cristinas project together."

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