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Old 07-31-2007, 10:45 AM   #21
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Originally Posted by FIRE'd@51 View Post
The 55 cents dividend was for the last quarter (June). According to Yahoo, the two previous quarters were 27 cents (March) and 38 cents (Sep '06), respectively. Also Yahoo quotes a trailing yield of 3.1%. So, I'm not sure the yield is really 5.2%. That's not to say KRE is not attractive at current prices - I just think you may be overstating the yield. AFAK, not many regional banks are yielding over 5% (including none of KRE's ten largest holdings according to Yahoo), although a number of money-center banks have yields in this range.
I noticed that too and also on other ETF's. I wonder why there can be such a wide range on distributions from quarter to quarter?:confused:
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Old 07-31-2007, 10:49 AM   #22
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I noticed that too and also on other ETF's. I wonder why there can be such a wide range on distributions from quarter to quarter?:confused:

Special dividends from the underlying stocks? Spin-offs of non-bank businesses that have to be liquidated?
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Old 07-31-2007, 11:24 AM   #23
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I'm too conservative for that sort of aggressive speculation.
(_shrug_) Shorting an overvalued stock is not much different from buying an undervalued stock, although both are not without their perils. One big difference is that many who wouldn't hesitate to buy a stock on its fundamentals (or even a hot tip from their brokers) are equally dismissive of shorting it for the same logic.

FED's inevitable was a long time coming, and I'd been trying since Sep 05 to get the timing right. The longer I stalked researched it (with Brewer's tutelage) the more I understood the financials. It just took the rest of the market a long time to recognize our prescience. Options would have only added time pressure to the whole problem.

I do much better tracking a small portfolio of stocks for months than I do with tracking a large portfolio on recent performance. However it's a constant tedious drudgery with long periods of unrewarded boredom, occasional moments of panic, and outsize rewards that no longer trip my trigger. Maybe transferring my fledgling research skills to ETFs will be almost as rewarding with less excitement.

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Originally Posted by FIRE'd@51 View Post
Also Yahoo quotes a trailing yield of 3.1%. So, I'm not sure the yield is really 5.2%. That's not to say KRE is not attractive at current prices - I just think you may be overstating the yield.
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I noticed that too and also on other ETF's. I wonder why there can be such a wide range on distributions from quarter to quarter?:confused:
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Special dividends from the underlying stocks? Spin-offs of non-bank businesses that have to be liquidated?
Good points. It's a bit of work to research the quality of the underlying dividends among 100 banks in an ETF, and I'm probably not going to get to it.

I'm hoping that KRE's latest dividend reflects a trend of banks increasing their dividends to attract shareholders while deterring private-equity buyouts. Yahoo!'s annualized yield appears to be based on the average of the two previous quarters divided by $42. I can happily harvest that and even more happily reinvest it with a lot more confidence than I possess in BofA. Averaging KRE's last three quarterly dividends to 40 cents reflects a yield of 3.8%, not out of line with the Mergent's Dow Dividend Achievers index, and there's nothing wrong with that either.

The reasoning behind the dividends may be irrelevant-- I'd like to think that 100 banks would be somewhat reluctant to reduce their dividends, especially with the spotlight on loan quality.

