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August 25, 2009 The Doo Doo 32, Revisited |
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Recently, the Chairman of Sunturst Bank said lending institutions are not out of the woods yet and will probably continue to report losses on commercial real estate through 2010. Bank stocks dropped. This is a farce. Many, if not most, lending institutions are facing the potential of dire straits for a variety of reasons, all centering around the fact that they still have massively overvalued loans and loan products, sloppily underwritten and unsecured (or under secured by deprecating collateral) during a time of high unemployment and weakening business conditions. The complicity of US accounting authorities, regulators and government has not only kicked the can down the road, but has make the can a lot larger. I outlined this in The Folly of US Financial Political Games and pointed out the poignant comments that other have made on the topic as well (Interesting excerpt from Jeff Nielson, Banks are actually worse off now than they were before). I called the collapse of the regional banking system about a year and a half ago with the Doo Doo 32 (As I see it, these 32 banks and thrifts are in deep doo-doo!). Glancing at this list over a year later (no one thought the regional banks were even at risk when I came out with the list) in search of overlooked bear candidates), we excluded 6 banks which have been acquired or forced to close and excluded 13 banks with share price of less than $15. Of the remaining 13 banks, we looked deeper into six banks - BB&T Corp, Glacier Bancorp, Sandy Spring Bancorp, M&T Bank Corp, TriCo Bancshares, Zions Bancorp. Based on the comparative analysis of valuation multiples, past stock price performance, bank’s loan and investment portfolio and operational performance (based on Bloomberg data and latest filings). I will produce the results of the analysis and the most Doo Doo bank for 2009 for subscribers over the nest few days. The WSJ referenced in The Folly of US Financial Political Games holds the key to what will bring many banks down, even the better run ones have inested in securities th.at hare dropping in value by 20% to 50%, on a quarterly basis. To make things considerably worse, as also focused on in the politial games article, the powers that be have actually endorsed the fraudulent reporting of said assets, essentially giving the ok to inflate the book value of this junk in order to create earnings and value where none is available. Of course, as can be seen in the graphs, the banks share prices have responded accordingly, increasing by one hundred percent while the market value of their assets drop by 20 to 50%, taking humongous amounts, if not all, of the banks tangible equity with it. In addition, the commercial real estate and construction sectors are looking to get much worse in terms of losses. Just ask Suntrust. If you don't believe him, just look at the implied leverage of some of these popular banks and imagine what happens to tangible equity when these investments drop in value (ex. somre preferred trust and CDO portfolios have lost over 50% in market value this past quarter):
Still not convinced, let's look at how conservative select members of the surviving Doo Doo 32 are in terms of financial cushioning against further loss:
Do you still believe this to be a bank bull market in lieu of a bear market bounce feuled by legalized financial fraud??? Well, let's pick a Doo Doo 32 bank and go through the books, shall we... Zions Bancorp, a bank with about 4$4.5 billion of tangible equty, also has...
About half of this banks ENTIRE investment portfolio is not valued by market transactions, but marked to managements opinion, which of course is most rosy, to be sure:-)
I think they over did it on the leverage front here. So, exactly how is that investment portfolio doing???
Keep in mind that these losses are akin to the one's you and I would take in an institutional margin account. Zions has a leverage ratio of 13x and investments to common equity of 189%. One dollar of investment losses equates to much more than one dollar of lost equity to this bank and its shareholders and investors. If we look at the actual loan portfolio...
