Displaying items by tag: Banks

In reviewing the banks that were originally included in the Doo Doo 32 (a list of likely doomed banks created in the spring of 2008), I decided to have a team take the devil's advocate perspective (an exercise that we normally pursue) and attempt to build a bullish case for the sectors that I viewed bearishly yet have outperformed the S&P and escaped profitable shorting during the last three quarters. The results are illuminating.

Below is a list of shortlisted banks that have reported higher returns relative to S&P 500 between the period March 9, 2009 and January 5, 2010 - the bear market rally of 2009. The methodology that we followed for this short listing is as follows:

·         We took out a list of banks that are domiciled in the US and have market capital of more than $500 million and current share price of more than $10.

·         Next we calculated returns for each bank and S&P 500 between period March 9, 2009 and January 5, 2010.

In reviewing the banks that were originally included in the Doo Doo 32 (a list of likely doomed banks created in the spring of 2008), I decided to have a team take the devil's advocate perspective (an exercise that we normally pursue) and attempt to build a bullish case for the sectors that I viewed bearishly yet have outperformed the S&P and escaped profitable shorting during the last three quarters. The results are illuminating.

Below is a list of shortlisted banks that have reported higher returns relative to S&P 500 between the period March 9, 2009 and January 5, 2010 - the bear market rally of 2009. The methodology that we followed for this short listing is as follows:

·         We took out a list of banks that are domiciled in the US and have market capital of more than $500 million and current share price of more than $10.

·         Next we calculated returns for each bank and S&P 500 between period March 9, 2009 and January 5, 2010.

The last standout to the Moral Hazard Brigade has finally joined ranks. The FDIC is considering bailing out the banks!!! From IDD Magazine:

WASHINGTON — As the number of bank failures continues to rise, some industry representatives are making a case that amounts to political heresy: the Federal Deposit Insurance Corp. should prop up dying institutions rather than letting them collapse.

The last standout to the Moral Hazard Brigade has finally joined ranks. The FDIC is considering bailing out the banks!!! From IDD Magazine:

WASHINGTON — As the number of bank failures continues to rise, some industry representatives are making a case that amounts to political heresy: the Federal Deposit Insurance Corp. should prop up dying institutions rather than letting them collapse.

I really wonder what possesses people to believe these sales pitches, hook, line and sinker... Seriously, what the hell was this guy thinking??? From Bloomberg:

Dec. 17 (Bloomberg) -- For California Treasurer Bill Lockyer, the offer from Goldman Sachs Group Inc., JPMorgan Chase & Co. and Citigroup Inc. was too good to refuse.

If California were willing to forgo competitive bidding for a $4.5 billion bond offering, the banks promised more orders from individuals and a lower bill to the taxpayers. The firms insisted that by negotiating with them, the state would benefit from its special relationship with the Wall Street troika and wind up with what two underwriters called a salutary “buzz” to boost demand for the debt.

When the October offering failed to sell as planned, California was forced to accept 8 percent less money than it needed and to pay as much as $123 million more in interest than the banks said was sufficient for the market. And the threesome made $12.4 million on the deal, contributing to record bonuses in the securities industry a year after getting a total of $80 billion in a federal bailout.

“Just because someone earns a big wad of money doesn’t mean that they can do what they say they can do,” said Marilyn Cohen, who watched the sale unfold from Los Angeles as president of Envision Capital Management, which oversees $250 million in bonds for individuals. “And shame on the state if they were drinking that Kool-Aid.”

The California sale helped send the municipal-bond market to its worst month in a year. It ended a rally that had pushed borrowing costs for cities and states to a 42-year low, as measured by the Bond Buyer’s index of 20-year general obligation bonds.

 Mr. Lockyer, the next time someone promises you something, get it in writing, reviewed by competent counsel and independent financial advisors. Be sure to have the vendors supply a capital reserve to back up their promises. Most banks probably wouldn't do that, which should tell you something in and of itself.

Then there is "Goldman Sachs Driving Trucker YRC Into Bankruptcy, Teamsters' Hoffa Says":

From Bloomberg, Citigroup Stock Sale Discount Prompts Treasury to Delay Disposal of Stake :

Dec. 17 (Bloomberg) -- Citigroup Inc., the last of the four largest U.S. banks to seek funds to exit a taxpayer bailout, raised $17 billion by selling stock for a price so low that the U.S. delayed plans to shrink its one-third stake in the lender.

Citigroup sold 5.4 billion shares at $3.15 apiece, less than the $3.25 the government paid when it acquired its stake in September. The New York-based bank said the Treasury won’t sell any of its shares for at least 90 days.

