Posted on 09/05/2008 6:22:39 PM PDT by John W
“...and use government funds to prop them up...”
GOVERNMENT FUNDS? That’s MY money! The GOVERNMENT doesn’t HAVE any money! It’s MY money they’re using to bail out these incompetent morons!!
Jeeze, Louise! WHEN are Americans going to WAKE UP to this cr@p? Enough!
How on earth do you infer that?
One of the bullet points: "Treasury will buy as much preferred stock as necessary to maintain a positive net worth of the firms"
Since the dividend on the preferred is now officially eliminated (not deferred) plus even repayment of the prin is now subordinated to the new "super" preferred, there is not the slightest reason to imagine the preferred trading for much more than the common. Which is in the $5 range, down about 90%, and for all practical purposes, headed to zero.
It's generally taken that F&F are geared minimally 30:1 and maximally 80:1.
Roughly NINE percent of their retained mortgages are either in default or in arrears, but we have no way of knowing what that might mean, because under audit, it has become clear that both F's have foregone foreclosure on home loans in arrears by as much as TWO YEARS, and that the coupons on loans in arrears by mere months have been paid out of cashflow; eg, without receipt of borrower payments.
Check the annual reports of any regional bank in your area and you'll almost certainly see that these banks have large holdings of F&F Pfd stock as part of their reserve requirement plus depend or anticipate the Pfd divident for some portion of their operating earnings. Sheila Bair, head of the FDIC, now says that the FDIC-insured banks have to mark their Pfd holdings to market "immediately". So, when the Pfd loses 50% of its value at the open tomorrow, where do you think that puts those banks? Yes, Hankster has promised to "work with them". We'll see. Personally, I expect many dozens of these banks to be forcibly taken under by the JPMs, MS, and GS of the world along the lines of the Bear Stearns model.
These stocks may be penny stocks at opening bell Monday.
Fannie at 1.25 Monday opening.
I'm calling BS on that one. I know banks own a ton of Fan and Fred debt (which is now guaranteed by the Treasury) but preferred stock? Banks have already taken a huge hit if that's the case. Some may own some of the shares but banks typically can't own shares of stock unless it is under a holding company situation.
Banks can own NGE stock such as the Federal Home Loan Bank but if they own a big chunk of Fan and Fred somebody fell down on the job. There may be some quirk in the law since I was a banker but I'd be surprised if the totals ran to very much.
SUMMARY: 10 REGIONAL BANKS WITH EXPOSURE TO FREDDIE MAC AND FANNIE MAE PREFERRED STOCK
- Note: % represents holdings of FNM/FRE as a percentage of total tangible capital.
- Gateway Financial GBTS (34%)
- Midwest Banc MBHI (32%)
- Westamerica Bancorporation WABC (16%)
- Farmers Capital FFKT (14%)
- Sovereign Bancorp SOV (13%)
- Flushing Financial FFIC (12%)
- Valley National Bancorp VLY (10%)
- Pulaski Financial PULB (10%)
- Columbia Banking COLB (8%)
- Astoria Financial AF (7%)
So, for example, with FNM-PT (one grade of FNM preferred) down a mere 78% today, from 13 to 3.....
or, FNM-PS down only 75% today, massively outperforming the -PT....
or, the -PF series, down 72% today....
For either of the top two banks on the above list, basically 1/3 their regulatory capital lost 3/4 of its value today.
So for a back of envelope calculation, 68% of their cap is good. The 32% on top of that is now 8% on top of the 68%, totalling 74%. These banks lost between 5% and 25% of their reg capital today. Not good.
If it's true, what the hell is the Comptoller's office doing letting banks own preferred stock as part of regulatory capital? Of course they may not be regulated by the Office of the Comptroller since none of the banks you list seem to be national banks.
I’ve requested the source link for that reg bank list as you requested from the guy who posted it (on another forum)I’ll ping you if and when I get it.
What about the banks owning THEIR OWN STOCK (and I’m talking common, not preferred) as part of their regulatory capital?? My understanding is that this is permitted as well. This is thought (by bearish folks like me) to be one of the fundamental reasons it’s apparently so darn important these stock prices are pumped. We have seen this with LEH, WB, and WM, and even C, where once the stock price gets low and the banks have to issue say 40% add’l shs, the proceeds of the sale of those add’l shs isn’t enough to have much effect. Imagine your stock used to be 40, now it’s 7, and you seek to issue more shares. And concurrently, the div is cut, which further tarnishes the market value not only of the outstanding, but the to-be-issued shs.
It’s hard for me to make a case for banks (of the various sizes) to be profitable entities going forward. The majors have spread toxic crud everywhere, to every corner of the planet, with their alphabet soups of dented debt. There has to be a load of pretty unhappy customers out there who are stuck with illiquid instruments of every description. There are always going to be towns and sewer districts, etc who need to sell bonds, and I suppose there will be some income for the majors who can underwrite same.
The mortgage business certainly isn’t going to be the cash cow it once was, given faltering home values, tightened underwriting standards and tightened sell-to-FNM standards.
So where are then banks going to make money? Checking account fees? Lately, it has been almost exclusively their trading operations which have been bringing in the dough.
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