We are downgrading our recommendation on Hudson City Bancorp (HCBK) to Underperform. The company’s second-quarter operating earnings came in just a penny ahead of the Zacks Consensus Estimate, primarily helped by lower interest expense, partially offset by an increase in provision for loan losses and a lower interest margin.
Though a solid business model and strong capital levels are upsides, we believe that the elevated levels of credit metrics remain a concern for the company. The recent regulatory moves are also expected to pull down the company’s bottom line.
Moreover, the low interest rate environment, anticipated to continue in the upcoming quarters, would restrict the company’s margin, thereby dampening investors’ appetite for this stock.