Using Veritas to Construct the "Per…

29-04-2017 Hits:84640 BoomBustBlog Reggie Middleton

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

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The Veritas 2017 Token Offering Summary …

15-04-2017 Hits:79104 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:78949 BoomBustBlog Reggie Middleton

What Happens When the Fund Fee Fight Hits the Blockchain

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Veritaseum: The ICO That's Ushering in t…

07-04-2017 Hits:83437 BoomBustBlog Reggie Middleton

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This Is Ground Zero for the 2017 Veritas…

03-04-2017 Hits:80001 BoomBustBlog Reggie Middleton

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

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01-04-2017 Hits:82308 BoomBustBlog Reggie Middleton

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

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This Real Estate Bubble, Like Some Relat…

28-03-2017 Hits:53284 BoomBustBlog Reggie Middleton

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

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Bloomberg Chimes In With My Warnings As …

28-03-2017 Hits:81315 BoomBustBlog Reggie Middleton

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

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Our Apple Analysis This Week - This Comp…

27-03-2017 Hits:81315 BoomBustBlog Reggie Middleton

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

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27-03-2017 Hits:81125 BoomBustBlog Reggie Middleton

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

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22-03-2017 Hits:86979 BoomBustBlog Reggie Middleton

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

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The Transformation of Television in Amer…

21-03-2017 Hits:84994 BoomBustBlog Reggie Middleton

The Transformation of Television in America and Worldwide

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This is a public illustration of the financial shenanigans being played by banks in an attempt to boost the perception or real earnings that aren't, at least in the eyes of those that don't know any better. I wondered how banks can earn their way out of a hole, without real earnings! Subscribers can access the appropriate report in the download section and follow along (I released the update a day or two ago in the subscription section). Remember the government is effectively giving banks welfare in the form of free money by effectively dropping interest rates to zero (ZIRP). If subscribers want to discuss this bank's particulars in detail, please use the private forums in user menu. Visitors and non-subscribers should feel free to comment below. As you read through this, keep in mind that many members of the Doo Doo 32 are approaching the levels they were at when I originally warned in Spring of 2008, despite the fact that credit metrics are much, much worse.

 

 

The lay of the land, "As Reported"

In 1Q09 this "Tricky Dicky bank's" revenues increased 1.8% off a 10.6% increase in noninterest income (mortgage banking and transaction based) partially offset by a 3.7% decline in net interest income (due to the fed's ZIRP - zero interest rate policy). Net interest income declined 3.7% q-o-q off an 11.0% decrease in interest income partially offset by 26.1% decrease in interest expense (again, all due to ZIRP). Interest income declined 11.0% compared in 4Q08 owing to a 70 basis point decrease in yield on average earning assets to 4.6% (ZIRP again). Interest expense declined 26.1% as compared to 4Q08 off a 55 basis points decrease in cost on interest-bearing liabilities to 1.5% (more ZIRP). Non-interest revenues increased to $122 mn from $110 mn in 4Q08 primarily off higher mortgage banking revenue ($18 mn versus $6 mn in previous quarter) as government initiatives to lower interest rates pushed up the mortgage refinancing volumes. Net interest margin declined to 3.4% in 1Q09 from 3.6% in 4Q08 while net interest spread declined to 3.2% from 3.3% in 4Q08 due to a steeper decline in yield on interest earning assets than the cost on interest-bearing liabilities (this my friends bodes ill for banks, for even with Federal life support, NIM (ex. Profit margins on interest related businesses) are still shrinking. This also calls into doubt whether the small and medium regional banks really have any chance at all of every earning their way out of their balance sheet induced dilemmas. Notice how you fail to hear this on CNBC, et. al. What's more, as one of my astute readers and subscribers has mentioned, the Fed is currently playing a game of chicken with the largest and most powerful capital market in the world - the bond market. It is spending trillions of dollars to pump life into zombie banks during a global recession, and at the same time is trying to artificially suppress rates by buying treasuries and has indicated it will do more if necessary in order reduce rates. If the bond markets call the Fed's bluff and move rates higher, what happens to the consumer and commercial credit card, credit line, adjustable mortgage rate, holders as well as the potential home buyers undergoing more stringent underwriting guidelines? Even more, what happens to the banks that rely on ZIRP welfare in an attempt to climb out of the hole that they have dug themselves into? The US has stated that they will not allow any of the big 19 banks to fail, but if the bond market moves against the Fed, where will the Fed get the capital to battle both the global bond market and support banks who have about $600 billion dollar hole (at least). Here is a clip from Bloomberg:

U.S. stocks also fell after the jump in yields in today's Treasury 30-year bond auction raised concern about the Federal Reserve's attempt to lower borrowing costs.

Treasuries tumbled as the auction drew a yield of 4.288 percent, higher than the 4.192 percent average forecast in a Bloomberg News survey of seven primary dealers. Demand was below average, judging by total bids. The 10-year note yield increased 12 basis points to 3.31 percent, the most in a day since gaining 15 basis points on March 10. The 30-year yield climbed as high as 4.3036 percent, the most since Nov. 14.

"We have an overleveraged economy where higher rates are like kryptonite," said Peter Boockvar, an equity strategist at Miller Tabak & Co. in New York. "It just gets more expensive to finance anything. It puts a squeeze on consumer spending and it obviously puts pressure on corporate earnings."

