Bank Stocks

[Texas Proud]

I smell gibbering fear and abject stupidity. The fed is slashing rates every chance they get and you want to sell banks? OK, happy to take your money.

Unfortunately I have options that expire in about a month... so I am stuck selling them 'at a loss' from where they should be...

The only 'good news' (and it ain't so) is I only have a few shares so it does not matter in the big picture, but I am down here in the weeds and it hurts..

 

[James5v]

Just wondering, I heard a commentator talk about all the hidden losses in the banks stocks due to the housing situation and was wondering if it is likely at some point in the new future there will be bad news.

 

[twaddle]

I think the only "hidden losses" are those associated with negative-amortization loans gone bad. Banks can report income from neg-am loans before it's earned, so it may end up being lost if the mortgage holder defaults.

But you can either buy banks that don't have a lot of neg-am loans, or you can hope that all of the potential bad news is already priced in.

The biggest unknown right now is whether the problems will start to creep into prime loans, credit cards, auto loans, etc. If home prices drop hard, we'll potentially see high default rates from "good" loans.

 

[firedude]

I thought KRE looked good at $41.30. It's at a 52 week low this morning and thinking of picking up more.

 

[Texas Proud]

Just wondering, I heard a commentator talk about all the hidden losses in the banks stocks due to the housing situation and was wondering if it is likely at some point in the new future there will be bad news.

Sure, some banks will be hit hard with the mortgage problems... Citi looks like it has a huge problem with their SIVs. But, remember when they say 'banks' they also mean the investment banks like Morgan and Merrill.. some have bad news and some did not get into the market... pick the ones that did not get in and you should be OK..

 

[Nords]

I thought KRE looked good at $41.30. It's at a 52 week low this morning and thinking of picking up more.

Well it's lookin' even better at $38.50. Wish I wasn't already fully loaded.

 

[twaddle]

My understanding of SIVs is that they aren't the bank's problem. The banks just operate them (and take fees for the operations). Money market funds take all the risk when they buy short-term commercial paper from the SIVs.

Of course, we don't want money market funds to eat it. Which is why the treasury is trying to get banks and SIV holders (like Fidelity) together to create a super SIV liquidity fund.

BTW, Wells Fargo apparently is one big bank that doesn't use off-balance-sheet vehicles like SIVs.

 

[brewer12345]

Well it's lookin' even better at $38.50. Wish I wasn't already fully loaded.

In case you need a tax loss, you could always swap KRE for KBE. The whole sector has been sold down so far that the economics of both vehicles should be similar, but you'd get to book the loss.

 

[Hamlet]

Looking at the holdings of these two, I don't know if I would agree with that assessment.

KBE has all the giant banks, some of which have more uncertainty about their risk ( Citigroup and Bank of America come to mind).

KRE has the smaller regional banks. I get the impression that these guys have fewer exotic loans than the Citigroups of the world. I could be wrong though.

I think KBE is a little riskier (but may return more in the long run).

In case you need a tax loss, you could always swap KRE for KBE. The whole sector has been sold down so far that the economics of both vehicles should be similar, but you'd get to book the loss.

 

[Texas Proud]

My understanding of SIVs is that they aren't the bank's problem. The banks just operate them (and take fees for the operations). Money market funds take all the risk when they buy short-term commercial paper from the SIVs.

Of course, we don't want money market funds to eat it. Which is why the treasury is trying to get banks and SIV holders (like Fidelity) together to create a super SIV liquidity fund.

BTW, Wells Fargo apparently is one big bank that doesn't use off-balance-sheet vehicles like SIVs.

It is true that they are separate, but I think it is Citi that said they would 'stand behind' them or something... kind of wink, wink kind of thing...

If the market worked correctly the people who bought into them would lose their shirt and more than likely demand a higher return on the next boondoggle they come up with... so, it is necessary to [-]hide the losses[/-] kick the can down the road and hope for the best.

 

[brewer12345]

Looking at the holdings of these two, I don't know if I would agree with that assessment.

KBE has all the giant banks, some of which have more uncertainty about their risk ( Citigroup and Bank of America come to mind).

