Bitcoin Investment Risk vs Reward Calcul…

23-02-2017 Hits:924 BoomBustBlog Reggie Middleton

Bitcoin Investment Risk vs Reward Calculator to Compare BTC to EUR, GBP, Gold & Stocks

After reading what is essentially Fake News about Bitcoin from Financial Times, London Business School and Credit Suisse, I have created an easy to understand metric that allows anyone to compare the risks...

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It's Time To Beat Up On Credit Suisse an…

22-02-2017 Hits:971 BoomBustBlog Reggie Middleton

It's Time To Beat Up On Credit Suisse and Their Woefully Misinformed Bitcoin Advice

Credit Suisse has been posting cryptocurrency advisories over the last few weeks. They are quite one-sided, although couched in the appearance of objectivity. To explain why it's couched in the appearance...

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HSBC Reports One of the Biggest Misses o…

21-02-2017 Hits:529 BoomBustBlog Reggie Middleton

HSBC Reports One of the Biggest Misses of the Year, We Warned Quite Thoroughly in September

Our HSBC research report released September of 2016 has proven to be 110% correct. This is the first sentence of our report: HSBC Common Equity Returns: Notwithstanding a possible boost from...

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Censorship, Autonomy and Risk Management…

19-02-2017 Hits:926 BoomBustBlog Reggie Middleton

Censorship, Autonomy and Risk Management When Dealing With Digital Assets: How to Minimize Risk of Loss

This is a video on the topic of the qualities of Bitcoin blockchain's censorship-proof attributes and how they apply in the world we live in today. It is imperative that you...

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How to Use, Trade, Store and Invest in B…

16-02-2017 Hits:1561 BoomBustBlog Reggie Middleton

How to Use, Trade, Store and Invest in Bitcoin Digital Assets - Step by Step, Part 1

I will teach novices and experts alike how to fit Bitcoin into an investment portfolio safely and with the optimum risk-adjusted potential - along with step-by-step guides, instructions and tutorials. This...

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Italy Approves 1.2% of GDP to Save It's …

16-02-2017 Hits:657 BoomBustBlog Reggie Middleton

Italy Approves 1.2% of GDP to Save It's Troubled Banks... Again! Exactly As We Warned Last Year

I've been warning about Italy's troubled banks since 2010, and last year I pushed two very detailed reports about what was essentially Italy's Bear Stearns and Lehman Brothers. Italy is a...

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T-Mobile Has Eliminated Most of Verizon'…

15-02-2017 Hits:706 BoomBustBlog Reggie Middleton

T-Mobile Has Eliminated Most of Verizon's Network Advantages At A Lower Price Point - Uh Oh!

T-Mobile reported their Q4 2016 results yesterday, and guess what?

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Association with Donald Trump Cost Uber …

13-02-2017 Hits:717 BoomBustBlog Reggie Middleton

Association with Donald Trump Cost Uber $200 Million in 45 Days, Other Companies Feel It Too

Uber's CEO perceived association with Donald Trump (sitting on his tech advisory panel) has caused a viral #DelteUber campaign, resulting in over 200,000 Uber accounts deleted in 45 days. Videos of the...

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Verizon Unlimited, T-Mobile Upgrades, Sp…

13-02-2017 Hits:1466 BoomBustBlog Reggie Middleton

Verizon Unlimited, T-Mobile Upgrades, Sprint Drops Prices Through Floor: The Deadbeat Carriers are Beating Themselves To Death

Update: T-Mobile responds to Sprint & Verizon price cuts but adding additional features to its fixed rate plan. Competition continues to benefit the consumer, but net margins will be/are hovering...

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Fitch Has Effectively Downgraded The Tru…

10-02-2017 Hits:801 BoomBustBlog Reggie Middleton

Fitch Has Effectively Downgraded The Trump Administration, Albeit Too Late As Usual

After my many, many warnings about Donald Trump and his administration (I'll list those a little later)... It's official, Fitch has actually warned that the Trump administration is detrimental to...

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Chinese Bitcoin Exchanges Suspend Client…

09-02-2017 Hits:986 BoomBustBlog Reggie Middleton

Chinese Bitcoin Exchanges Suspend Client Withdrawals. I Warned You About Heteronomous Wallets! reports "Chinese Exchanges Suspend Withdrawals for One Month": The two largest Chinese Bitcoin exchanges have suspended Bitcoin and Litecoin withdrawals for one month. The news follows China’s central bank...

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Will Japan's Declaration of Bitcoin as L…

09-02-2017 Hits:1070 BoomBustBlog Reggie Middleton

Will Japan's Declaration of Bitcoin as Legal Tender Accelerate Cryptocurrency Mainstream Adoption?

It’s being reported by Sputnik News and other sources that Japan has declared Bitcoin to be legal tender. Unfortunately, I have not been able to quickly confirm this through Japanese...

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  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.