Bank Stocks

I can't help but think Countrywide must have been in gawd awful shape to accept an offer worth about $6 per share. I would think that unless they were about to file bankruptcy it would be an egregious breach of fiduciary duty to its shareholders to agree to a price on Thursday, January 10th that causes anyone who bought before Tuesday, January 8th to lose money. How would that feel to not even had your trade settle yet and be locked into a loss?
 
on one of the blogs they said that with a lot of the mortgages they sold when the lendee stops paying the servicer is responsible to prepay the principal and interest into the pool during the foreclosure process.

countrywide was probably facing one crazy cash crunch
 
DJRR said:
Citigroup is getting close to its Q3 book value of $25.51. I know a general rule is that banks are attractive when they are priced at book. Any insight into how much they are going to write off in Q4 vs. the dividend vs. the Fed cutting rates vs. new CEO.

Could be a great buy or a good way to lose a few bucks on the way to $19 :confused:
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how do you know the book value won't go down this year?
 
DJRR said:
Citigroup is getting close to its Q3 book value of $25.51. I know a general rule is that banks are attractive when they are priced at book. Any insight into how much they are going to write off in Q4 vs. the dividend vs. the Fed cutting rates vs. new CEO.

Could be a great buy or a good way to lose a few bucks on the way to $19 :confused:
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Citibank apparently will write off 24 billion tomorrow and cut their dividend and lay off 20,000 employees sure to warm the heart of every foreign national who will be the proud owner of a large chunk of the company. If that does indeed happen I think that will lower the book value by about $5 per share.

Citigroup Investors - Financials * US * News * Story - MSNBC.com
 
Morningstar put the range at $11 B to $25 B. Over $21 B in writeoffs would require recapitalization in order to maintain their Tier 1 reserve since it would fall below 7%. Counterparties at its investment bank would begin to view Citi as not creditworthy and force it to renegotiate or unwind contracts.

I am not sure what exactly all this means, but I think deep kimichi is a simple translation.
 
C:

Dividend cut 41% to $1.28, $18B writedown on subprime/fixed income investments and $4B for U.S. consumer credit losses, $12.5B of outside, foreign capital in the form of convertible preferred paying 7%, will continue selling off non-core assets, and an additional preferred stock offering of $2B.
 
I'm not really a stock guy but bought a little BAC. Come Tuesday we'll see if they cut that 7% dividend.
 
Running_Man said:
Citibank apparently will write off 24 billion tomorrow and cut their dividend and lay off 20,000 employees sure to warm the heart of every foreign national who will be the proud owner of a large chunk of the company. If that does indeed happen I think that will lower the book value by about $5 per share.
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Looked up the financial statement and the book value is now 22.74 with a $1.28 dividend that would make a 5.6% yield if it gets down to book value or below. I will keep watching.
 
Good luck on the BAC. I have been thinking of buying some but it keeps going down. At 35.97 the div is 7.1% but who knows if that is a good deal. As you say we will see what they say on Tuesday.
 
The selling of many of these stocks (regionals in particular) is way over done. One that I own and will buy more if it continues to slide is RF. Last quarter they raised their dividend and have already announced no div cut for the current quarter. May not be at the low yet (in this market) but if you are a long term investor, I think many of these will prove to be good investments. In fact, I hope they stay down for a while (since div reinvestment will increase long term gains).
 
I do like RF, it might be a better pick than BAC, thanks for the tip.

....after checking it out on Morningstar, the yield is great but they are heavily in the Florida real estate market. That's why they have been dropping like a rock. You might be correct that it will be a great long term pick but like every other bank stock, it's hard to tell where/when the bottom of this credit cycle ends.
 
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If any of you guys are around they are having a sale on the market today. BAC is cheaper than it was.
 
James5v said:
If any of you guys are around they are having a sale on the market today. BAC is cheaper than it was.
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I see where there CEO not only said they would be maintaining their dividend but raising it which is a good thing to hear if you own BAC.
 
Running_Man said:
I see where there CEO not only said they would be maintaining their dividend but raising it which is a good thing to hear if you own BAC.
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Here is some interesting data from Morningstar about the safety of various bank dividends.


To be considered well capitalized by regulators,
banks need to maintain a Tier 1 capital ratio of 6%—a
metric that divides a figure similar to tangible equity
by a risk-weighted measure of assets. Capital and the
Tier 1 ratio rise when the bank turns a profit; they
both fall when a bank pays out cash through dividends
or generates a net loss. When a bank draws close
to the well-capitalized line, it either has to raise fresh
capital—most likely on loan-shark terms—or reduce
its dividend rate.​

The first number is the tier 1% ratio anything over 6% is acceptable to bank regulators. The second number is the number of quarters a bank can break even and still maintain its dividend while maintaining it is Tier 1 requirement. (BAC EPS of $.05 this last quarter basically counts as breaking even)​


Synovus Financial SNV 11.4 23
JP Morgan Chase JPM 8.4 19
BB&T BBT 9.3 11
Dollar-Weighted Industry Average 8.0 8
Bank of America BAC 8.2 7
US Bancorp USB 8.5 7
Wells Fargo WFC 8.2 5
Associated Banc-Corp ASBC 9.1 5
Wachovia WB 7.1 4
TCF Financial TCB 8.3 3
Citigroup C 7.3 3
National City NCC 6.8 2​


Source: Morningstar and
SNL Securities. Data as of Sept. 30, 2007.​

Industry average includes U.S. banks covered by Morningstar.​

Quarters of Dividends in Excess Capital​

As you can see both Citigroup and NCC really had no choice but to cut dividends to maintain their Tier 1 ratio. Most other good banks have a year or two.