KRE has the smaller regional banks. I get the impression that these guys have fewer exotic loans than the Citigroups of the world. I could be wrong though.

I think KBE is a little riskier (but may return more in the long run).

Correlation is likely to be extremely high between the two.

 

[clifp]

An interesting contrary view

Jim Rogers, co-founder of the Quantum Hedge Fund with billionaire George Soros, boosted his bets against U.S. securities firms because of their salary "excesses'' and money-losing investments.
Rogers said he increased his year-old short positions in the past six weeks in U.S. investment banks, using exchange-traded funds and bets against individual companies he declined to name. Stocks in the industry, which pays too much in bonuses, may fall as much as 70 percent in a bear market, he said.
"You see 29-year-olds on Wall Street making $10 million to $20 million a year, and they think it's normal,'' Rogers, 65, said in an interview in London today. "There have been lots of excesses,'' said Rogers, chairman of Beeland Interests Inc.

Rest of the Article

I think Rogers raises some good points on the other hand I think many/most? of the really bad loans have been off loaded to foreign investor. E.G. the Chinese exchanged their toxic toys for our toxic paper.

 

[Hamlet]

There is a huge difference between the investment banks and banks in general. I have no interest in buying investment banks. But US Bank?

I think I'm going to be happy with my investment 5 years from now.

An interesting contrary view



Rest of the Article

I think Rogers raises some good points on the other hand I think many/most? of the really bad loans have been off loaded to foreign investor. E.G. the Chinese exchanged their toxic toys for our toxic paper.

 

[Texas Proud]

Someone else had an article that Prince is going to resign this weekend... guess some other heads are rolling...

Hamlet... the biggest banks in 'general' are also huge investment banks... but there are some investment banks that are only investment banks...

If you do not want to own investment banks you need to get down to the regionals... and then hope they are not bought by one of the big ones..

 

[73ss454]

Someone else had an article that Prince is going to resign this weekend... guess some other heads are rolling...

Hamlet... the biggest banks in 'general' are also huge investment banks... but there are some investment banks that are only investment banks...

If you do not want to own investment banks you need to get down to the regionals... and then hope they are not bought by one of the big ones..

So you think the CEO's head will roll? Oh my, he's going to get screwed with a 100million buy out package. Gee!

 

[James5v]

So are most of you suggesting that KEY and KRE are likely good investment in this crazy market. What price would make you buy? How likely are the dividends to be cut? Yes, I know impossible questions unless you have a crystal ball, which, btw, I don't. I have no psychic abilities whatsoever.

 

[brewer12345]

Dunno about Key specifically (I haven't looked at them). The safer way to play this is to buy KRE, since you would get the economics of the sector without taking on single name risk.

 

[Running_Man]

So are most of you suggesting that KEY and KRE are likely good investment in this crazy market. What price would make you buy? How likely are the dividends to be cut? Yes, I know impossible questions unless you have a crystal ball, which, btw, I don't. I have no psychic abilities whatsoever.

Since the start of the year the effect of the housing slump has been underestimated by the analysts on the effect on banking stocks. Banks have underestimated the amount of writedowns they would have to take and their exposure. Banks are deferring recognizing losses with the HOPE that the market will bail them out. This is haunting Citicorp right now as they meet over the weekend. Therefore I continue to believe as I have all year, that this is the one sector to avoid like the plague and wait for a significant drop in the banking indexes. KRE I like at 26-28 when the dividend yield will be in the 5% range and the fall would be nearer to 50% from the top.

As for KEY their most recent earnings conference call was enlighting with what is wrong right now in the banking sector. The give and take with the analysts was evasive and whenever they were given a tough question it was answered with "I don't have a crystal ball" They have wasted their money repurchasing their shares and plan to continue to do so. Of their earnings on the community banking side they had been charging an average of losses of 20 million per quarter, in the quarter they only charged one million because "the community bank book of business credit quality has held up very well so we moved some of our reserves to other lines of businesses". My antennae went way up on that comment, it appears to be executive decision on what the values of reserves need to be instead of following normal reserve procedures.

