As continuation on my recent posts, today's news about TPG planning to invest about $5B in WaMU (WM) and possible KKR investment in National City (NCC) seems to concur that smart money has started moving into financial/banking stocks. This could be start of bottoming out process. I think it's still time to get onto this gravy train and make upto 30-40% in 12-18 months. Of course there are risks to this approach since when Q1 results start coming out, it is possible that write downs could make these stocks go down once more. However as long as one believes that these companies are not going BK, they would survive and return decent returns. My recommendations are NCC at $9 and WM at $11-12.
Looks like recent trends in PE world is changing - now that many PE deals are falling apart (Clear Channel, Sallie Mae) and these PE firms still having lot of money to put to work, they have started investing in distressed assets like beaten down stocks. But then one can do on their own or just buy ETFs like UYG (ULTRA FINANCIALS PRO). Why should investors pay 2% mgmt and 20% carry to these PE firms when they are basically investing in publicly available stocks.
Finally Yahoo-Microsoft saga is building momentum. As part of my M&A course at Haas MBA, we did a project on Yahoo takeover and predicted some of events which are playing out this weekend. Here is my guess about events and final price:
My recommendations in last post (UUPIX, FIDSX, BKPIX, VGSIX) are up from 10-20% since then. They still have more upside left for rest of year.
Good luck and good night
/Shyam
Disclaimer: I have positions in many of the recommendations mentioned in this post
Looks like recent trends in PE world is changing - now that many PE deals are falling apart (Clear Channel, Sallie Mae) and these PE firms still having lot of money to put to work, they have started investing in distressed assets like beaten down stocks. But then one can do on their own or just buy ETFs like UYG (ULTRA FINANCIALS PRO). Why should investors pay 2% mgmt and 20% carry to these PE firms when they are basically investing in publicly available stocks.
Finally Yahoo-Microsoft saga is building momentum. As part of my M&A course at Haas MBA, we did a project on Yahoo takeover and predicted some of events which are playing out this weekend. Here is my guess about events and final price:
- Yahoo to declare OK results for Q1CY08. Stock stays range-bound between $27-29
- As Microsoft deadline of Apr 26 approaches, Yahoo stock starts drifting down to $25 putting pressure on Yahoo board.
- Finally Yahoo board agrees to start some negotiations with Microsoft and both agrees to a buyout price of about $33
- If Yahoo board does not come to negotiating table by Apr 26, Microsoft starts a tender offer for Yahoo shares at $31 and starts a proxy battle (Microsoft wants to avoid this to make post-merger integration easier)
My recommendations in last post (UUPIX, FIDSX, BKPIX, VGSIX) are up from 10-20% since then. They still have more upside left for rest of year.
Good luck and good night
/Shyam
Disclaimer: I have positions in many of the recommendations mentioned in this post
Comments
http://tickervideo.org/videos/housing-in-crisis.wmv
you also must understand the relationship between the likelyhood of a mortgage to be repaid and home prices. We have only begun to burst this bubble
you also need to go back and look at banking stocks historically. Check out C's pps in 90-91 and see that without bubble growth banks will never achieve the type of returns they did in 2000-2006
also you should be aware that NCC has been trying to sell itself for a long while and is in no posion of leverage
furthermore to give you a head up WM is exiting all wholesale lending
expect an announcement within days
you include zero analysis of ncc's nor wm's laon portfolio
remember BSC didn't go BK nor did TMA but the common equity holders got squicked pretty hard
if you would like a detailed analysis of both loan portfolios plese leave a comment as such... i will respond but to recommend a levereged financial fund right now is risky as well if one intends to hold for a year or more... all of the rallies we have seen in financials are low volume short squeezes... look how that rally today fizzled quick. Also these rallies are not true rallies, since when is staring down the barrel of 25% dilution or 30% dilution (ubs) a good thing for shareholders. Certainly not any companies i would want to own.
Also you forgot to mention that this WM's second capital raising in 5 months...see Dec. offering
all ipmortant facts
(Recasts; adds analyst's comments, background, share movement)
April 7 (Reuters) - During the next two to three years, U.S. bank failures will likely increase dramatically from the low levels recorded from 2004 to 2007, as credit problems mount for the industry, a RBC Capital Markets analyst said.
"We anticipate upwards to 150 banks will fail over the next two years. Banks that deplete their capital through rising credit losses are most vulnerable to failure," Gerard Cassidy said.
