Anyone like bank stocks?

[Hamlet]

The yields are pretty attractive.

I own TCB and USB.

Interested in WFC.

The yield curve being a little inverted has hurt these guys, but I think that they are solid long-term.

 

[brewer12345]

You can slough off a lot of single name risk and get basically the same economics by buying an ETF: KRE.

 

[Hamlet]

Where is the fun in that?

You can slough off a lot of single name risk and get basically the same economics by buying an ETF: KRE.

 

[Texas Proud]

I like bank stock... but since I work for one I am way overexposed to them...

The yields are pretty good on some of the big names and they are [-](have been)[/-] making gobs of money...

 

[brewer12345]

Bank stocks are cheaper than they have been in maybe a decade. And they keep getting cheaper...

 

[Dawg52]

Bank stocks are cheaper than they have been in maybe a decade. And they keep getting cheaper...

I might buy some more KRE at some point, but the talking heads on tv keep throwing the financials under the truck. Wish they would shut the frig up.

 

[brewer12345]

Actually, I am finally starting to see a select few not go down any more, and even trade up a bit. To me, that is the sign of things starting to bottom out. The guys with good credit quality could well benefit because A) they will soon have a lot fewer competitors for loans and B) if this gets ugly enough, the Fed will be dropping rates which will benefit the banks immensely.

 

[Brat]

Let's cheer for ugly!!

For several months AU talking heads have been predicting increasing interest rates there. One of my local NPR stations broadcasts news feeds from international public stations in the middle of the night. A couple nights ago I woke up to a discussion there that their folks had found hints of inflation, that interest rates were increasing and that they had their own sub-prime mortgage problems.

This is particularly interesting because the AU $ has been very strong. I wonder if the fact that the US purchased a huge % of goods from China and China has worked at keeping their goods cheap for the American consumer has the effect of suppressing inflation here.... All of those who want the Chinese to recalibrate the dollar know not what they ask for.

 

[terminator]

I think they are cheap. I've bought shares in five different banks at low points in the last six months. (Or at least at hope they were low points . . . )

With as much as some of these are earning in other businesses, I'm just not that worried about the worst case scenario being all that bad.

 

[CCdaCE]

I ran across this link on Diehards. It talks about how mortgage securities are repackaged/shuffled/etc. The impending subprime mortgage collapse. The investment bankers slice the MBS into several "tranches". These are known as Collateralized Debt Obligations, or CDOs for short. Now all of the CDO's are packaged up and the link talks about how the risk of the CDO's is gonna come home to roost.

But, then again, it's pushed by gold bugs. So, lots of doom and gloom from my perspective. Part doom and gloom and part "you should be aware of the risks".

I don't trust 'em.

I'm saying the information is good, but the conclusion to go to gold is lost on me. For all I know, regional banks have little exposure to this sort of thing, but their share prices may be affected regardless of the facts.

-CC

 

[brewer12345]

Regional banks tend to be portfolio lenders rather than lend and sell the loan guys, although many do some of both. If you are a portfoio lender (classic example: AF), you make the loan with the intention of holding it until it pays off, and you generally have financing lined up to make a spread (deposits and some borrowings, usually). If you stick to higher quality loans, you are in a steady, but unexciting business that usually results in a stable, high stock price. The banks that fit this picture have been trashed by the market along with the guys who lend & sell the loan, and wit the guys who make risky/junky loans. So its a clear buying opportunity for the guys who keep their noses clean, and many of the lend & sale and risky loan guys are attractive at current prices, too.

The CDO market is currently closed, more or less. But unless "this time its different", the window will re-open in a while and people who depend on that market will get on with business, assuming they don't blow up while the window is shut.

 

[FinanceDude]

KRE is at 41.90, and the 52 week low is 41.57. I'm wondering if the support level is 41? If it breaks through 41, it probably has 5-10% more downside in it.

Quite intriguing, I am putting it on my watch list. Here in Wisconsin, Harris Bank bought two wellrun small banks for about $130 million each, so consolidation is still happening...........

 

[brewer12345]

Quite intriguing, I am putting it on my watch list. Here in Wisconsin, Harris Bank bought two wellrun small banks for about $130 million each, so consolidation is still happening...........

If anything, consolidation has stepped up as banks facing an uncertain future are having "come to Jesus" moments and deciding to fall into the arms of a larger suitor.

