Bank Stocks

[al_bundy]

in the last few years the figures for California alone were between 50% and 75% of all new home loans in 2005 and 2006 were ARM's or Option ARM's after the ARM rates went up. 2005 was 50% and 2006 was 75%.

for 2006 most of the ARM's were the Option ARM's or the pick a payment loans where you can pay 1% and the rest goes back to principal. not sure what the figures were for other states, but they were probably pretty close.

so far the foreclosures were mostly due to fraud and not ARM resets. these will come later in 2008.

but you have to ask yourself, if fraud has caused the stock markets to go into a bear market for some indexes, how bad were the underwriting standards of the last few years? there is a reason why they call them NINJA loans

[clifp]

California and Florida clearly are huge problems and I was aware of the large number of ARMs written in these states. Outside of California most loans were conventional (although often with minimal down payments) On the other hand both of these state how some of sharpest increase in home prices in 2005 and 2006. 2007 is a different story but AFAIK, the prices in the Bay Area and parts of LA held up pretty well.

I assume that inland empire Riverside, San Bernadino etc is toast and the banks have already written off those loans. A 20% drop in CA prices is probably fine a 40% as some have suggested is a massive problem.

[twaddle]

Riverside prices are down 18% in the last year alone. Inventory up 25%. Sales down 40%. And they have smog, too! Ugh.

[al_bundy]

Quote:

Originally Posted by clifp California and Florida clearly are huge problems and I was aware of the large number of ARMs written in these states. Outside of California most loans were conventional (although often with minimal down payments) On the other hand both of these state how some of sharpest increase in home prices in 2005 and 2006. 2007 is a different story but AFAIK, the prices in the Bay Area and parts of LA held up pretty well. I assume that inland empire Riverside, San Bernadino etc is toast and the banks have already written off those loans. A 20% drop in CA prices is probably fine a 40% as some have suggested is a massive problem.

don't you think the reason for the increases was probably due to the easy money? either people were stupid or greedy thinking they would sell before the ARM adjusts and make some easy money

Capital One's CEO just said they are going to run the company as if they are in a recession because in 1990 credit card defaults led unemployment by 6 months. and credit card defaults are increasing.

the bubble is nationwide. even NYC suburbs are dropping as well as parts of NYC. some co-op prices have dropped but not by much since the credit standards required to buy a co-op are higher than most mortgages of the last few years

[clifp]

Quote:

Originally Posted by al_bundy don't you think the reason for the increases was probably due to the easy money? either people were stupid or greedy thinking they would sell before the ARM adjusts and make some easy money Capital One's CEO just said they are going to run the company as if they are in a recession because in 1990 credit card defaults led unemployment by 6 months. and credit card defaults are increasing. the bubble is nationwide. even NYC suburbs are dropping as well as parts of NYC. some co-op prices have dropped but not by much since the credit standards required to buy a co-op are higher than most mortgages of the last few years

Of course, easy money is almost always the cause of financial crisis.

Quote:

The Panic of 1873 was a severe nationwide economic depression in the United States that lasted until 1877. It was precipitated by the bankruptcy of the Philadelphia banking firm Jay Cooke and Company on September 18, 1873 along with the meltdown on May 9, 1873, of the Vienna Stock Exchange in Austria. It was one of a series of economic crises in the 19th and early 20th centuries. Causes In 1873, the American economy entered a crisis. This followed a period of post Civil War economic expansion that arose from the Northern railroad boom. At the end of the Civil War, there was a boom in railroad construction, with 35,000 miles (56,000 km) of new track laid across the country between 1866 and 1873. The railroad industry, at the time the nation's largest employer outside of agriculture, involved large amounts of money and risk. A large infusion of cash from speculators caused abnormal growth in the industry. In September 1873, Jay Cooke and Company, a major component of the country’s banking establishment, found itself unable to market several million dollars in Northern Pacific Railroad bonds. Cooke's firm, like many others, was invested heavily in the railroads. President Ulysses S. Grant's monetary policy of contracting the money supply made matters worse. While businesses were expanding, the money they needed to finance it was becoming scarcer. Cooke and other entrepreneurs had planned to build a second transcontinental railroad, called the Northern Pacific Railway. Cooke's firm provided the financing. But on September 18, the firm realized it had become overextended and declared bankruptcy.... Years of unregulated speculative credit had created vast overexpansion of the nation’s railroad network. The failure of the Jay Cooke bank set off a chain reaction of bank failures and temporarily closed the stock market. Factories began to lay off workers as the nation slipped into depression. The New York Stock Exchange closed for 10 days. Of the country's 364 railroads, 89 went bankrupt. A total of 18,000 businesses failed between 1873 and 1875. Unemployment reached 14% by 1876, during a time which became known as the Long Depression.