I could be early to the party and I frequently am, but I know what'll happen to the ETF's share price if the next quarterly dividend is anywhere near 55 cents...
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Old 07-31-2007, 11:58 AM   #24
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I'm hoping that KRE's latest dividend reflects a trend of banks increasing their dividends to attract shareholders while deterring private-equity buyouts.
The fund itself quotes the yield as 3.42% and the index yield as 3.33%. If you look at the individual holdings (52 stocks) you'll see a few outliers but most are in the 2-4% range. Just put the tickers into Yahoo and eyeball the yield line. They are more or less equally weighted in the ETF:
SIVB EWBC SNV CBSH CYN BXS CNB FCBP SBNY TCB FMBI WBS VLY BOH CATY UCBH HCBK WL PBKS CFR TRMK ASBC FTBK BPFH PBCT UB NPBC SOV UBSI PRSP WTNY CPF CORS FNB WABC SBIB TSFG WTFC FCF FHN FULT CVBF UMPQ FMER SUSQ PCBC STSA ONB BRKL CRBC
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Old 07-31-2007, 12:41 PM   #25
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FWIW (maybe nothing), but I have never seen more widespread or larger amounts of insider buying in the regional/community bank sector. The market may hate this sector, but insiders appear to want to beg to differ.
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Old 07-31-2007, 05:18 PM   #26
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FWIW (maybe nothing), but I have never seen more widespread or larger amounts of insider buying in the regional/community bank sector. The market may hate this sector, but insiders appear to want to beg to differ.
Only one reason for insider buying.

It's odd that this isn't all over the Jubaks, Middletons, Clements, TMFs, Yahoo!s, and SeekingAlphas of the industry... Brewer, is this where one should load up on options and then start calling the editors?
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Old 07-31-2007, 06:25 PM   #27
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Banking would be my least favorite sector and most at risk. To be buying this sector at this time would mean one would believe the economy is about to enter into a recovery phase for the economy. Yet we have not even yet begun the down phase, we are beginning to enter the realization phase. Buying now in my mind would have to be 12-18 months early.

Buying while the index is in free fall is a low percentge play. I find it almost impossible to believe regional banks are going to be immune from the pricing problems that are starting with CDO's and LDO's and are now rolling through the mortage market. 20% down YTD on KRE may be a price at which these banks may someday exceed but usually stocks in free fall go way too far.
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Old 07-31-2007, 09:36 PM   #28
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(_shrug_) Shorting an overvalued stock is not much different from buying an undervalued stock, although both are not without their perils. One big difference is that many who wouldn't hesitate to buy a stock on its fundamentals (or even a hot tip from their brokers) are equally dismissive of shorting it for the same logic.
I would say that they are different. While it's somewhat the same in that, over time, the street ALWAYS sees the 'truth' (undervalued stocks rise to more appropriate valuations, and sky-high mania crazes return to earth), it's not exactly the same.

You can buy a good-priced stock for cash and hold it forever.

If you short a stock, the market momentum can drive it higher for quite some time (who said some quote like "the market can remain irrationally exuberant longer than you can remain solvent", or something to that effect), and you can have a short position called away from you without anything you can do about it, forcing you to cover your position and forcing you to lose a tidy sum. You can't have a value stock pulled away from you if it drops a little, forcing you to sell it (assuming you don't buy it on margin and the market crashes).
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Old 08-01-2007, 10:47 AM   #29
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Watch the movie Executive Suite for an illustration of the perils of short-selling.
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Old 08-01-2007, 11:08 AM   #30
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You can't have a value stock pulled away from you if it drops a little, forcing you to sell it (assuming you don't buy it on margin and the market crashes).
While I agree completely with the thrust of your comparison, this last statement is not quite true. I have lost money on good value stocks, which were forcefully called away from me by management led take-unders. It only shows up in protracted weak markets, but it is easy to buy a "reasonably" priced stock at $25, have it fall to $15 in a despairing market, and have management decide they would like your shares. With a suitable payment to their hooker co-conspirators they get the "Farness Opinion" that they need to make it look non-felonious, buy you out at gunpoint with an offer at $17.50 (Look, it's 17% above market value!!!)

The moral? If there is such a thing as re-incarnation, next time I want to be an investment banker.

Sometimes my posts may seem picky, because I tend to offer counter examples to blanket statements. It is because I am a radical empiricist and I have been active in this area for going on 40 years. Over time you find that there isn't much that can't happen. And if something can happen, sooner or later it will.

Ha
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Old 08-01-2007, 02:23 PM   #31
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I've seldom seen such indiscriminate selling of one sector.
A couple of examples from stocks I follow reasonable closely.

