Bank Stocks

[Art G]

I've never fully trusted bank stocks. If there is one industry that has mastered the art of painting pretty pictures with their books, it would be the banking industry.

 

[brewer12345]

how do we know who has a clean portfolio? last year everyone was saying they don't expect write down's

Its not real hard to tell. Go look at Q4 earnings reports. If you see a big write-down or a high/rising % of NPAs, they have asset quality issues of some sort. If not, they are clean.

 

[al_bundy]

what about all the off-balance sheet stuff the banks hold?

 

[terminator]

how do we know who has a clean portfolio? last year everyone was saying they don't expect write down's

Look at what they have allocated for writeoffs, their non-performing asset/loans and their accruing but delinquent loans. Look to see the overall levels of non-performing loans, the rate of increase from period-to-period and whether the amounts allocated for losses appear to be reasonably sufficient to cover the non-performing loans. I think some banks are overallocating for losses as a CYA and will eventually recapture some of it later.

That said, no one can accurately predict whether huge macroeconomic problems will arise that will dramatically change what constitute reasonable assumptions today.

 

[al_bundy]

off-topic, but some 5 years ago when i was buying my place i called BAC first for a mortgage. they said no way since i had an open collection on one of my credit reports. then i heard countrywide only checked one report and in some cases it was your choice. called them next and asked them to check Experian, problem solved and had me a mortgage

 

[brewer12345]

what about all the off-balance sheet stuff the banks hold?

Mostly an issue with the megabanks. If you are sticking to midsize and community banks, they are highly unlikely to have significant off balance sheet stuff aside from lending commitments (HELOCs, revolvers, etc.) that are pretty ho-hum. All of them are required to discuss off balance sheet exposures in the notes to the financial statements.

 

[JohnEyles]

Brewer, how are you feelin' about KRE these days ??

 

[haha]

Maybe masonry is still falling from buildings?

WSJ, Monday February 11, 1:24 pm ET

AIG Shares Tumble on Concerns the Insurer Will Report Further Losses From Investment Portfolio

NEW YORK (AP) -- Shares of American International Group Inc. hit a new 52-week low Monday after the insurer said in a regulatory filing that auditors have found material weakness in how it reports the value of certain credit default swaps, raising concerns that the company will report further losses.

Shares plunged $5.93, or 11.7 percent, to $44.75 in morning trading. Shares hit a new annual low of $44.52 earlier in the session. In the past 12 months, shares have traded between $49.40 and $72.97.
In a filing with the Securities and Exchange Commission on Monday, AIG said it would need to alter the way it values credit default swaps involving collateralized debt obligations. CDOs are funds that contain slices of bonds, some of which are backed by mortgages.
AIG said it has not yet determined the amount of the decline in fair value of its credit default swap portfolio that will be included in its fourth-quarter financial statements because of difficult market conditions.
Additionally, AIG said its independent auditors have concluded that AIG "had a material weakness in its internal control over financial reporting and oversight" relating to how it valued its credit default swap portfolio.
Losses in AIG's investment portfolio, credit-swap portfolio and mortgage-insurance business added up to about $1.4 billion, and caused net income to fall by 27 percent in the third quarter.

Back in August, AIG called exposure to subprime debt "minimal." In November, it maintained that despite some losses due to mortgage-backed bonds, its exposure to the debt remains "high quality," with "substantial protection."

From a different angle, Friday I listened to a CC by Resource America, who among other things packages and resells CDOs. They have completely de-emphasized that part of their business, and absorbed some losses to close their warehouse credit facilities and sell the underlying portfolios.

So I sure don't know, but it looks like either people don't know what lies out there waiting for them, or they are being forced by their auditors to stop lying.

Ha

 

[clifp]

I've never fully trusted bank stocks. If there is one industry that has mastered the art of painting pretty pictures with their books, it would be the banking industry.

True enough. On the other hand they also have mastered the art of ensuring that those who control the monetary policy (i.e. central banks, the Feds etc.) are good friends and often former execs. I think that if there is any industry most likely to recieve a government bailout it is the banks.

I am content to collect my 5-7% dividends while waiting for the situation to sort itself out.

 

[al_bundy]

so i used the Yahoo stock screener to do a search for regional banks with a ROE over 10%. i got back like 5 names.

slim pickings

 

[clifp]

so i used the Yahoo stock screener to do a search for regional banks with a ROE over 10%. i got back like 5 names.

slim pickings

Weird I did the same screen with the M* screener trailing 12 month ROE >= 10 stock type=regional bank. I got 238 stocks too many to pick from.