Investors demanded a bigger discount from Citigroup than Bank of America Corp. or Wells Fargo & Co., which together raised more than $31 billion this month to exit the Troubled Asset Relief Program. Wells Fargo, which trumped Citigroup’s bid to buy Wachovia Corp. last year, leapfrogged its rival by completing a $12.25 billion share sale Dec. 15. JPMorgan Chase & Co. repaid $25 billion in June.

“The market cast its vote and they’re low down on the ballot,” said Douglas Ciocca, a managing director at Renaissance Financial Corp. in Leawood, Kansas. “Citigroup needs to show steps to reinstall the quality of the brand.”

With the sale, Citigroup’s common shares outstanding increased to 28.3 billion. That’s up from 22.9 billion as of Sept. 30 and 5 billion at the end of 2007.

“More shares outstanding means less value per share,” said Edward Najarian, an analyst at International Strategy and Investment Group in New York, who has a “hold” rating on the shares. “The whole structure of their deal to pay back TARP wasn’t very good for common shareholders and that is being reflected in the pricing.”

I think one of the most important points are being missed. Most of these banks swore that they didn't need TARP. Despite this, in order to return it, they must go back out to the capital markets. Why do you have to hit the market to return a loan that you said you didn't need, unless you needed it? This obvious lie has went unchallenged.

I really wonder what possesses people to believe these sales pitches, hook, line and sinker... Seriously, what the hell was this guy thinking??? From Bloomberg:

Dec. 17 (Bloomberg) -- For California Treasurer Bill Lockyer, the offer from Goldman Sachs Group Inc., JPMorgan Chase & Co. and Citigroup Inc. was too good to refuse.

If California were willing to forgo competitive bidding for a $4.5 billion bond offering, the banks promised more orders from individuals and a lower bill to the taxpayers. The firms insisted that by negotiating with them, the state would benefit from its special relationship with the Wall Street troika and wind up with what two underwriters called a salutary “buzz” to boost demand for the debt.

When the October offering failed to sell as planned, California was forced to accept 8 percent less money than it needed and to pay as much as $123 million more in interest than the banks said was sufficient for the market. And the threesome made $12.4 million on the deal, contributing to record bonuses in the securities industry a year after getting a total of $80 billion in a federal bailout.

“Just because someone earns a big wad of money doesn’t mean that they can do what they say they can do,” said Marilyn Cohen, who watched the sale unfold from Los Angeles as president of Envision Capital Management, which oversees $250 million in bonds for individuals. “And shame on the state if they were drinking that Kool-Aid.”

The California sale helped send the municipal-bond market to its worst month in a year. It ended a rally that had pushed borrowing costs for cities and states to a 42-year low, as measured by the Bond Buyer’s index of 20-year general obligation bonds.

 Mr. Lockyer, the next time someone promises you something, get it in writing, reviewed by competent counsel and independent financial advisors. Be sure to have the vendors supply a capital reserve to back up their promises. Most banks probably wouldn't do that, which should tell you something in and of itself.

Then there is "Goldman Sachs Driving Trucker YRC Into Bankruptcy, Teamsters' Hoffa Says":

From Bloomberg, Citigroup Stock Sale Discount Prompts Treasury to Delay Disposal of Stake :

Dec. 17 (Bloomberg) -- Citigroup Inc., the last of the four largest U.S. banks to seek funds to exit a taxpayer bailout, raised $17 billion by selling stock for a price so low that the U.S. delayed plans to shrink its one-third stake in the lender.

Citigroup sold 5.4 billion shares at $3.15 apiece, less than the $3.25 the government paid when it acquired its stake in September. The New York-based bank said the Treasury won’t sell any of its shares for at least 90 days.

Investors demanded a bigger discount from Citigroup than Bank of America Corp. or Wells Fargo & Co., which together raised more than $31 billion this month to exit the Troubled Asset Relief Program. Wells Fargo, which trumped Citigroup’s bid to buy Wachovia Corp. last year, leapfrogged its rival by completing a $12.25 billion share sale Dec. 15. JPMorgan Chase & Co. repaid $25 billion in June.

“The market cast its vote and they’re low down on the ballot,” said Douglas Ciocca, a managing director at Renaissance Financial Corp. in Leawood, Kansas. “Citigroup needs to show steps to reinstall the quality of the brand.”

With the sale, Citigroup’s common shares outstanding increased to 28.3 billion. That’s up from 22.9 billion as of Sept. 30 and 5 billion at the end of 2007.

“More shares outstanding means less value per share,” said Edward Najarian, an analyst at International Strategy and Investment Group in New York, who has a “hold” rating on the shares. “The whole structure of their deal to pay back TARP wasn’t very good for common shareholders and that is being reflected in the pricing.”