Bank of America (BAC) recently announced a quarterly dividend hike from .56 to .64 a 14% hike not bad for old stody bank. It is currently yielding 5.3% and is off 15% from hits 52 week.

CSE a company which has been talked about briefly on the forum, did something pretty extraordinary today. The day before the earnings announcement they put out a press release saying this.

Quote:
CSE) announced that based on preliminary data for the second quarter of 2007 and the Company's business outlook for the remainder of the year.
CapitalSource reaffirmed its previous dividend guidance of $2.40 per share for 2007. CapitalSource will announce second quarter earnings tomorrow (August 2, 2007) to include adjusted earnings exceeding analysts' consensus of $0.65 per diluted share, based on strong performance in the Company's commercial loan portfolio, including credit metrics in line with historical ranges.
Responding to marketplace concerns, CapitalSource Chairman and CEO John Delaney commented that, "The Company's current liquidity is very strong. Additionally, we finance our core business using committed facilities that are not subject to mark to market risk."
It is still down .70 to 18.3 making the dividend yield 12.6% (even higher than shipping stocks before the market discovered them.)

I am sure both BAC and CSE earnings will be subject to hit from higher defaults due to subprime lending. I don't know that if loan allowances they have in place to adequately reflect the loss. But I do know the market price for a CSE is basically saying the CEO is a liar or an idiot.
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Old 08-01-2007, 02:31 PM   #32
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But I do know the market price for a CSE is basically saying the CEO is a liar or an idiot.
That's called the Dunlap Kozlowski Ebbers Lay Effect.
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Old 08-01-2007, 02:45 PM   #33
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That's called the Dunlap Kozlowski Ebbers Lay Effect.

Certainly true, on the other hand they all ended up in jail or dead.

Now with Sorbane-Oaxley basically saying something like our $2.40 dividend is safe before the earning announcement, is pretty much asking to be punished if the company doesn't perform.
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Old 08-01-2007, 02:50 PM   #34
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AFAIK, CSE doesn't do much/any subprime lending. They are basically a small commercial lender.

The market is tossing stuff out regardless of fundamentals or anything else. I think that financials and other hard hit sectors are close to finding a bottom.
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Old 08-01-2007, 03:19 PM   #35
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You are right Brewer, I was using the term subprime incorrectly. Some of the small to medium business that CSE lends to may not have stellar credit, and some may default. Historically, CSE loan allowance have more than covered the losses.
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Old 08-01-2007, 03:40 PM   #36
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You are right Brewer, I was using the term subprime incorrectly. Some of the small to medium business that CSE lends to may not have stellar credit, and some may default. Historically, CSE loan allowance have more than covered the losses.
IMO, they look an awful lot like a commercial bank, and I think that if the CEO ever wanted to sell it to a large bank, he'd have no particular problem doing so. I kind of wonder why he hasn't already. I bet someone like WM or WB would hoover the company up in a second if gven the chance.
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Old 08-02-2007, 02:26 PM   #37
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Brew, have you been following the Alt-A mess?

Check out IndyMac's corporate blog:

Blog Archive Email from Mike Perry, Chairman and CEO: Conditions in the Private Secondary Markets and Their Implications for our Industry and Indymac

And here's some noise from a broker forum:


Posted - 08/02/2007 : 09:19:42 AM
Pretty big lender. Don't want to say the name on here. Anyways, he called and said he wanted to give us some "scoop." He went on to say that there were some "meetings" going on with FNMA, Fitch, Moody's, S&P, etc...He said within a few weeks ALL lenders will stop offering Flex 100, My Community, SISI (completely), SIVA to 90%, Full doc maxed at 95%. NO stated on ANY seconds.

This may be BS, but this guy has ALWAYS been right on the money with his info. He runs the whole SE (has a lot of AE's under him) for a LARGE lender.

Has anyone else heard this? Thoughts?


