Dear Mr. Berko:

My broker has recommended three bank stocks for your consideration: Bank One Corp., Wilmington Trust Corp. and New York Community Bancorp Inc. I have $6,500 to invest and he told me that I should invest about $2,100 in each of the three stocks or $3,200 in two of them or the entire amount in one of them. I told him that I would write for your opinion. I’m a long-term investor, in quality stocks only, and this $6,500 represents about 4 percent of the money I have in stocks. Please tell me what I should do.

E.B., Moline, Ill.

Dear E.B.:

I hope your broker was testing you or testing me because, in my opinion, the choice is a no-brainer. In fact, I suspect that both Mickey Mouse and Elmer Fudd have the necessary intellectual capacity to make the right choice. However, if the broker would have you own all three bank stocks, I would certainly want a second opinion on all of his future recommendations.

Bank One Corp. (ONE-$40.06), the sixth largest holding company in the United States, could lose substantial revenues due to the Chapter 11 bankruptcy filing of United Airlines.

The United Mileage Plus card accounts for close to 11 percent of Bank One Card Services’ balances and any trouble here could cost the company hundreds of millions of dollars in lost fees and interest income.

Projected 2003 earnings of $3.05 a share do not reflect ONE’s potential loss of this income. Some don’t think it’s an issue. However, it’s an issue with me and potentially casts a dark pall on the company’s earnings.

To its credit, management has done a yeoman’s job of reducing high-risk loan volume from its balance sheet. It has cut fixed costs from its operating budget.

As the economy gains steam, ONE’s return on total assets is expected to grow by 20 percent over the next few years. As a result, I think ONE may enjoy strong bottom-line growth, good improvement in shareholders’ equity and continued above-average dividend growth.

ONE earned $2.77 per share in 2002 and some Wall Street observers believe this bank can grow its earnings by 15 percent annually to $5.50 a share by 2007-08. So ascribing a P/E of 14, it’s possible that ONE’s share price could rise to the high $70s in the coming few years and that the current dividend of $1 could rise to $1.25.

However, I’m concerned about the possible loss of revenues and income from the United Mileage card. I’d put this stock on yellow alert.

Wilmington Trust Corp. (WL-$32.39), the largest bank that’s based in Delaware, doesn’t wind my clock. WL’s $1.08 dividend yields a happy 3.3 percent, but 2003’s projected per-share earnings of $1.90 are off 5 percent from 2002 earnings of $2.01 and net income for 2004 may rise only to $2.08 a share.

WL’s commercial bank business, which accounts for 53 percent of revenues, has been clobbered by the weak economy, and its prestigious wealth advisory services, 47 percent of revenues, has been crippled by the poor performance of the stock market.

Meanwhile, interest income is under pressure, return on shareholder’s equity has been declining and loan-loss provisions have increased during the past three years.

WL’s assets under management have plummeted by more than 50 percent. The stock doesn’t deserve its current P/E of 16.

Some Wall Street sages who follow the stock recognize that WL has weak management and view the company as an acquisition candidate. That could boost its price and may be the only compelling reason to own the stock.

New York Community Bancorp Inc. (NYB-$30.98), founded in 1859, has enjoyed a sterling record of revenue, earnings and dividend growth since going public in late 1993 at a split-adjusted price (six splits) of $1.65 a share.

Management is on steroids, adrenaline, uppers and a roll and NYB’s momentum does not show signs of slowing. Projected per-share earnings for 2003 are $2.75, up 25 percent from last year.

NYB’s mortgage pipeline exceeds $800 million, and continued lower rates, at least for the coming six to nine months, will encourage homeowners and commercial multifamily apartment investors to refinance their loans.

Meanwhile, NYB has added $350 million to its regulatory capital, which gives the bank access to lower rates, allows management to buy high-yielding securities and/or repurchase its own shares.

The Wall Street analysts who follow NYB believe management is considering at least one acquisition similar in size to its purchase of Haven Bancorp in late 2000.

NYB’s net profit margins have increased an amazing 50 percent since the Haven acquisition, while return on assets and return on shareholder equity have doubled. The stock trades at a compellingly low 11 times earnings and, of the 12 Wall Street suits who follow NYB, 10 of them rank the stock as a “buy.” So would I.

Please address your financial questions to Malcolm Berko, P.O. Box 1416, Boca Raton, Fla. 33429 or e-mail him at malber@adelphia.net.