 

[bssc]

I have Bank of America, Chase, Citi and Washington Mutual.

 

[wildcat]

Hey Brew,

How much longer do you think it will be before the bad news works its way through the financial cycle? Don't know if you can answer that. I am not saying financials are expensive (some have pretty low exposure to the mortgage fall out) but if more bad news comes down the pipe I can always rely on the media to discount things further. Being ready to buy several times and keeping some cash on the sidelines is probably the best approach with the financials. I am loving the financial risk coverage in the media -- burn baby, burn.

 

[brewer12345]

Dunno, but anything at a price, and banks are cheap, cheap, cheap.

Really, unless we head for a depression, I think the worst will be over in credit quality within a couple of quarters. If not, Mr. Bernanke will be warming up the helicopter directly. Wanna see what rate cuts do for bank stocks? Check out the last cycle of cutting.

 

[wildcat]

Dunno, but anything at a price, and banks are cheap, cheap, cheap.

Really, unless we head for a depression, I think the worst will be over in credit quality within a couple of quarters. If not, Mr. Bernanke will be warming up the helicopter directly. Wanna see what rate cuts do for bank stocks? Check out the last cycle of cutting.

That's what I was guessing. I get too caught up in the timing of it -- always trying to get the best price.

 

[Nords]

I am not saying financials are expensive (some have pretty low exposure to the mortgage fall out) but if more bad news comes down the pipe I can always rely on the media to discount things further. Being ready to buy several times and keeping some cash on the sidelines is probably the best approach with the financials. I am loving the financial risk coverage in the media -- burn baby, burn.

Dunno, but anything at a price, and banks are cheap, cheap, cheap.

I'm still shaking my head in amazement over the retail bank ETF (KRE). Take a look at a chart; I bought on the 27th & 30th for a $42.05/share basis. (Most of July's gigantic purchase volume was due to Brewer.) At 55 cents/share in quarterly dividends the 5.2% yield is higher than many CDs. Just a 0.35% expense ratio. It's only been around for a year so it's low volume & volatile.

I've generally avoided country & most sector ETFs but this KRE has opened my eyes to opportunity. I've been perpetually frustrated by our local Bank of Hawaii-- intriguing price & yield but too much single-stock risk (especially state politics). I've also been having a tough time figuring out a bank's balance sheet because there's just too much opportunity for shenanigans that'd confuse an experienced auditor, let alone a retail amateur like me. Analyzing BofA, let alone a regional, was a daunting task. KRE seems to own at least a couple retail banks with good yields from all 50 states, nicely resolving all my issues.

I shorted FirstFed (FED), a sort of poster child for California zero-amortization ARMs, back in Feb at $68/share. It was my third try and I finally got it right. I covered last month at a $9/share profit as the market reached its giddy highs, fearing a stupid private-equity buyout and having no reason to be greedy. (Every time I'd looked at the bank's numbers and decided that they sucked, the price would go up another $1/share.) If I'd waited until this week I'd have profits of over $20/share.

I'll be taking more looks at unloved sector ETFs. Every year or two there has to be something trading at a multi-year low that'll eventually revert to its mean. If it's sporting a P/E under 14 and paying a dividend then that's just a bonus...

Thanks again, Brewer!

 

[Milton]

I shorted FirstFed (FED), a sort of poster child for California zero-amortization ARMs, back in Feb at $68/share. It was my third try and I finally got it right. I covered last month at a $9/share profit as the market reached its giddy highs, fearing a stupid private-equity buyout and having no reason to be greedy. (Every time I'd looked at the bank's numbers and decided that they sucked, the price would go up another $1/share.) If I'd waited until this week I'd have profits of over $20/share.

I'm too conservative for that sort of aggressive speculation.

 

[FIRE'd@51]

At 55 cents/share in quarterly dividends the 5.2% yield is higher than many CDs. Just a 0.35% expense ratio. It's only been around for a year so it's low volume & volatile.

The 55 cents dividend was for the last quarter (June). According to Yahoo, the two previous quarters were 27 cents (March) and 38 cents (Sep '06), respectively. Also Yahoo quotes a trailing yield of 3.1%. So, I'm not sure the yield is really 5.2%. That's not to say KRE is not attractive at current prices - I just think you may be overstating the yield. AFAK, not many regional banks are yielding over 5% (including none of KRE's ten largest holdings according to Yahoo), although a number of money-center banks have yields in this range.