He said credit problems at U.S. banks are expected to worsen throughout the year from existing levels and are unlikely to peak until sometime next year, also noting that widespread housing deflation will put further pressure on the economy.
"As we move deeper into 2008, we expect to see economic growth grind to a halt with recessionary pressures mounting as the year progresses," Cassidy said, recommending investors "underweight" the bank sector.
Recent aggressive actions taken by the Federal Reserve provide some relief to illiquid credit markets, but do not directly address deteriorating commercial real estate and construction and development credit quality trends, Cassidy said.
He expects an uncertain political environment in a presidential election year, continued deteriorating market fundamentals in the residential market and higher unemployment to force credit costs higher for the U.S. banking industry.
He said any potential recessionary period will only weaken credit quality at commercial banks from current levels, likening current trends to the 1990-91 recession.
In the 1990 downturn for banks, delinquent loans were rampant and reached levels that led to massive bank failures all over the country, he noted.
"In the current downturn we have not even scratched the surface of losses and in many loan categories, we anticipate that additional losses are forthcoming," he said.
"We strongly believe that credit will worsen from present levels spreading from home mortgages into home equity, credit cards, auto, commercial real estate, construction and leveraged loans this year," he wrote in a note to clients.
BANK VALUATIONS TOO HIGH
The analyst also said banks' stock valuations were still expensive, saying that the forward 12-month price-to-earnings ratio for the top 50 banks stand at 13.2 times versus a 25-year average of 10.9 times.
"We believe it remains too early for long-term investors to step in and buy given that bank valuations are still too high relative to our expectations for significant credit deterioration that we foresee extending throughout 2008," Cassidy said.
The Standard & Poor's Financial Sector Index has lost about 30 percent of its value since it hit an all-time high in May last year. The index was up 6.05 points to 359.66 on Monday in afternoon trade. (Reporting by Tenzin Pema in Bangalore; Editing by Bernard Orr)
GODAMN MONGOLIAN
TRY TO TAKE DOWN MY SHITTTYY BANK
too bad... i coulda kicked you some good info...
seems as if the hens have come home to roost and the short bus is ready to roll
remember that we were/are looking at a 6-8 sigma event in home prices in many geographical areas(when compared to real wages)...the market has had a fat tail long enough (the market was irrational in the 2000's)... now it is simply reverting to the mean...
they were saying that about C when the arab folks bought some convertible bonds (what was C prices back then) CNBC was calling the bottom then, and then with the CFC/BAC merger, then with the BSC bailout and uptick of the bid
how quickly everyone forgets that people are people and they make mistakes no matter how much cheese they have
alas my friend why try to call a bottom in financials. they are a broken industry with broken business models... look at a 20-30 year chart of BAC WFC or any big bank... all of their growth was fueled by the housing bubble... the moves in their share price correlate very nicely with the moves in home prices
why not just wait 5years and then buy them when the cycle kicks up again
has the UC system really gone that far downhill that a lowley CSU- accounting student(and not even a grad student mind you) can school you in facts and speak in terms such as sigmas etc, seems to me that you have taken boesky's speech a bit too much to heart...Aye but Milken did go to cal and he was the one that always always paid attention to the fundamentals... I have heard stories of the mountains of corporate reports and financials he used to pour over. Balance sheets and income statements can be fudged (as some of these banks did---hint hint WB) but the cash flow will always catch up to them eventually---no secret that that was Milken's favorite financial measuring stick(of course he was really a debt guy and didn't mess with equities until he got greedy etc...)
COF is still a relatively juicy short as unsecured consumer debt can't be worth crap if people are getting forclosed one
I wonder how much those pigs were stuck with once the capital markets froze up... fasb 157 has to be their freakin worst nightmare, even if they are getting 12-19% on what assets they have that are still performing... I wonder if they will do the Level III shuffle ala LEH and GS
im sure if they were gonna keep it on their books they would have had much stricter underwritting procedures
check out this link and see if it reminds you of another company that starts with a Cfc
http://www.secform4.com/insider-trading/927628.htm
oh and watch that housing video
i will compile my WM & NCC highlight list of their data but you can do the same by reading their 10k's and 10q's
from todays WSJ--- the article that goes with it is a nice read as well
http://s.wsj.net/public/resources/images/MI-AP881_ABREAS_20080413201212.gif
http://www.tickerforum.org/cgi-ticker/akcs-www?getimagenr=4456
ps im running out of silly names to use