Using Veritas to Construct the "Per…

29-04-2017 Hits:87201 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...

Read more

The Veritas 2017 Token Offering Summary …

15-04-2017 Hits:81120 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.

Read more

What Happens When the Fund Fee Fight Hit…

10-04-2017 Hits:80962 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...

Read more

Veritaseum: The ICO That's Ushering in t…

07-04-2017 Hits:85433 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...

Read more

This Is Ground Zero for the 2017 Veritas…

03-04-2017 Hits:81934 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...

Read more

What is the Value Proposition For Verita…

01-04-2017 Hits:84121 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...

Read more

This Real Estate Bubble, Like Some Relat…

28-03-2017 Hits:55182 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...

Read more

Bloomberg Chimes In With My Warnings As …

28-03-2017 Hits:83379 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...

Read more

Our Apple Analysis This Week - This Comp…

27-03-2017 Hits:83118 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...

Read more

The Country's First Newly Elected Lame D…

27-03-2017 Hits:83011 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...

Read more

Sears Finally Throws In The Towel Exactl…

22-03-2017 Hits:89263 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.

Read more

The Transformation of Television in Amer…

21-03-2017 Hits:86983 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...

Read more

  I am going to release the draft of the Sun Trust analysis in pdf form for registered users. It hasn't been reviewed, but since STI is moving so fast, and I am short on time I decided to offer it to the blog early. I started my position in the mid fifties, and it has dropped precipitously, just like nearly the entire Doo Doo 32 list. One of the things that took my time was the BoomBustBlog Boat ride up the Hudson to the Pallisades. Sorry I was so late fellas, lots of fog and safety first (and I'm always lateCool). Below is Cap'n Vic, who takes the credit for shepherding us safely through the condo ridden waters of NYC's Hudson River.


I was able to show the BoomBustBloggers, most of which flew in from out of the country and out of state for the financial brainstorming and chit chat, how the myth of NYC's immunity to a real estate downturn was just that, a myth - or at least that was what was communciated by the big blogger himself. See "On the NYC Real Estate Front" then look at the West Side Highway which is the street that leads up to where we met to board the boat.

Cranes in the background building more condos...


  And here we have even more condos...


Oh no! What do we have here, more condos!!!


Look closely, can you see what banks are financing these???

These are all within viewing distance of the docks, and there are many, many, many more. Guess what we will have an oversupply of in the bulletproof home of the world's financial center that is laying off tens of thousands of financial execs and back office support. Go ahead, I bet you can't guess. Its expensive, the most expensive in the country, and there is more of it than jobs to go around to pay for it, and it takes gobs and gobs of bank money to build. Go ahead, guess...

And here are some of those handsome, debonair BoomBustBloggers who didn't even know that their BoomBustBlog researched accounts were being heavily fortified by the market facing reality via 30 point plus drop in the broad market and the psychological significant but empirically irrelavent near 400 point drop in the Dow - as they cruised up the Hudson... Even the shy ones...


 We discussed politics, Obama vs McCain (you know what that brought about), peak oil, pharma and biotech, true and effective housing price inflation vs nominal, options and strategies, banking and finance, builders, gentrification and hard work. All in all, an enjoyable and fruitful day, fellas. I will be scheduling another trip for approximately this time next month.

The Asset Securitization Crisis Analysis road-map to date:

  1. Intro: The great housing bull run - creation of asset bubble, Declining lending standards, lax underwriting activities increased the bubble - A comparison with the same during the S&L crisis
  2. Securitization - dissimilarity between the S&L and the Subprime Mortgage crises, The bursting of housing bubble - declining home prices and rising foreclosure
  3. Counterparty risk analyses - counter-party failure will open up another Pandora's box (must read for anyone who is not a CDS specialist)
  4. The consumer finance sector risk is woefully unrecognized, and the US Federal reserve to the rescue 
  5. Municipal bond market and the securitization crisis - part I
  6. Municipal bond market and the securitization crisis - part 2 (should be read by whoever is not a muni expert - this newsbyte may be worth reading as well)
  7. An overview of my personal Regional Bank short prospects Part I: PNC Bank - risky loans skating on razor thin capital, PNC addendum Posts One and Two
  8. Reggie Middleton says don't believe Paulson: S&L crisis 2.0, bank failure redux
  9. More on the banking backdrop, we've never had so many loans!
  10. As I see it, these 32 banks and thrifts are in deep doo-doo!
  11. A little more on HELOCs, 2nd lien loans and rose colored glasses
  12. Will Countywide cause the next shoe to drop?
  13. Capital, Leverage and Loss in the Banking System
  14. Doo-Doo bank drill down, part 1 - Wells Fargo
  15. Doo-Doo Bank 32 drill down: Part 2 - Popular
  16. Doo-Doo Bank 32 drill down: Part 3 - SunTrust Bank
  17. The Anatomy of a Sick Bank!
  18. Doo Doo Bank 32 Drill Down 1.5: Wells Fargo Bank
  19. GE: The Uber Bank???

Here is the full Sun Trust Forensic Analysis (17 pages) icon Sun Trust Bank Report (391.89 kB 2008-06-27 08:09:31), and the following is an excerpt:


Banks continue to reel amid rising loan delinquencies and foreclosures in the US, which reached record levels in the first three months of 2008, and difficult operating environment. Housing sector woes are not showing any signs of abating and witnessed the steepest ever price decline of 15.3% y-o-y in April 2008. Unemployment levels, which increased the highest in last 22 years, soaring commodity and energy prices, and high inflationary conditions have dampened consumer confidence and caused serious slow-down in economic activities. The problem in the housing sector has spilled over to other sectors and credit spreads continue to widen off risk aversion caused by inflationary conditions and fear of US recession.


SunTrust Bank (SunTrust), having almost 60% of its loan portfolio in real estate, with large concentrations in troubled geographies like Florida and Georgia, has witnessed a significant increase in loan losses and charge-offs in the recent quarters. The problem is expected to hurt the bank the most among its peer group as SunTrust is plagued with one of the lowest capital ratios and continues to maintain a higher dividend pay-out ratio than most of its peers. Amid continuing expectations of higher loan losses and mark-to-market losses off widening of credit spreads in the coming quarters, we expect bank to raise funds in the near-to-medium, which might result in dilution of its equity, and to sell its investment in Coca-Cola. Further, we expect the bank to witness compressed net interest margin (NIM) in 2008 and 2009 over the 2007 levels off expectations of interest rate increases by Fed towards the second half of 2008. These combined with slow-down in non-interest income, higher charge-offs and mark-to-market losses will drag SunTrust's valuation to $28.5 per share from the present level of $37.40 (as of June 24, 2008), in our view.


    II.        Key points

Razor-thin capital ratios:  At the end of 1Q2008, SunTrust had one of the lowest regulatory ratios in the industry, with tier 1 capital ratio and total capital ratio of 7.25% and 11.0%, respectively. With an increase in charge-offs caused by higher loan delinquencies due to declining housing prices, the current capital ratio doesn't seem to provide adequate cushion for the bank to sustain losses. As the bank embarks on measures to raise additional capital, dilutive effect could drag its valuation to lower levels.


Exposure to troubled sectors:  SunTrust has nearly 60% of its loan portfolio in the real estate sector which is being plagued by rising delinquencies amidst falling housing prices. Charge-off on real estate loans witnessed a remarkable surge to 1.25% in 1Q2008 from 0.18% in 1Q2007 and 0.07% in 1Q2006. As housing problems are expected to continue to persist in the near-to-medium term, we expect charge-offs to continue to rise and peak-off in 2Q2009. As a result we expect the bank's earnings to remain under considerable pressure.


Higher provisions to put a strain on banks earnings: As a result of rising NPAs and charge-offs, SunTrust has increased its provisions to cover its expected loan losses nearly 10 times to $560 mn in 1Q2008 from $56 mn in 1Q2007.

SunTrust's rising provisions are eroding its earnings. In 1Q2008 SunTrust's net interest income (after provision for loan losses) declined 47.7% y-o-y to $0.58 bn primarily due to an increase in provisions. However, despite higher provisions in the recent quarters, total allowances at 1.25% of the total loans as against 1.88% of NPAs seem inadequate. We expect SunTrust's provision for losses to increase in the coming quarters due to increased charge-offs on home equity, and residential and construction loans.


