CapitalSource (CSE) posts above-average performance and seems to be on the path to return capital to shareholders, benefiting from low capital requirements now that CSE is close to finish its transformation into a bank, a commercial bank charter and a bank holding company, says Aaron James Deer, Managing Director and Equity Research Analyst at Sandler O’Neill + Partners, L.P.
“I expect CapitalSource to benefit from lower capital requirements. This is an institution that has just a huge amount of excess capital, and it has been doing massive share repurchases, and I expect we’ll see more of that as well as rising or even special dividends. The company is seeing very strong loan growth,” Deer said.
Deer says CSE’s business loans should see less competition due to the nature of the niches it serves, and the capital the bank holds should benefit shareholders as its balance sheet becomes lighter.
“[CSE] has an above-average margin. It tends to operate in some pretty interesting niches where there is less competitive pricing pressure, so the profitability is strong, with an ROA around 1.30%, and its ROE should improve as it bleeds down more of its excess capital,” Deer said.
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