Using Veritas to Construct the "Per…

29-04-2017 Hits:94678 BoomBustBlog Reggie Middleton

Using Veritas to Construct the "Perfect" Digital Investment Portfolio" & How to Value "Hard to Value" tokens, Pt 1

The golden grail of investing is to find that investable asset that provides the greatest reward with the least risk. Alas, despite how commonsensical that precept seems to be, many...

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The Veritas 2017 Token Offering Summary …

15-04-2017 Hits:85563 BoomBustBlog Reggie Middleton

The Veritas 2017 Token Offering Summary Available For Download and Sharing

The Veritas Offering Summary is now available for download, which packs all the information about Veritas in a single page. A step by step guide to purchasing Veritas can be downloaded here.

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What Happens When the Fund Fee Fight Hit…

10-04-2017 Hits:85940 BoomBustBlog Reggie Middleton

What Happens When the Fund Fee Fight Hits the Blockchain

A hedge fund recently made news by securitizing its LP units as Ethereum-based tokens and selling them as tradeable (thereby liquid) assets. This brings technology to the VC industry that...

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Veritaseum: The ICO That's Ushering in t…

07-04-2017 Hits:90041 BoomBustBlog Reggie Middleton

Veritaseum: The ICO That's Ushering in the Era of P2P Capital Markets

Veritaseum is in the process of building peer-to-peer capital markets that enable financial and value market participants to deal directly with each other on a counterparty risk-free basis in lieu...

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This Is Ground Zero for the 2017 Veritas…

03-04-2017 Hits:88472 BoomBustBlog Reggie Middleton

This Is Ground Zero for the 2017 Veritas Offering. Are You Ready to Get Your Key to the P2P Capital Markets?

This is the link to the Veritas Crowdsale landing page. Here is where you will be able to buy the Veritas ICO when it is launched in mid-April. Below, please...

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What is the Value Proposition For Verita…

01-04-2017 Hits:88209 BoomBustBlog Reggie Middleton

What is the Value Proposition For Veritas, Veritaseum's Software Token?

 A YouTube commenter asked a very good question that we will like to take some time to answer. The question was, verbatim: I've watched your video and gone through the slides. The exchange...

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This Real Estate Bubble, Like Some Relat…

28-03-2017 Hits:59349 BoomBustBlog Reggie Middleton

This Real Estate Bubble, Like Some Relationships, Is Complicated...

CNBC reports US home prices rise 5.9 percent to 31-month high in January according to S&P CoreLogic Case-Shiller. This puts the 20 city index close to an all time high, including...

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Bloomberg Chimes In With My Warnings As …

28-03-2017 Hits:87811 BoomBustBlog Reggie Middleton

Bloomberg Chimes In With My Warnings As Landlords Offer First Time Ever Concessions to Retail Renters

Over the last quarter I've been warning about the significant weakness in retailers and the retail real estate that most occupy (links supplied below). Now, Bloomberg reports: Manhattan Landlords Are Offering...

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Our Apple Analysis This Week - This Comp…

27-03-2017 Hits:87351 BoomBustBlog Reggie Middleton

Our Apple Analysis This Week - This Company Is Not What Most Think It IS

We will releasing our Apple forensic analysis and valuation this week for subscribers (click here to subscribe - lowest tier is the same as a Netflix subscription). As can be...

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The Country's First Newly Elected Lame D…

27-03-2017 Hits:87699 BoomBustBlog Reggie Middleton

The Country's First Newly Elected Lame Duck President Will Cause Massive Reversal Of Speculative Gains

Note: Subscribers should reference  the paywall material here for stocks that should give a good risk/reward scenario for bearish trades. The Trump administration's legislative outlook is effectively a political desert, with...

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Sears Finally Throws In The Towel Exactl…

22-03-2017 Hits:94116 BoomBustBlog Reggie Middleton

Sears Finally Throws In The Towel Exactly When I Predicted "has ‘substantial doubt’ about its future"

My prediction of Sears collapsing once interest rates started ticking upwards was absolutely on point.

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The Transformation of Television in Amer…

21-03-2017 Hits:91395 BoomBustBlog Reggie Middleton

The Transformation of Television in America and Worldwide

TV has changed more in the past 10 years than it has since it's inception nearly 100 years ago This change is profound, and the primary benefactors look and act...

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I have decided to share a portion of my interest in the consumer finance sector with the blog. I put a team together to focus on this sector before moving on to develop the next leg of my investment thesis. We have shortlisted 8 companies in the US consumer lending sector for further fundamental analysis.  We will be looking more closely at these companies and reviewing their financial statements and foot notes. I'll share the procedure and two of the finalists (sounds like a beauty pageant, doesn't it?) as well as one that was booted from the list.  


We selected these companies based on the following procedure:

From our initial list of 825 companies globally, we selected 525 companies by excluding 290 companies for which price information was not available and were having market cap of less than 2.5 mn.  Of the remaining 525 companies, we selected 146 companies based on relevance of business in the following line of business - Credit cards consumer installment, credits loan guarantees, secured/unsecured consumer lending, real estate lending, consumer lending and financing, capital funding service, outsourced receivables management, pawn brokering services, financial guarantee insurance.