Consumer credit in the U.S. contracted by a record in March after the jobless rate reached its highest level in a quarter century and banks made it harder to get loans in an effort to buttress their balance sheets.

Let the Tricky Dick Games Begin...

In 1Q09 Tricky Dicky Bank's annualized provision for loan losses declined to 1.43% from 2.27% in. The decision to decrease provision was counterintuitive given the fact that Tricky Dick's non-performing assets increased 21% in 1Q09 (3.28% of total loans) from 4Q08 (2.66% of total loans) and also the fact that the bank currently has a negative loan loss cushion of nearly $200 million as of March 31, 2009 against nearly half billion dollars of total NPA's (allowances to NPA's were at 66% as of March 31, 2009).  Overall, revenues net of provisions increased 15% from 4Q08. Again, this is counterintuitive and portends a very significant spike in loss provisions if credit metrics continue to deteriorate at their current pace.

TRICKY DICK undertook early adoption of FASB provisions relating to recognition of other-than-temporary impairments under FAS 115-2 and FAS 124-2 (of course, because now we can outright lie and get away with it). As a result the bank was able to transfer almost $40 mn other-than-temporary impairment loss directly to shareholders' equity without affecting its net income. In 1Q09 TRICKY DICK witnessed other-than-temporary impairment (OTI) loss of nearly $55 mn of which only about a third was recorded through income statement (resulting in inflated profits) and the balance recorded directly into shareholders' equity. 

The Anatomy of a Financial Shenanigan!

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TRICKY DICK Financial's reported total operating revenues (including fees and mark-to- market adjustments) increased 2.2% to $125 mn from $122 mn in 4Q08.  However after adjusting for OTI recorded in comprehensive income total operating revenues would have decreased 30% to $86 mn.

TRICKY DICK Financial's operating expenses increased 3.3% to $149 mn primarily off 5.6% increase in compensation expenses (which seems to be much more common in the financial space despite the publicized backlash against excess compensation in the financial sector). Compensation expenses-to-revenues increased to 32% from 31% in 4Q08 while ratio of non compensation expenses-to-revenues declined to 19% from 20% previously. Overall the banks efficiency ratio increased (operating expenses to revenues) to 51% from 50% in 4Q08. However total operating expense including other expenses declined 11% to $166 mn from $185 mn in 4Q08 as operating expenses of 4Q08 included a negative fair value of mortgage servicing rights of $26 mn.

Overall TRICKY DICK Financial's reported net income increased to $55 mn in 1Q09 from $40 mn in 4Q08. Adjusting for $39 mn OTI recorded in shareholders' equity the net income would have declined 48% to $16 mn. Further the bank would have reported a net loss had it made adequate provisioning (like it should have) and not adopted early FAS provisions relating to recognition of other-than-temporary impairments.  Had TRICKY DICK Financial maintained provision similar to 4Q2008 levels and not early adopted FAS 115-2 and FAS 124-2 the bank would have reported a net loss of $12 mn in 1Q09. Now for those of you who invest in stocks, rather than companies (this is a corporate analysis, not stock analysis, site), be aware that these tricks will truly make the price of Tricky Dick's stock go up, and it is has gone up a lot. It has almost doubled since the March lows. The problem is that there is a reason why we (used to, at least) have accounting standards. This behavior does more than fool investors and regulators. It weakens the company, and weakens it significantly. Renaming losses does not make them any less a loss. Ignoring facts does not make them go away. As a reader posted recently in the comment section, "How legs does a dog have if you call its tail a leg?" The answer should be obvious to astute investors. So, here we are, in one of those dot.com bubble moments, where truth appears self-evident, but the manipulated market (or at least manipulated information disseminated through the markets) causes the market to apparently remain irrational than the average investor can remain solvent.  Well, rest assured, as sure as 1=1=2, and conversely, 1-2=-1, there must come a day of reckoning. See Trick Dick's chart below...

TRICKY DICK's stated accounting shareholders' equity increased 4.6% primarily off a near $90 mn unrealized gains on securities (net of tax) due to narrowing of credit spreads (no cash here) and over $39 mn addition to retained earnings (net of dividends). Resultantly, book value per share increased to roughly $29 from just under $28 in 4Q08 while tangible book value per share increased $1.3 mn.

Credit metrics

TRICKY DICK's nonperforming assets increased 21% with nonperforming assets to total loans of 3.28%.  Commercial real estate loan portfolio deteriorated sharply with NPA-to-loans rising to 6.42% due to sharp increase in nonperforming loans for construction and land development loans which were up 31% to $100 mn, or 11.3% of total construction and land development loans in1Q09. That is an awful lot, considering the narrow margins on these loans to begin with, and taking into consideration the leverage employed to make the loans. NPA to tangible equity increased to 26.4% in 1Q09 from 23% in 4Q08. Texas ratio for the bank increased to 22.7% from 19.9% in 4Q08 while Eyles Test of the bank increased to 15.7% from 13.6% in 4Q08 signaling further deterioration of banks credit metrics.

Next, I will walk everybody through exactly how the government overtly and explicitly lied you. I will provide written proof which I absolutely dare you to distribute. After that, we will walk through the most capital dense real estate market in the country, NYC - complete with stats and pics.