History rhymes. You can replaces railroads with houses and railroad bonds with mortgages and you pretty much have todays situation, complete with contribution from global markets.

Really folks compared to past financial crisis this is pretty small stuff. The virtual bankruptcy of America largest industry and transportation system, 14% employment.

Look even if tomorrow there was a decree that all home prices are reduced by 20%. How many of you are going to send the keys to your home to the bank. I am not. Even if millions do the banks are still going to be able to recover 70-90% of the value of the loans. Big deal? of course, end of the world I don't think so.

BTW, does anybody else find it interesting that many ER/stock market studies start after 1873

[Hamlet]

Well, TCF (TCB) and US Bank (USB) have reported earnings. Nothing they said makes me think that they are having any real significant credit problems. My favorite part of the TCF earnings call was this:

"We would point once again the things that TCF didn't do, and doesn't do according to our philosophy. There are no teaser rates, sub-prime programs. We have done no option arms. We do not have any collateralized CDOs or SIVs, Structured Investments Vehicles or any other off balance sheet-type activities, which have resulted in a large charges that we've been seeing in other institutions."

This stock will be much higher in 5 years, IMO.

[clifp]

I have been writing puts on USB, in the hopes that it too will get taken down to ridiculously low levels and punished for crimes that it didn't do. Sounds like TCB is another bank that has gotten thrown out with the bathwater.

Always impressive to see a bank raising its dividend (of course its only done so for 17 straight years.) during difficult times. Of course with record earnings and P/E of 9 it isn't hard. Hamlet I think you are right.. another bank for my watch list.

[James5v]

I guess I missed the time to buy bank stocks. BAC has done rather well.

I don't understand the rally in stocks since nothing in the news has really changed. However, if everyone thinks the market is going down then that is a very bullish sign.

If anyone has any insight into the current market I would like to hear it.

[brewer12345]

Quote:

Originally Posted by James5v I guess I missed the time to buy bank stocks. BAC has done rather well. I don't understand the rally in stocks since nothing in the news has really changed. However, if everyone thinks the market is going down then that is a very bullish sign. If anyone has any insight into the current market I would like to hear it.

What part of "the fed cut rates 1.25% in 9 days" do you not understand?

[Nords]

Quote:

Originally Posted by James5v I guess I missed the time to buy bank stocks. BAC has done rather well. I don't understand the rally in stocks since nothing in the news has really changed. However, if everyone thinks the market is going down then that is a very bullish sign. If anyone has any insight into the current market I would like to hear it.

I share your skepticism over the rally, but I'm not sure how having everyone selling into a down market becomes a bullish sign. Perhaps by that indicator the 2000-2003 tech wreck should've been over on 17 Sep 2001. And after 1973-4 there shouldn't have been an eight-year "pause" before hitting bottom.

But I suspect that you'll have at least a couple more chances to buy bank stocks from more panicked momentum investors entering the baby-throwing competitions.

Other posters will affirm that I'm not a bear, either, but I think that most investors decide that these things only last for a month or two-- instead of the rest of 2008 & 2009. IMO there's no hurry. The best stocks in the world will continue getting pounded by negative market sentiment, no matter how low their P/Es or how large their dividend increases. And when things are at their nastiest & most despairing then once again I'll be buying more.

[Art G]

I may have already posted this, but perhaps a nice way to play BAC is through CFC.B. I can't fathom how the Countrywide deal can fall apart at this juncture, and their preferred B is paying around 10% in income, (currently around $17.82). I started buying it around $14. If the deal goes through as planned, I see the stock trading around $23. JMO though.
BTW, if anyone has any thoughts about HBAN I'd love to hear them. I'm so stuck in this stock I don't know what to do with it. I don't want to take the capital gains, and don't want to watch it crater further. Thoughts?

[clifp]

Quote:

Originally Posted by Art G I may have already posted this, but perhaps a nice way to play BAC is through CFC.B. I can't fathom how the Countrywide deal can fall apart at this juncture, and their preferred B is paying around 10% in income, (currently around $17.82). I started buying it around $14. If the deal goes through as planned, I see the stock trading around $23. JMO though. BTW, if anyone has any thoughts about HBAN I'd love to hear them. I'm so stuck in this stock I don't know what to do with it. I don't want to take the capital gains, and don't want to watch it crater further. Thoughts?

I'd be careful about this.
I was all set to buy CFC prefered. (I bought the common @$5.40) when I came across an article (IIRC in Seeking Alpha but I can't find it anymore.)

The crux of the article was Lewis (BofA's CEO) was asked directly about the acquistion of Countywide's debt and prefered and he refused to say that Countrywide's debt would be assumed. The article went on to speculate that perhaps BofA's lawyers had found away to spin off some of Countrywide's debt to avoid acquiring it. Could be just a rumor.

