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Old 08-02-2007, 04:49 PM   #41
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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.
Interesting. I wish I could get away with accounting like that. I'm somewhat surprised that any public company can.

Edit: more info on this accounting treatment here:

http://freddiemac.com/finance/smm/may96/pdfs/fasb.pdf
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Old 08-02-2007, 05:55 PM   #42
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Interesting. I wish I could get away with accounting like that. I'm somewhat surprised that any public company can.
Note that it is generally the same for insurance companies. And why not? They are not ordinarily in a liquidating mode; they are operating as going concerns and probably should be given the leeway to do so.

Of course in the case of a bank, if there are too many fixed rate long term assets funded by short term deposits it can get hammered on the earnings end.

Ha
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Old 08-02-2007, 06:31 PM   #43
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Of course in the case of a bank, if there are too many fixed rate long term assets funded by short term deposits it can get hammered on the earnings end.

Ha
Which is why there are reams of regulation and disclosure about duration matching and interest rate "gaps".
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Old 08-02-2007, 11:04 PM   #44
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These are precisely the reasons that Morningstar gives almost all regional banks at least a narrow moat. They have a large source of low cost deposits. Inertia keeps a large portion of the population with a $1,000 or so in a saving account earning 1%, and the number of people willing to go through that hassles of opening a Internet CD or bank account earning 5%+ vs keeping the money at the local bank at <4% is still small.

On the loan side there are a plenty of rules and regulations to prevent banks for making too many risky loans. So it is quite difficult for a bank to really go bankrupt. To loss a lot of money as banker requires a crazed gambler as the CEO, a high level of incompetence, or moderate amount of criminal intent.

Right now there are ton or regional as well as big name banks that are yielding 5%+ dividends, with a long history of boost dividends at 5-12%/year.
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Old 08-03-2007, 12:19 AM   #45
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On the loan side there are a plenty of rules and regulations to prevent banks for making too many risky loans. So it is quite difficult for a bank to really go bankrupt. To loss a lot of money as banker requires a crazed gambler as the CEO, a high level of incompetence, or moderate amount of criminal intent.
Or have a perfect storm as in Texas in the mid eighties. Oil and gas and cattle went to hell all at once, and took a lot of the rest of the economy with it.

A commercial bank has to lend; it has to accept collateral more or less at the price it is fetching in the market. No one knew for certain that high oil prices of the first big scare and the second big scare when the Shah fell would plummet all the way to $10 just down the road.

I have two relatives who were Texas bankers at that time. They are anything but stupid, or gamblers. Sometimes the world just kicks you in a way that you can't do much about.

Ha
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Old 08-03-2007, 03:36 PM   #46
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Tell you what, some of these subprime lenders are starting to look like some dot.bomb companies. Some are starting to vanish as they face the music while others are on the brink. Party is over...
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Old 08-03-2007, 03:57 PM   #47
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Ha Ha, you are right sometimes people are in the wrong business at the wrong time.

Still I am curious did the resolution trust company step in? Did the banks eventually go under, or were they acquired by other companies. Fundamentally, I am curious how stock and bond holder ended up in your relative's case.
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Old 08-03-2007, 04:11 PM   #48
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Ha Ha, you are right sometimes people are in the wrong business at the wrong time.

Still I am curious did the resolution trust company step in? Did the banks eventually go under, or were they acquired by other companies. Fundamentally, I am curious how stock and bond holder ended up in your relative's case.
In Texas... LOTS of banks went under... all the big banks went under or were sold... all the large S&Ls also... it was a blood bath... I dont' see this the same as it was back then...

Mostly the common and bonds were kaput or a big discount... the only safe bet was the depositors under the limit...
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Old 08-03-2007, 04:56 PM   #49
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An awful lot of thebanks that went under back then were due to two things: A) fraud and/or B) lending long and borrowing short. The latter is disastrous when rates rise.

Right now, the mortgage securitization markets are effectively closed, a very rare occurence. If you are not a depository institution, you may very well be toast. But depositories will be fine, so long as they have adequate capital. Given the reasonably healthy state of bank balance sheets, that means that the vast majority of banks will be fine. And sooner or later the securitization markets will reopen. If not, the Fed will have a very sluggish economy on its hands. For example, Wells Fargo now quotes a prime 30 year fixed rate jumbo mortgage at 8%!
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Old 08-03-2007, 06:35 PM   #50
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Dividends Paid (107,413) (98,569) (87,452) (82,851)
Sale/Purchase of Stock 136,795 106,258 60,790 44,199
It appears from the quarterly dividends above that CSE is financing it's dividend through the issuance of stock.