I think we have hit bottom in this industry, all of my banks are in the green today, obviously the rate cut helped, but getting 5, 6 or 7% dividends (in BAC case) while waiting for the financial mess to sort itself out can't hurt.

 
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clifp said:
I think we have hit bottom in this industry
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Maybe. My guess is that the banks will continue losing money as long as the housing market is going down.

It's not about subprime or interest rates. It's about failed speculation. If a speculator's investment is going down, he's going to walk away even if you cut his interest rate to zero.

And that's what Wachovia says is happening in California right now. Homeowners are walking away even if they have the ability to pay.
 
BAC bought countrywide for pennies, but the question is how much liability did they buy
 
al_bundy said:
BAC bought countrywide for pennies, but the question is how much liability did they buy
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I was just HAPPY to hear that they do not intend to cut their dividend and actually touted keeping their 30+ years of raising it :smitten:....let's hope that they really mean what they are saying and are not using "sub-prime speak"!
 
twaddle said:
Maybe. My guess is that the banks will continue losing money as long as the housing market is going down.

It's not about subprime or interest rates. It's about failed speculation. If a speculator's investment is going down, he's going to walk away even if you cut his interest rate to zero.

And that's what Wachovia says is happening in California right now. Homeowners are walking away even if they have the ability to pay.
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Certainly that is problem, however the vast majority of homes in California are owned by home owners not speculators. Anybody know the percentage of owner occupied single family houses in the US and/or CA? Obviously, the folks with lousy credit, faced with reseting higher interest rates, and zero equity are going to walk away. There is a reason they have lousy credit scores they don't pay their debts.

For the far more typical case of a home owner with decent to good credit who bought recently with only 10% down their equity maybe close to zero, and their teaser rate is expiring. The decision to walk away isn't something to do lightly. They still need someplace to live and they don't want to ruin their credit. Finally, despite all the hype about lousy loans, plenty of home loans are still made where the home owner puts down 20% and borrows money at a low fixed rate. These folks aren't walking away.

Wachovia and Countrywide made a lot of loans to the first type of borrower, Wells Fargo made loans to the second type. The difference are pretty significant WFC had 32 million charge of on a 71 billion mortgage loan portfolio. Wachovia has a much worse track record with 1.5 billion in charge offs.
 
There's no question that some banks are in deeper trouble than others. And that's reflected in their P/B.

I was just questioning the idea that the bottom is in for banks. My guess is no. Let's check back in 6 months. ;)

Banks should be concerned about home prices. If prices drop 30% from the peak, that means an unprecedented 20 million homeowners will have negative equity. And that doesn't even consider the economic side-effects, which are likely to be "interesting."
 
clifp said:
Certainly that is problem, however the vast majority of homes in California are owned by home owners not speculators. Anybody know the percentage of owner occupied single family houses in the US and/or CA? Obviously, the folks with lousy credit, faced with reseting higher interest rates, and zero equity are going to walk away. There is a reason they have lousy credit scores they don't pay their debts.

For the far more typical case of a home owner with decent to good credit who bought recently with only 10% down their equity maybe close to zero, and their teaser rate is expiring. The decision to walk away isn't something to do lightly. They still need someplace to live and they don't want to ruin their credit. Finally, despite all the hype about lousy loans, plenty of home loans are still made where the home owner puts down 20% and borrows money at a low fixed rate. These folks aren't walking away.

Wachovia and Countrywide made a lot of loans to the first type of borrower, Wells Fargo made loans to the second type. The difference are pretty significant WFC had 32 million charge of on a 71 billion mortgage loan portfolio. Wachovia has a much worse track record with 1.5 billion in charge offs.
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if you think the only people who have ARM's resetting are people with bad credit you are deluding yourself. subprime is just a media label, Alt-A is just as bad as subprime

even National City is not doing too well and their credit quality is very good
 
al_bundy said:
if you think the only people who have ARM's resetting are people with bad credit you are deluding yourself. subprime is just a media label, Alt-A is just as bad as subprime

even National City is not doing too well and their credit quality is very good
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Where precisely did I say anything of the sort? Did I say anything good about NCC?

You have a weird habit of reading into my posts not only things I don't say but in some case like for example my post about MBIA "AAA Credit" rating, exactly the opposite of what I posted...
 
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