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September 02, 2009

New Research Available on the Doo Doo Bank List
by Reggie Middleton

In following with my promise to call out the nations most insolvent, publicly traded banks, I am publishing part two of my short list of Doo Doo banks. If you haven't been following this self-perpetuating missive, see:

We have looked into 14 additional banks out of the group previous shortlisted from the original 869 bank scan (see The FDIC as a catalyst, or the new Doo Doo 32!) and almost all the banks in the additional list have better metrics compared with the original list of 8 banks published last week. We have selected two of the 14 banks analyzed recently based on the banks' loan and investment portfolio, operating metrics and valuation ratio.

Capitol Bancorp:

While the probability of bankruptcy of this bank is relatively high over the 14 banks analyzed recently, the low absolute share price and low valuation multiple makes it risky for me to short. The bank has market cap of $93 mn and share price of $5.3 and is trading at Price-to-tangible book value of 0.37x
The banks' Eyles test (a measure of banks loan loss reserve strength) is the highest among the analyzed 2nd tier of 14 banks at 75.8% (i.e) bank has negative cushion (NPA's less reserves) of 75.8% over tangible equity.
The bank has negative cushion of 60.1% as of June 30, 2009.
The banks NPA's to tangible equity as of 2Q09 stood at 147.4% while non performing loans plus 90 days past due loans to tangible equity stood at 105.8%
The banks NPA's to loans is at 8.0% while non performing loans plus 90 days past due loans to loans is at 5.8%.
The bank has high adjusted leverage of 22.6x.
Efficiency ratio is very high at 108.6% in 2Q09 and the bank has been reporting losses over the last five quarters

CAP BANCORP LTD

Price (August 27, 2009) 5.3

Market cap (in mn) 92.8

P/B 0.3x

P/Tangible BV 0.4x

Loan Loss coverage YTD -0.3

Texas ratio 103.8%

Eyles Test 303643.0

Shortfall from current reserve for loan loss 189428.0

Shortfall as % of tangible shareholders' equity 75.8%

Cushion (Reserve less NPL+90 days due) -60.1%

Adjusted leverage 22.6x

NPA / Equity 147.4%

NPA / Total Loans 8.0%

NPL and 90 days due/ Equity 105.8%

NPL and 90 days due/ Total Loans 5.8%

NPL and 90 days due and 30 days due/ Equity na

NPL and 90 days due and 30 days due/ Total Loans na

Loan exposure

Residential real estate loans to tangible common equity 3.58x

Commercial real estate loans to tangible common equity 11.21x

Investment securities exposure

Total investment portfolio to tangible common equity 0.19x

Level 3 assets to tangible common equity 0.00x

AFS break up

Level 1 0.0%

Level 2 100.0%

Level 3 0.0%

Unrealized gains (losses) as % of amortized cost 0.3%

After tax unrealized gains (losses) as % tangible equity 0.0%

Troubled Securities exposure

Privately issued RMBS to tangible common equity na

CMBS to tangible common equity na

AMBS to tangible common equity na

Other debt securities to tangible common equity na

Equity securities to tangible common equity na

Total na

Subscriber Short Candidate 2 (subscribers may download the summary overview of this company here Doo Doo Bank Short List, part 2 2009-09-02 00:20:59 752.29 Kb:

Although in terms of probability of bankruptcy this bank trails over the four banks identified previously, the bank still has weak balance sheet metrics compared to most of the 14 additional scanned banks. However taking into consideration the relatively high liquidity and market cap (over 4 banks identified last week), availability of options with relatively narrow spreads, poor operating metrics (over rest of 14 banks and industry standards), high valuation ratio and high absolute share price this bank merits itself in the final list of 6 banks.

Reggie Middleton
Reggie Middleton, LLC
Perpetual Interests, LLCTM
http://boombustblog.com/

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