 

[al_bundy]

it'll be another week or so, but we might be seeing a bottom forming in bank stocks. they are down today, but the volume isn't very high

 

[CCdaCE]

Are you saying Jan. 18 wasn't a bottom? Or, a new, lower bottom starting next week?

KRE & KBE ETFs compared.

-CC

 

[al_bundy]

did a quick scan of bac, c and some other bank stocks and saw that the volume was about half of average volume on a big down day. didn't look at the etf's

i'd reserve judgement until late next week though. the january downturn started on light volume and then volume exploded. and ambac just gave us a weekend surprise

ps this is crazy, i checked the volume early afternoon and it's half of average volume. checked it again just now and the bank stocks are above average volume. someone had to leak the ambac thing and that was a lot of financial shares sold in the last 60-90 minutes of trading

 

[Running_Man]

With the bank stocks revisting their lows this is a very bad sign for the stock market. If this group cannot rally in the aftermath of the Federal Reserve abandoning the dollar on their behalf, the outlook is very poor for the group. I will be very interested to see what sort of follow through comes through next week.

 

[twaddle]

For this to be a bottom, you'd have to assume that there will be no more negative surprises. I don't think we've seen the bottom yet. Maybe after the LBO debt starts defaulting.

 

[James5v]

Do you feel BAC will go below 33 again? It would have been great to have bought it previously and then made 10 points or so on it, but then if I had a crystal ball I would be very wealthy.

It seems my fears of the economy have only become worse: national and personal debt, oil prices, low dollar, inflation, China.

I sold several mutual funds this summer and while I am only making 4% or so on the money, it is better than my mutual funds have done. I wished I had sold them all.

 

[al_bundy]

just looked at it and i think it will most likely fall again although if i was shorting it, i would wait until wednesday or so to see how it plays out.

for all you chart people, it looks like a reversal head and shoulders but looks like it's failing. ditto for the bank etf

and for bac you had this 41-42 level that was acting as support for the last few weeks and now it's breached on heavy volume no less. i think it will fall to the 33-36 level at the minimum

fundamentally i don't see a rally in bank stocks until foreclosures peak and all the writedowns become unearned revenue or whatever they call it when previously written down assets increase in value and you need to account for it. and i don't think we've seen the last of the acronyms yet. we've seen subprime, SIV, ARS, CLO, CDO, ABS and now CDS is finally coming out to show itself

 

[al_bundy]

forward PE on Citi just shot up

 

[FinanceDude]

I have been buying local regionals like ASBC, MI, and BKMU. I think they are on sale,and have gotten ripped by the big boy's problems. The stock prices will come back once the subprime thing works its way out. besides, I never was good at calling bottoms anyway.........

 

[al_bundy]

ASBC the net income has been dropping for the last three years

 

[FinanceDude]

ASBC the net income has been dropping for the last three years

I have a contact that's in upper management, they have been on an acquisition binge for a few years, and it ate up some of their margin.


Integration is now complete, and they are beginning to see the fruit of the acquisitions.........

 

[al_bundy]

now you have a get out of jail free card from insider trading charges

 

[FinanceDude]

now you have a get out of jail free card from insider trading charges

I didn't trade on insider stuff, he won't tell me anything until 2 weeks after it's made public..........all he says is stuff like "things are ok".....and stuff like that. Plus,I never buy any of these stocks for MY portfolio........

 

[brewer12345]

now you have a get out of jail free card from insider trading charges

Fortunately, the SEC is a teensy bit more sophisticated about these matters than you seem to be.

In my day job, I talk to company managements on a regular basis. They know I am representing a fund and I know that we all have to live within the boundaries of Reg FD (and I have to uphold the ethical standards of the CFA Institute as a charter holder). So we are all generally quite careful not to stray over the lines, although usually there is no harm in asking questions in the gray area (most managements will decline to answer those).

But just because we have to color inside the lines doesn't mean that investors can't ask questions and managements cannot answer. So management explaining to FD that their earnings have been depressed by the costs of integrating acquisitions is fair game, since they have doubtlessly told many others (possibly on a public conference call or even in an SEC filing) the same thing.

I used to work for a rating agency and back then I was considered an insider and not bound by the constraints of Reg FD. Then I was told a wide range of material, non-public information on a regular basis, including who was going to buy who and at what price. But since I was strictly forbidden from trading on any of this (and I would never have done so even if I wasn't forbidden), it was of no real import.