Growing proportion of NPAs a cause of concern: SunTrust's NPAs increased to $2.3 bn (or 12.6% of shareholder's equity) at the end of 1Q2008 from $0.75 bn (or 4.2% of shareholder's equity) at the end of 1Q2007, with residential mortgages NPAs witnessing the steepest rise to $1.3 bn from $0.4 bn. However, despite a rise in NPAs, reserves-to-NPAs declined to 0.67x from 1.39x in 1Q2007 implying that the bank has not been able to create adequate provisions to the corresponding rise in NPAs. 


Contracting net interest income margins: As Fed responds to rising inflation through rate hikes, banks' NIMs are expected to contract from the present levels. SunTrust's NIM had declined to 2.83% in 1Q2008 from 2.97% in 1Q2007. In addition to margin contraction, lower growth of high yielding riskier assets compared to deposit growth would be a double whammy on the bank's net interest income. SunTrust's net interest income declined 2.1% to $1.1 bn in 1Q2008.  We expect the bank's net interest income to continue to decline 2.0% and 0.1% in 2008 and 2009, respectively.


Higher mark-to-market write-downs to continue to be a drag on the bank's earnings: SunTrust's hard to value level 3 assets, which are the most illiquid securities, grew 495% over 1Q2007 to $4.5 bn at the end of 1Q2008 partly off purchases of level 3 assets and transfer of assets from level 2 to level 3 due to unobservable market inputs. As the liquidity in the credit markets dries up and spreads widen due to increased risk aversion, banks could see further write-downs in their loan portfolio. In 2007, SunTrust recorded a $700 mn valuation adjustment, with 4Q2007 alone contributing $555 mn of valuation adjustment. As Fed raises rates and economic problems worsen, SunTrust's credit spreads will widen off increased write-downs with an estimated valuation loss of $1,345 mn and $442 mn in 2008 and 2009, respectively


Noisy quarter for SunTrust to start 2008 performance: SunTrust's net income declined 46.2% to $269 mn from $499 mn in 1Q2007 with a reported EPS of $0.81 in 1Q2008 compared to $1.40 in 1Q2007. However, the 1Q2008 EPS included several non-recurring items including $86 mn of visa IPO gain, a $89 mn gain on sale of lighthouse, $37 mn gain on corporate real estate and $18 mn gain on mortgage production income, impacting the banks post tax EPS positively by $0.50 in 1Q2008. On the other hand, 1Q2007 EPS was impacted by a $32.3 mn gain on lighthouse and a charge of $13.8 mn related to implementation costs associated with E2, impacting banks 1Q2007 EPS by $0.04. Overall, SunTrust's EPS (adjusted for non-recurring gains) for 1Q2008 declined significantly to $0.31 compared with $1.36 in 1Q2007.

III.        Valuation

We have valued SunTrust based on a weighted average of price-to-adjusted book value (P/B) excluding intangible assets, price/sales (P/S) multiple and DCF approach with weights of 0.85, 0.05 and 0.10, respectively.  SunTrust's valuation based on price-to-adjusted book value (P/B), price/sales (P/S) multiple and DCF approach is $34.3, $34.1 and $18.6, respectively, translating into a weighted average share price of $32.72 implying a downward risk of 12.5% from the current market price of $37.40 (as of June 24, 2008). However, including the dilution impact considering an increase in tier 1 capital of $0.5 bn and $2.7 bn to maintain tier 1 capital of 6.0% and 7.5%, respectively, SunTrust's valuation per share based on adjusted book value per share comes to $32.2 and $28.5, respectively representing a downward potential of 10.5% and 20.8%, respectively....




 Download the pdf to see why we think that STI is full of it in regards to their not having to cut their dividend. The way I see it, there is no prudent way around it (emphasis on the word, "Prudent").

I am on the road now, but when I am stationary I will add highlights from the proprietary model to this post in order to illuminate the fact that the market has yet to fully price in STI's woes.