I think one of the most important points are being missed. Most of these banks swore that they didn't need TARP. Despite this, in order to return it, they must go back out to the capital markets. Why do you have to hit the market to return a loan that you said you didn't need, unless you needed it? This obvious lie has went unchallenged.

First off, some definitions:

• The Doo Doo, as in the Doo Doo 32: A  list of 32 banks that I created on May 22, 2008 which set the stage for my investment thesis of shorting the regional banks. At that time, I was one of the very few, if not one of the only, to warn that the regional banks would hit the fan.
• Regulatory capture (adopted from Wikipedia): A term used to refer to situations in which a government regulatory agency created to act in the public interest instead acts in favor of the commercial or special interests that dominate in the industry or sector it is charged with regulating. Regulatory capture is an explicit manifestation of government failure in that it not only encourages, but actively promotes the activities of large firms that produce negative externalities. For public choice theorists, regulatory capture occurs because groups or individuals with a high-stakes interest in the outcome of policy or regulatory decisions can be expected to focus their resources and energies in attempting to gain the policy outcomes they prefer, while members of the public, each with only a tiny individual stake in the outcome, will ignore it altogether. Regulatory capture is when this imbalance of focused resources devoted to a particular policy outcome is successful at "capturing" influence with the staff or commission members of the regulatory agency, so that the preferred policy outcomes of the special interest are implemented. The risk of regulatory capture suggests that regulatory agencies should be protected from outside influence as much as possible, or else not created at all. A captured regulatory agency that serves the interests of its invested patrons with the power of the government behind it is often worse than no regulation whatsoever.

About a year and a half ago, after sounding the alarm on the regionals, I placed strategic bearish positions in the sector which paid off extremely well. The only problem is, it really shouldn't have. Why? Because the problems of these banks were visible a mile away. I started warning friends and family as far back as 2004, I announced it on my blog in 2007, and I even offered a free report in early 2008.

Well, here comes another warning. One of the Doo Doo 32 looks to be ready to collapse some time soon. Most investors and pundits won't realize it because a) they don't read BoomBustblog, and b) due to regulatory capture, the bank has been given the OK by its regulators to hide the fact that it is getting its insides gutted out by CDOs and losses on loans and loan derivative products. Alas, I am getting ahead of myself. Let's take a quick glance at regulatory capture, graphically encapsulated, then move on to look at the recipients of the Doo Doo Award as they stand now...

A picture is worth a thousand words...

First off, some definitions:

• The Doo Doo, as in the Doo Doo 32: A  list of 32 banks that I created on May 22, 2008 which set the stage for my investment thesis of shorting the regional banks. At that time, I was one of the very few, if not one of the only, to warn that the regional banks would hit the fan.
• Regulatory capture (adopted from Wikipedia): A term used to refer to situations in which a government regulatory agency created to act in the public interest instead acts in favor of the commercial or special interests that dominate in the industry or sector it is charged with regulating. Regulatory capture is an explicit manifestation of government failure in that it not only encourages, but actively promotes the activities of large firms that produce negative externalities. For public choice theorists, regulatory capture occurs because groups or individuals with a high-stakes interest in the outcome of policy or regulatory decisions can be expected to focus their resources and energies in attempting to gain the policy outcomes they prefer, while members of the public, each with only a tiny individual stake in the outcome, will ignore it altogether. Regulatory capture is when this imbalance of focused resources devoted to a particular policy outcome is successful at "capturing" influence with the staff or commission members of the regulatory agency, so that the preferred policy outcomes of the special interest are implemented. The risk of regulatory capture suggests that regulatory agencies should be protected from outside influence as much as possible, or else not created at all. A captured regulatory agency that serves the interests of its invested patrons with the power of the government behind it is often worse than no regulation whatsoever.

About a year and a half ago, after sounding the alarm on the regionals, I placed strategic bearish positions in the sector which paid off extremely well. The only problem is, it really shouldn't have. Why? Because the problems of these banks were visible a mile away. I started warning friends and family as far back as 2004, I announced it on my blog in 2007, and I even offered a free report in early 2008.

Well, here comes another warning. One of the Doo Doo 32 looks to be ready to collapse some time soon. Most investors and pundits won't realize it because a) they don't read BoomBustblog, and b) due to regulatory capture, the bank has been given the OK by its regulators to hide the fact that it is getting its insides gutted out by CDOs and losses on loans and loan derivative products. Alas, I am getting ahead of myself. Let's take a quick glance at regulatory capture, graphically encapsulated, then move on to look at the recipients of the Doo Doo Award as they stand now...

A picture is worth a thousand words...