[Running_Man]

Quote:

Originally Posted by Art G BTW, if anyone has any thoughts about HBAN I'd love to hear them. I'm so stuck in this stock I don't know what to do with it. I don't want to take the capital gains, and don't want to watch it crater further. Thoughts?

Lowered Target on HBAN: Financial News - Yahoo! Finance

They are in a world of hurt and Zacks has listed an expected price of $10.00 and expects a dividend cut. The purchase of Sky financial and the subprime losses that brought along with the credit crunch is impacting HBAN more than other regionals. The failure to properly exercise due diligence has led to the filing of a class action lawsuit for falsified financials makes this an unapealing stock right now.

[Art G]

Quote:

Originally Posted by clifp I'd be careful about this. I was all set to buy CFC prefered. (I bought the common @$5.40) when I came across an article (IIRC in Seeking Alpha but I can't find it anymore.) The crux of the article was Lewis (BofA's CEO) was asked directly about the acquistion of Countywide's debt and prefered and he refused to say that Countrywide's debt would be assumed. The article went on to speculate that perhaps BofA's lawyers had found away to spin off some of Countrywide's debt to avoid acquiring it. Could be just a rumor.

Whoaaaa! clif, you've got me very nervous now! I hope that it is just a rumor, I'm pretty heavily invested here.

[Art G]

Quote:

Originally Posted by Running_Man Lowered Target on HBAN: Financial News - Yahoo! Finance They are in a world of hurt and Zacks has listed an expected price of $10.00 and expects a dividend cut. The purchase of Sky financial and the subprime losses that brought along with the credit crunch is impacting HBAN more than other regionals. The failure to properly exercise due diligence has led to the filing of a class action lawsuit for falsified financials makes this an unapealing stock right now.

Yeah, thanks for your thoughts. The CEO from Sky took the money and ran. HBAN had been such a great stock for years. They continually raised their dividend and occasionally gave out stock dividends or splits. However, at some point, they seemed to have gotten too cocky, and started taking on more risk. They really should have been sold off to a big bank years ago. I was hoping someone had some good news on the stock.

[al_bundy]

Quote:

Originally Posted by clifp I'd be careful about this. I was all set to buy CFC prefered. (I bought the common @$5.40) when I came across an article (IIRC in Seeking Alpha but I can't find it anymore.) The crux of the article was Lewis (BofA's CEO) was asked directly about the acquistion of Countywide's debt and prefered and he refused to say that Countrywide's debt would be assumed. The article went on to speculate that perhaps BofA's lawyers had found away to spin off some of Countrywide's debt to avoid acquiring it. Could be just a rumor.

depends on how CFC is organized and how the money flows within the company

for all we know it's a separate legal entity that assumed the debt and the servicing operation is probably all that BAC wants. or maybe CFC will do one of them controlled bankruptcies

[al_bundy]

Quote:

Originally Posted by James5v I guess I missed the time to buy bank stocks. BAC has done rather well. I don't understand the rally in stocks since nothing in the news has really changed. However, if everyone thinks the market is going down then that is a very bullish sign. If anyone has any insight into the current market I would like to hear it.

it's called short covering and short term trading

if you look at the charts the last 6 months the volume on the way down increases and then decreases during the rallies

not every single stock but a lot of them. BAC is the exception because they didn't get caught up in the mania. and some of these stocks fell too fast. BAC was down around 40% in a few months.

[James5v]

So it seems what I am hearing is that the Fed's rate cut and the stimulus package hype brought on a rally (short covering and short term trading) but the market is likely to again test the lows. Do you think the bank stocks will also test their lows since there still seems to be many unknowns about the debt problems.

Also, it seems one day the numbers indicate a recession and then the next day the numbers look better.

[brewer12345]

Quote:

Originally Posted by James5v So it seems what I am hearing is that the Fed's rate cut and the stimulus package hype brought on a rally (short covering and short term trading) but the market is likely to again test the lows. Do you think the bank stocks will also test their lows since there still seems to be many unknowns about the debt problems.

There has been a clear bifurcation in the banks. The banks with credit/asset problems and/or thinner capital levels have been beaten and remain volatile, although most have rallied off their absolute lows. Banks with credit risky portfolios that have mostly stayed out of trouble thus far have also been lumped in with these guys.

Banks with clean portfolios and enough capital have actually rallied quite a bit since Q4 earnings were released. These guys will be printing money as the effects of fed rate cuts and a much steeper yield curve make themselves felt in these banks' balance sheets.

No clue what the market will do short term, but lots of things look cheap to me. I think its pretty much a given that the Fed whacks rates down to 2% or close to it unless we get a sharp rebound in the economic data very soon.

[al_bundy]

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