Continental Illinois Corp.`s new chief is saying he expects the Federal Deposit Insurance Corp. to sell its stock in the banking firm in 9 to 18 months, banking sources said.
The sources said Thomas Theobald, Continental chairman since August, has made the prediction in informal conversations with other Chicago area bankers. But some analysts say the forecast seems too rosy, given the price of Continental`s stock and the way it`s regarded by investors.
”That`s a very optimistic view,” said James Wooden, chief financial analyst at Shearson Lehman Hutton Inc. For the FDIC ”to get out at a (stock) price that`s acceptable (to the agency) would require a pretty good increase from where they are now.”
A Continental spokesman declined to comment. An FDIC spokesman repeated the agency`s position that ”it`s our intention to dispose of our interest in Continental in a timely fashion.”
The FDIC acquired its stake in Continental as part of its 1984 bailout of the banking firm. It effectively owns or has an option to buy about 148 million shares, or 69 percent of the stock.
In late 1986, the agency sold 50 million of its shares in a public offering for $5.25 a share. The price was less than the $6.25 the FDIC had hoped to receive, as indicated in a preliminary prospectus for the offering.
Many observers believe the agency won`t try to unload more shares until the stock hits at least $5.25. The price has advanced since the beginning of the year but still is trading significantly below that.
Continental stock closed Friday at $3.87 a share, down 12 cents, in New York Stock Exchange composite trading. It sold at $2.87 at the beginning of the year.
The FDIC spokesman said the stock price ”is probably the pre-eminent consideration” in the agency`s timing, but he declined to comment further.
Analysts expect the company`s earnings to improve this year, largely because of increased noninterest income. Shearson and Goldman, Sachs & Co. estimate earnings at 90 cents a share in 1988, up from about 72 cents last year excluding extraordinary loss provisions.
(Continental lost $609.5 million in 1987 because of additional reserves for possible losses on foreign loans and on loans to customers of its options unit.)
Continental stock is selling at about 4.3 times the 1988 earnings estimate. Wooden said a price-to-earnings multiple of about 6, which would imply a $5.25 stock price, is unrealistic.
Theobald ”is a gamesman,” Wooden said. He ”may be trying to help the stock price a little bit.”
”The price could go up over the next year, but I`m not sure it could go up enough to entice the FDIC to sell,” said Richard Mueller, an analyst at Duff & Phelps Inc. in Chicago.
But Goldman`s Robert Albertson said Theobald`s prediction can be reached. ”I feel that the stock has a great deal of upside potential,” said Albertson, who recently wrote a favorable research report on the company.
”Continental is clearly a well capitalized institution that has a very clean domestic (loan) portfolio and has reserved against Latin American debt on the level of most regionals (banks).”
The average price-to-estimated 1988 earnings ratio for 11 money-center banks (excluding Continental) tracked by Goldman was recently 4.9, compared with a multiple for 23 regional banks of 7.6.
”Investors will be betting on the earnings in 1989 and 1990,” Albertson said.