Repeatedly analysts tried to pin them down on why if their non-performing loans jumped 200 million how come their provision for non-performing loans was stable. They tried to pin him down on whether the valuations in the model was what they expected, which should be an easy question since that is the purpose of a reserve, instead their CFO answered "as of the end of September I don't think any of us have a crystal ball on that"

Since that call the stock has dropped 10 percent in large part I believe that their is no faith that KEY is properly reserved. Based on the quality of responses from the executives of KEY I would avoid that stock.

 

[haha]

I don't know how one could make any supported prediction about a major bank. Almost all if not all of them have large proprietary trading desks. Most of what they trade is various derivatives and structured products. If I saw a great deal of insider buying by CEO, CFO, etc., I might feel some degree of confidence.

Otherwise, it becomes more clear every day that management of these banks doesn't even understand their condition, so how could an outsider?

I traded a few off the August lows, but now hold only USB, a modest position of about 1.5% of invested assets.

It's not that I am predicting bad things for banks, it's more that I don't have a clue. Remember, even if assets don't blow up and banks are able to continue to fund their balance sheets, their trading businesses might be much less profitable going forward.

Ha

 

[brewer12345]

Hence my interest in the regionals and community banks over the mega banks. Small and midsized banks do little, if any, trading, andsome don't even use the most plain vanilla interest rate swaps to manage duration mismatches. Heck, most of them are funded with deposits and FHLB advances anyway, so the capital markets being iffy is not of all that much concern to them.

 

[haha]

Hence my interest in the regionals and community banks over the mega banks. Small and midsized banks do little, if any, trading, andsome don't even use the most plain vanilla interest rate swaps to manage duration mismatches. Heck, most of them are funded with deposits and FHLB advances anyway, so the capital markets being iffy is not of all that much concern to them.

Yes, this seems much safer.

Ha

 

[Lakewood90712]

When Wa-Mu sends 20 peddlers to Chicago commuter trains offering 7.05% for one year on opening of new savings account you have to figure there is some big troubles there.

As much as I hate WA-MU and would take pleasure in seeing them croak , That cd deal is just a marketing tool , for new customers only, minimum $1 and max. $500 for one year, then goes to a crap low rate account automatically in year 2. Only available in certain states. Il is one of them.

 

[brewer12345]

As much as I hate WA-MU and would take pleasure in seeing them croak , That cd deal is just a marketing tool , for new customers only, minimum $1 and max. $500 for one year, then goes to a crap low rate account automatically in year 2. Only available in certain states. Il is one of them.

Heh, I have seen all kinds of oddball marketing efforts by banks. I heard about a bank that opened a branch in a supermaket. To get people interested, they sent branch staffers into the aisles with trays of quarters dimes and nickels offering "free samples."

 

[Texas Proud]

Heh, I have seen all kinds of oddball marketing efforts by banks. I heard about a bank that opened a branch in a supermaket. To get people interested, they sent branch staffers into the aisles with trays of quarters dimes and nickels offering "free samples."

Hey.. supermarket branches are cheap and profitable... funny thing is my old bank way back when was one of the first to do it... but with the transfer pricing system the bank had they looked 'bad' because there were few deposits and lots of withdrawals... seemed most people did not open their account there, but did a lot of their banking there... so the branch that started the account got the profit and the supermarket branch got the expense...

 

[Running_Man]

Since your post Key is down 9% HBAN is flat and National City is down 8%. Didn't like Bank Stocks then don't like them now. There is so little known about the values of their portfolios and what the ultimate outcome will be for home prices. If you believe everything is now fine and the Fed will just lower rates to let banks print money and we can just pick up where we were a year ago I can see where these would look appealing.

It is interesting to me that of the stocks initially listed Huntington Banc Shares have held up well. While Key has continued to drop -- now down 21.2% from the initial post and National City is down 15%. Huntington BancShares are also hovering just above it's multi-year low and was decimated earlier over the 12 months than the other two. I am curious to see if the declines will continue or if HBAN can jump to the top and posssibly out of its 3 month trading band of 16-18. I would take that as a very positive sign for the banking industry or sign of more trouble to come if new lows are struck.