And I do not know of all their loans but any businsess that more than triples it's balance on loans in 2 years can't be using a real high level of control on their loans. Additonally it appears to me CSE loves condos, office buildings and hotels.
Long Term Investments 14,304,542 6,269,167 4,184,425

Retained Earnings (56,067) (17,444) 18,460 26,406
Capital Surplus 2,302,393 2,139,421 2,024,761 1,950,721
And this quarterly look at retained earnings looks mighty suspicious to me, although I do not understand accounting practice for banks. But 400 million in cash provided in one year by stock sold in excess of par may not be the EASIEST financing to maintain with a dropping stock price.
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Old 08-03-2007, 06:58 PM   #51
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Dividends Paid (107,413) (98,569) (87,452) (82,851)
Sale/Purchase of Stock 136,795 106,258 60,790 44,199
It appears from the quarterly dividends above that CSE is financing it's dividend through the issuance of stock.

And I do not know of all their loans but any businsess that more than triples it's balance on loans in 2 years can't be using a real high level of control on their loans. Additonally it appears to me CSE loves condos, office buildings and hotels.
Long Term Investments 14,304,542 6,269,167 4,184,425

Retained Earnings (56,067) (17,444) 18,460 26,406
Capital Surplus 2,302,393 2,139,421 2,024,761 1,950,721
And this quarterly look at retained earnings looks mighty suspicious to me, although I do not understand accounting practice for banks. But 400 million in cash provided in one year by stock sold in excess of par may not be the EASIEST financing to maintain with a dropping stock price.
Difference of opinion is what makes a market.

Analyzing finance cos and institutions is not like looking at industrials.
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Old 08-03-2007, 09:46 PM   #52
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Difference of opinion is what makes a market.

So you do not feel the sale of 400 million in stock is paying for the 400 million in dividends? Seems like a clear relationship to me and not a payment out of earnings. The other major source of cash in the past year is borrowings, Operating earnings seem to be mainly a non-cash generator
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Old 08-04-2007, 02:11 AM   #53
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An awful lot of thebanks that went under back then were due to two things: A) fraud and/or B) lending long and borrowing short. The latter is disastrous when rates rise.
Fraud applied almost exclusively to a group of S&Ls, not masjor commercial banks. It may be that no Texas bank with a national charter survived that period as an independent.

Interfirst was a major Dallas bank, equity disappeared. Some thing happened to almost all the major commercial banks. As Texas Proud said, most were merged, but under the gun and with no value left on the balance sheet except for the insured depositors.

Also, I don't believe it was a case of duration mismatch. An oil well requires a fair amount of money up front, but depending on its nature a successful well starts producing cash to service the debt pretty early. What happened had little or nothing to do with timing- what happened is that loans were made against projected cashflow that suddenly just wasn't going to happen because of severe and abrupt drops in the price of both crude and natural gas.

Ha
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Old 08-08-2007, 07:09 AM   #54
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Personally I wouldn't be in any rush to put money in US banks. Not only do they have a long history of below-par management and a large exposure to CDOs, the US$ is a rapidly weakening currency and will significantly shrink the value of your investment.

Just my opinion.
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Old 08-08-2007, 08:43 AM   #55
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Personally I wouldn't be in any rush to put money in US banks. Not only do they have a long history of below-par management and a large exposure to CDOs, the US$ is a rapidly weakening currency and will significantly shrink the value of your investment.

Just my opinion.
I assume you are speaking to the multi-national mega cap banks right?
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Old 08-09-2007, 11:01 AM   #56
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Any US banks.
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Old 08-09-2007, 11:26 AM   #57
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the problem....




the answer...
RON PAUL...he's running as a republican but don't let that label fool u

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Old 08-09-2007, 11:28 AM   #58
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Any US banks.
Have you, um, looked at the balance sheet of the typical US retail bank? Most of them hold securities, but the vast majority of these portfolios are treasuries, agencies, and GSE backed paper (i.e. stuff with implicit or explicit US gummint guarantees).
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Old 08-09-2007, 11:38 AM   #59
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the problem....




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RON PAUL...he's running as a republican but don't let that label fool u


Red Flag!
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Old 08-09-2007, 11:44 AM   #60
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Gee, could you at least give us an "executive summary", so we can decide if it's worth watching a one-hour video?
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