A full 1/3 is CRE, with half of that being construction. For those who don't know what that means... See "Who are ya gonna believe, the pundits or your lying eyes?" and "Who are you going to believe, the pundits or your lying eyes, part 2". Another 17% is consumer with HELOCS (basically unsecured variable debt), residential 1-4 family and construction loans. All told this is 4x their tangible equity, and this is some of the worse lending categories to be in right now. I will expound on other banks, including the extreme risk that JPM and Goldman pose to the system in my next post (or two). In the meantime, here is plenty of related proprietary research and opinion on the banking farce and fake stress test material for any who are interested. 1. Welcome
to the Big Bank Bamboozle! 2. The
Real Stress Test Results 3. America,
You have been outright lied to! Bamboozled! Swindled! Hoodwinked! The Worst
Case Scenario 9. The
Re-Release of the Open Source Mortgage Default Model 11. Green
Shoots are Being Fertilized by Brown Turds in the Mortgage Markets 12. Beware
of Bank Earnings Propaganda - They are still in BIG trouble! 13. Banker
Busted? 15. Fact,
Fiction, Farce and Lies! What happened to the Bank Bears? 16. PNC
plus CRE = Doo Doo hitting the Fan 17. Wells
Fargo reports in a few hours and I wonder how forthcoming they will be with
their credit losse 18. The
difference between a professional investor and a professional reporter is... 19. The
two tailed banking crisis 20. Reggie
Middleton's Goldman Sach's Stress Test: Breaking Ranks with the Crowd Once
Again!
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Reggie
Middleton
Well, I fancy myself the personification of the free thinking maverick, the ultimate non-conformist as it applies to investment and analysis. I am definitively outside the box - not your typical or stereotypical Wall Street investor. I work out of my home, not a Manhattan office. I build my own technology and perform my own research - in lieu of buying it or following the crowd. I create and follow my own macro strategies and am by definition, a contrarian to the nth degree. Since I use my research as a tool for my own investing to actually put food on my table, I can stand behind it as doing what it is supposed too - educate, illustrate and elucidate. I do not sell advice, I am not a reporter hence do not sell stories, and I do not sell research. I am an entrepreneur who exists just outside of mainstream corporate America and Wall Street. This allows me freedom to do things that many can not. For instance, I pride myself on developing some of the highest quality research available, regardless of price. No conflicts of interest, no corporate politics, no special favors. Just the hard truth as I have found it - and believe me, my team and I do find it! I welcome any and all to peruse my blog, use my custom hacked collaborative social tools, read the articles, download the files, and make a critical comparison of the opinion referencing the situation at hand and the time stamp on the blog post to the reality both at the time of the post and the present. Hopefully, you will be as impressed with the Boom Bust as I am and our constituency. I pay for significant information and data, and am well aware of the value of quality research. I find most currently available research lacking, in both quality and quantity. The reason why I had to create my own research staff was due to my dissatisfaction with what was currently available - to both individuals and institutions. So here I am, creating my own research for my own investment activity. What really sets my actions apart is that I offer much of what I produce to the public without charge - free to distribute and redistribute, as long as it is left unaltered and full attribution is given to the author and owner. Why would I do such a thing when others easily charge 5 and 6 digits annually for what some may consider a lesser product? It is akin to open source analysis! My ideas and implementations are actually improved and fine tuned when bounced off of the collective intellect of the many, in lieu of that of the few - no matter how smart those few may believe themselves to be. Very recently, I have started charging for the forensics portion of my work, which has freed up the resources to develop the site to deliver even more research for free, particularly on the global macro and opinion front. This move has allowed me to serve an more diverse constituency, which now includes the institutional consumer (ie., investment turned consumer banks, hedge funds, pensions, etc,) as well as the newbie individual investor who is just getting started - basically the two polar opposites of the investing spectrum. I am proud to announce major banks as paying clients, and brand new investors who take my book recommendations and opinions on true wealth and success to heart. So, this is how I use my background and knowledge in new media, distributed computing, risk management, insurance, financial engineering, real estate, corporate valuation and financial analysis to pursue, analyze and capitalize on global macroeconomic opportunities. I have included a more in depth bio at the bottom of the page for those who really, really need to know more about me. Visit his blog Boom Bust Blog. Copyright © 2007-2009 Reggie Middleton Image rendition and html coding Copyright © 2000-2009 SafeHaven.com ADVERTISEMENTS
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Who am I?