Reggie Middleton is an entrepreneurial investor who guides a small team of independent analysts, engineers & developers to usher in the era of peer-to-peer capital markets.
1-212-300-5600
reggie@veritaseum.com
Valuations still high?
For those who think stocks are cheap due to the rapid reduction of prices of late, think in terms of valuations and historical trends and you may find that they are not as cheap as you thought - particularly if you believe in earnings cycles. We are just coming off of an earnings cycle peak.
The Biggest Risky Asset Run of All Time???
Housing, stocks and commodities are setting all time or near all time records. We have begun a correction in all three of the risky asset classes. Residential real estate has the farthest to fall, by far. As a matter of fact, adjusting for inflation, in residential real estate no other bull run (including the gold rush) has produced even half of the real price spikes that the last bubble has. Do you know what happened after the last, much lesser, real estate bubbles? What do you think will happen this time around? All of that talk of prices stabilizing in '09 or '10 lacks historical precedent!
Loans & Risk
Now, let's get back to those Doo-Doo banks, shall we. This is the Doo-Doo Bank grid that I will put nearly all of the banks in.
| Wells Fargo | Popular Inc | ||
| WFC US Equity | BPOP US Equity | ||
| (3Q-2007) | |||
| Home Equity Loans | 83,860 | ||
| Construction and devlopment loans | 17,228 | 1,996 | These high risk loans are present, though |
| Commercial Real Estate Loans | 29,310 | 5,939 | The same for these |
| Total Loans ($ mn) | 393,632 | 33,321 | |
| % of Total Loans | |||
| Home Equity Loans | 21% | ||
| Construction and devlopment loans | 4% | 6% | Small capital base, less cushion for loss |
| Commercial Real Estate Loans | 7% | 18% | This concentration could be problem |
| % of Shareholders' equity (based on 3Q Loans) | |||
| Home Equity Loans | 178% | 49% | This is potentially a big problem |
| Construction and devlopment loans | 36% | 56% | This is potentially a big problem |
| Commercial Real Estate Loans | 62% | 166% | This is potential problem, high concentration |
| Total Loans | 826% | 930% | Popular has nearly 10x its equity in loans, 270% of which is extremely risky in one of the worst down-markets this country has ever seen. |
| Core Capital ratio / Tier 1 risk-based capital | 7.6 | 10.1 | This ration is not that bad |
| Total risk-based capital ratio | 10.7 | 11.4 | Neither is this, could be worse |
| Leverage ratio | 6.8 | 7.3 | |
| NPA -to- Total Loan | 1.01% | 3.04% | This is very bad! |
| NPA / Shareholder's equity | 8.1% | 23.8% | This is even worse! Nearly a quarter of shareholder equity is dead weight and worth zilch! Adjust for tangible equity and this number goes higher. |
| Net Chare-off's / Loans | 0.93% | 1.51% | This is pretty high for all loans! |
| Net Charge offs / Shareholder's Equity | 7.43% | 11.81% | Shareholders should revolt! |
| Provision for loans to Total Loans | 1.41% | 1.87% | |
| Reerve for loans to Total Loans | 1.39% | 1.96% | |
| Cushion for losses | 0.38% | -1.08% | Take note, there is a negative cushion for losses here. This bank will probably announce the need for capital very soon! |
Performance & Market Info
| Wells Fargo | Popular Inc | ||
| WFC US Equity | BPOP US Equity |
| Return on assets | 1.5% | -0.2% | Popular is burning through its assets. Keep in mind (referenced above) this banks is leveraged 7.3x, and is losing .2% of its assets. That is about 1.6% to 2% burn on shareholder equity just by being in existence - Considerably higher if adjusted for bullsh1t and tangible equity is taken into consideration. No wonder they have a negative cushion for losses! |
| Return on equity | 16.9% | -1.8% | See above. |
| NIM | 4.69% | 3.64% | Margins are thin here and the Fed is probably not going to drop rates much more. |
| Efficency ratio | 59% | 67% | |
| Interest income-to-intest bearing liablities | 8.5% | 8.8% | |
| Interest expense-to-Total deposits | 4.3% | 6.4% | |
| 3 month price performance | -7% | -3% | |
| 12 month price performance | -22% | -30% |
Amazingly enough, the share price hasn't dropped in sympathy with their financial situation. |
| LAST_PRICE | 28.5 | 11.9 | |
| Shares Outstanding | 3,296 | 280 | |
| Currnet Market Cap | 94,059 | 3,341 | |
| Geographic exposure | |||
| - California | 36.1% | ||
| - Florida | 3.8% | ||
| Origination Channel | |||
| - % of Third Party | 14% | ||
| - % of Branch | 86% | ||
| LTV | |||
| Weighted avg LTV | NA |
Other Stats & Facts
| Wells Fargo | Popular Inc | ||
| WFC US Equity | BPOP US Equity |
| % of Home Equity Loans with | |||
| LTV > 90% | 29% | ||
| 80% < LTV < 90% | NA | ||
| Avg FICO score (Home Equity) | 725 | ||
| Deliquency Home Equity | |||
| - 4Q2007 | 1.51% | ||
| - 4Q2006 | 0.88% | ||
| Home Equity exposure (4Q data) | |||
| - % of Equity | 178% | 49% | |
| - % of Gross Loans | 21% | 6% | |
| - % of Assets | 15% | 4% | |
| Net Charge offs | |||
| - 4Q2007 | 1.34% | ||
| - 4Q2006 | 0.25% | ||
| (Based on FY 2007 annual data) | |||
| Price-to-book value | 1.99 | 0.98 | |
| Price-to-adjusted book value | 2.82 | 1.24 | |
| P /E | 11.8 | N/A | |
| P / E Continuing ops | 11.8 | 45.7 | |
| Charges offs | 3,539 | 423.08 | |
| HIGH_52WEEK | 38 | 18 | |
| LOW_52WEEK | 24 | 8 | |
| Share Price 1M | 30.4 | 12.3 | |
| Share Price 3M | 30.7 | 12.2 | |
| Share Price 1 Yr | 36.4 | 17.0 | |
| Charge offs/NPAs as of 12/31/2007 | 91% | 50% |
I will be posting about 30 other banks over the next few days, with an intense drill down on about 3 of them.