Posted - 08/02/2007 : 09:21:27 AM
no 100% product full doc will mean your house will be worth 1/2 the price over night.

this is true
i posted a few days ago that ALL MI COMPANIES will only insure upto 90% CLTV to limit the risk they have in this market since home prices contiue to slide......... what you might see now is seller held back seconds come back soooooooooo no more 100% thats right NO MORE MI TO 100%


Matter of fact, the AmTrust rep is in our office right now. I asked her about what the guy from the other lender told me. She said they are being told there will be some HUGE changes next week coming from Fannie and Freddie.


I have a lot of files that I need to place, but almost all of the lenders I have placed them with are no longer doing stated! Any help?!
Both purchases and refi's?

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Old 08-02-2007, 02:52 PM   #38
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I think that the federales are worried that the mortage securitization market will not heal itself. Considering the MBS market is bigger than the corporate, treasury and stock markets, "that would be bad." If the mess lasts much longer, I think that the feds will be telling Fannie and Freddie to get out there and start buying paper.

But banks who are portfolio lenders, including most regional/community banks, are effectively immune from these liquidity problems. Deposits are freely available to anyone who needs them and is willing to pay for them, and all thrifts and many banks have access to funding from the Federal Home Loan Banks, which have essentially unlimited credit.
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Old 08-02-2007, 03:00 PM   #39
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But this illiquidity has repercussions beyond the securitization market, I think. Won't this impact both book value and origination income for all banks? Lending has just taken a dramatic turn. And asset values can't be far behind.

Either that or the panic subsides, the fed and GSEs intervene, and happy days are here again.
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Old 08-02-2007, 03:51 PM   #40
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But this illiquidity has repercussions beyond the securitization market, I think. Won't this impact both book value and origination income for all banks? Lending has just taken a dramatic turn. And asset values can't be far behind.

Either that or the panic subsides, the fed and GSEs intervene, and happy days are here again.
There seems to be a (very) widespread misconception about banks. Most of them do not live in a mark-to-market world, at least not for loans held in portfolio (as opposed to loans held for sale) and for at least a portion of their portfolio holdings. Consider a plain, old boring lender like AF. They are an old-style thrift with a business model like the Bailey Building & Loan in "Its A Wonderful Life". They take deposits from the community and invest them mostly in residential mortgages to squeaky clean borrowers. The loans go on their books at par plus origination costs. They stay that way until t he loan is paid off, transferred to the held for sale category (rare for these guys), or goes bad. It doesn't matter if the bid is 50 cents on the dollar for the loan: it stays on their books at par. Same goes for deposits, securities classified as "Held To Maturity" and borrowings.

Now liquidity could be an issue for some banks, but not too many. I have seen some horrendous disasters passing for a bank. In virtualy ever y one of these sorry cases, long before any kind of liquidity issue arose, either the bank de-levered and righted itself, got sold, or the regulators stepped in (very rare in the last 10 years).

In the case of someone as boring as AF, liquidity is not much of an issue in even the worst market environment. Deposits generally are not market sensitive, and even troubled banks seem to have no problems hanging onto sufficient deposits because the gummint stands behind them. As a member of the local FHLB (heck, their CEO was chairman of the local FHLB's board last I checked), they can get an advance any time they wish. As long as you are a member and have assets on deposits, the FHLBs will send members large sums of cash virtually instantaneously.

The only way for this sort of boring bank to get into trouble is for masses of loans to go bad and for recoveries to be low. There are certainly exceptions, but most banks have relatively conservatively underwritten loan portfolios. Community and regional banks generally are pretty conservative on lending, and those that are not are the notable exceptions. This is so because the regulators put a ton of pressure on banks who color outside the lines.

So I think the regional and community banks as a whole are a little pressed by what is going on, but the guys who have really caught it are the ones who orginate and sell large volumes of loans (big liquidity needs), te money center guys (big liquidity needs and Gawd knows what is on those balance sheets), and non-bank lenders (many of which are extra-crispy by now).
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