Of the remaining 146 companies we excluded 26 companies which had witnessed price decline of more than 65% over the past one year.  We obtained 34 US companies (in the remaining list of 120 companies), of which 6 were excluded with market cap of less than $10 mn.


The following are 3 out of the 8 companies that were shortlisted from the list of 28 US companies for further scrutiny:


American express (AXP) :

·         AXP with adjusted P/B of 6.47x trades higher than most of its peers.

·         The company’s net charge-off’s to loans in 2007 was 4.0% while its total allowances to loans was 3.4% suggesting that the company might have inadequate provisioning

·         AXP’s total debt to common stood at 662.3% at the end of 2007 while its leverage at 13.6x is considerably high when compared to its peer group.


Capital One (COF) :

·         COF’s five year EPS growth (geometric) is at a negative of 0.3% reflecting the company’s dismal performance.

·         COF’s return on equity and return on assets at 6.3% and 1.0% , respectively for 2007 is significantly lower than its peer group.

·         30 day+ delinquency rates for credit card segment increased to 4% in 1Q2008 from 3% in 1Q2007 while charge-offs for US credit card segment had increased to 5.85% from 3.72% in the comparable period.


SLM Corporation (SLM) :

·         SLM’s 5 year geometric EPS and NIM growth of -6.1% and 2.2% is quite low when compared to its peer group.

·         SLM has very thin NIM margin of 1.3%.

·         The company is highly leveraged with leverage ratio of 29.7x and total debt to capital at 4,019% (sourced from Bloomberg)

·         SLM’s total reserves at 0.8% of total loans could be inadequate to cover for future charge-offs.

·         Although the stock has declined nearly 63% over the past one year its still trading at $19.4 . A further probe revealed that there was not enough meat left on the bone for significant downside potential from the current levels.


The next step was to whittle down the 8 companies chosen to a manageable chunk... 


Among the 8 companies shortlisted for further scrutiny, we have looked at the first 7 and have shortlisted 3 companies based on the following observations (I'm only publsihing two for now).


Capital One:

·    Note: Capital One was on my radar last year and earlier this year as having the highest default rate among its peers, but I decided to move on to other targets on both occasions. Despite the price drop and a more stringent screening process, it shows up in the scan once again. Capital One’s loan portfolio comprising credit card business, auto finance business and international business is facing problems as reflected by higher delinquency rates (30+ days) in its US credit card business, auto finance business and international business at 4.04%, 6.42% and 5.12%, respectively in 1Q2008, up from 3.06%, 4.64% and 4.78%, respectively in 1Q2007.

·         Its net charge offs increased 78% to $767 mn in 1Q2008. Also, its allowances for loan losses increased 44% to $3.3 bn.

·         Despite increase in delinquency and charge-offs, the company’s provisioning for loan losses seems inadequate. In 1Q2008 COF’s provision to loans were 1.10% while chare-offs to loans stood at 3.07%. Its provision to losses was consistently below its charge-off rate in the previous four quarters

·         Its net interest income growth (q-on-q) slowed down drastically to 2.8% in 1Q2008 from 5.6% and 8.5% in 3Q2007 and 4Q2007, respectively.

·         Non interest income growth (q-on-q) was negative 4.7% in 1Q2008 compared to 11.1%, 9.0% and 0.4% in 2Q2007, 3Q007 and 4Q2007, respectively.

·         Its adjusted leverage also increased from 11.7x in 1Q2007 to 13.4x in 1Q2008


American Express (AXP)

·         AXP’s ‘reserves as % of consumer receivables’ at 3.6% in 1Q2008 as against ‘loans 90 days past as % of loans’ at 4.4% reflect that the company has inadequate allowances for bad loans.

·         AXP’s write-offs for consumer receivable loans have increased to 0.78% of loans from 0.62% in 1Q2007 while write-offs for Card member loans have increased to 0.74% in 1Q2008 from 0.55% in 1Q2007.

·         Despite increase in charge offs and inadequate provisioning, AXP’s adjusted P/B of 6.47x seems significantly higher than its peers

·         Leverage has increased from 11.7x in 1Q2007 to 14.6x in 1Q2008.


SLM corporation has also witnessed similar trend in its provision for loan losses and write offs but the stock has already witnessed around 65% decline in its price over the last 12 months. Therefore, the same has been excluded from our list of 3 shortlisted banks.

Of the above companies, AXP and Capital One appear more venerable based on initial analysis.


Market metrics




 Consumer Fin

 Consumer Fin

Line of business

 Credit card & consumer lending

 Travel related


 Consumer Fin

 Consumer Fin

 Business descrption

Capital One Financial Corporation provides a variety of products and services to consumers through its subsidiaries. The Company through Capital One Bank offers credit card products. Capital One F.S.B. provides certain consumer lending and deposit services. Capital One Services Inc. provides operating administration and other services to the Corporation. Obvious credit risk abounds.

American Express Company through its subsidiaries provides travel-related financial advisory and international banking services around the world. The Company's products include the American Express Card the Optima Card and American Express Travelers Cheque. Exposed to credit risk and the coming consumer entrenchment and global slowdown – effected by higher fuel prices that hamper travel and lower real wages that hamper spending the proclivity to pay back loans.




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