 

[Dawg52]

The 55 cents dividend was for the last quarter (June). According to Yahoo, the two previous quarters were 27 cents (March) and 38 cents (Sep '06), respectively. Also Yahoo quotes a trailing yield of 3.1%. So, I'm not sure the yield is really 5.2%. That's not to say KRE is not attractive at current prices - I just think you may be overstating the yield. AFAK, not many regional banks are yielding over 5% (including none of KRE's ten largest holdings according to Yahoo), although a number of money-center banks have yields in this range.

I noticed that too and also on other ETF's. I wonder why there can be such a wide range on distributions from quarter to quarter?

 

[brewer12345]

I noticed that too and also on other ETF's. I wonder why there can be such a wide range on distributions from quarter to quarter?

Special dividends from the underlying stocks? Spin-offs of non-bank businesses that have to be liquidated?

 

[Nords]

I'm too conservative for that sort of aggressive speculation.

(_shrug_) Shorting an overvalued stock is not much different from buying an undervalued stock, although both are not without their perils. One big difference is that many who wouldn't hesitate to buy a stock on its fundamentals (or even a hot tip from their brokers) are equally dismissive of shorting it for the same logic.

FED's inevitable was a long time coming, and I'd been trying since Sep 05 to get the timing right. The longer I [-]stalked[/-] researched it (with Brewer's tutelage) the more I understood the financials. It just took the rest of the market a long time to recognize our prescience. Options would have only added time pressure to the whole problem.

I do much better tracking a small portfolio of stocks for months than I do with tracking a large portfolio on recent performance. However it's a constant tedious drudgery with long periods of unrewarded boredom, occasional moments of panic, and outsize rewards that no longer trip my trigger. Maybe transferring my fledgling research skills to ETFs will be almost as rewarding with less excitement.

Also Yahoo quotes a trailing yield of 3.1%. So, I'm not sure the yield is really 5.2%. That's not to say KRE is not attractive at current prices - I just think you may be overstating the yield.

I noticed that too and also on other ETF's. I wonder why there can be such a wide range on distributions from quarter to quarter?

Special dividends from the underlying stocks? Spin-offs of non-bank businesses that have to be liquidated?

Good points. It's a bit of work to research the quality of the underlying dividends among 100 banks in an ETF, and I'm probably not going to get to it.

I'm hoping that KRE's latest dividend reflects a trend of banks increasing their dividends to attract shareholders while deterring private-equity buyouts. Yahoo!'s annualized yield appears to be based on the average of the two previous quarters divided by $42. I can happily harvest that and even more happily reinvest it with a lot more confidence than I possess in BofA. Averaging KRE's last three quarterly dividends to 40 cents reflects a yield of 3.8%, not out of line with the Mergent's Dow Dividend Achievers index, and there's nothing wrong with that either.

The reasoning behind the dividends may be irrelevant-- I'd like to think that 100 banks would be somewhat reluctant to reduce their dividends, especially with the spotlight on loan quality.

I could be early to the party and I frequently am, but I know what'll happen to the ETF's share price if the next quarterly dividend is anywhere near 55 cents...

 

[terminator]

I'm hoping that KRE's latest dividend reflects a trend of banks increasing their dividends to attract shareholders while deterring private-equity buyouts.

The fund itself quotes the yield as 3.42% and the index yield as 3.33%. If you look at the individual holdings (52 stocks) you'll see a few outliers but most are in the 2-4% range. Just put the tickers into Yahoo and eyeball the yield line. They are more or less equally weighted in the ETF:
SIVB EWBC SNV CBSH CYN BXS CNB FCBP SBNY TCB FMBI WBS VLY BOH CATY UCBH HCBK WL PBKS CFR TRMK ASBC FTBK BPFH PBCT UB NPBC SOV UBSI PRSP WTNY CPF CORS FNB WABC SBIB TSFG WTFC FCF FHN FULT CVBF UMPQ FMER SUSQ PCBC STSA ONB BRKL CRBC

 

[brewer12345]

FWIW (maybe nothing), but I have never seen more widespread or larger amounts of insider buying in the regional/community bank sector. The market may hate this sector, but insiders appear to want to beg to differ.