Fremont to Sell Investment and Loan Bank

Submitted by
CalculatedRisk on Mon, 04/14/2008 - 5:15am (22 comments)
in
Mook wrote on Mon, 4/14/2008 - 5:39 am

I'm confused. How can you be predicting bank failures based on non-performing CRE loans when CRE only goes up in value?

Anonymous wrote on Mon, 4/14/2008 - 5:49 am

This could be good news. If it would have happened a year ago.

Not now.

homedad43 wrote on Mon, 4/14/2008 - 5:49 am

OT from previous thread...

hoocoodanode = quienhabriasabiste

and now back to work...

blackhat wrote on Mon, 4/14/2008 - 5:56 am

How does a poorly capitalized bank raise capital in a negative IR environment in the middle of a recession? ...oh, they don't...bring in the clowns...

ipodius wrote on Mon, 4/14/2008 - 6:16 am

I honestly hate to say this but for those who have balls blackhat (and perhaps mp and conjure fit here), you sift though and pick over those that have 'fessed up and who's numbers look crappy but going forward have potential and buy. After all, it's the suckers that hold the stocks now that are screwed not the new money coming in.

There is value in the sector, but the trick is to find out the ones where this will be the last infusion needed, and where the dividend won't be slashed to .01. Remember you don't have to buy at the bottom, just near it. And I speak of bottoms on an individual basis here. Is Wachovia near it's bottom? Is C? You tell me.

Alec wrote on Mon, 4/14/2008 - 6:32 am

Citi is nowhere near the bottom. Another Q of writeoffs(not this Q of writeoffs) and the should be thru the worst of the storm.

JPMChase & BofA are best of breed.

The part where it gets hinky is with CRE taking a face full of rock salt who has the exposure? I'm assuming it's regional banks who aren't capitalized well enough to ride it out. Is SunTrust worth a look on the short side? A lot of ambition wedded to not a lot of brains makes me wonder.

dissident wrote on Mon, 4/14/2008 - 6:34 am

homedad43 writes:
OT from previous thread...

hoocoodanode = quienhabriasabiste

QUIPOHASABI (quien podria haber sabido)

FFDIC wrote on Mon, 4/14/2008 - 6:36 am

One reason FDIC is getting more aggressive is because the drive by examinations instituted by Don Powell have been 'thrown out the window' according to my sources and in the alternative, FDIC examiners are conducing full, comprehensive examinations complete with written reports of examinations that spell out all the problems rather than sweeping them under the rug. The FDIC (because of media and Congressional attention)is finally being allowed to do its job the correct way after years of being ordered by banker Don Powell to go easy on the banks. A classic case of the fox gaurding the hen house.

ipodius wrote on Mon, 4/14/2008 - 6:43 am

Alec, I'm a fan of JPM for many reasons, and think the BSC deal is going to help them forward. BoA I am not a fan of, for various reasons...too over-expanded in branches, too fee-reliant, and lots of bad paper that has not yet seen the light of day. I'm expecting some Wachovia-type announcements from them over the next 2Qs.

Turbo wrote on Mon, 4/14/2008 - 6:51 am

I did a little bottom feeding in financials back in Jan/Feb, but I regarded those as due for a short-term bounce trades and have since sold out all of them except USB. I'd probably buy AXP again if it dips back down to those levels, but this is only the 3rd or 4th inning as far as writedowns for financials go. Their earnings power is impaired now for at least a business cycle, and eps dilution is going to be massive as recapitization continues, so I'd still generally rate financials as an avoid for some time yet.

Alec wrote on Mon, 4/14/2008 - 6:56 am

BofA's exposure is legal, a lot of deals got done where the language is very poorly written to the point where some decent lawyers could get BofA on the hook.

The other risk is CRE. There's a lot of BofA buildings going up where they take up 2 floors out of 30+, the rest were to be leased out to lawyers/architects/contractors who did biz w/ BofA in Resi & CRE(vertical integration to the extreme!) With the deal environment goiing south, a lot of those towers can be drains going forward.

But even with all that, they're still the 2nd best bank around.

Drew wrote on Mon, 4/14/2008 - 6:58 am

Alec,

BAC is best of breed?? Thank you, I needed a laugh this morning.

Were they best of breed before the buyout of CFC? ROFL.

Turbo wrote on Mon, 4/14/2008 - 7:03 am

BAC will be one of the bank's left standing and worth owning at some point. I was long for a while and played the bounce, but it's strength as an investment is its dividend yield, which worries me now that's it's seemingly become acceptable to slash dividends in the name of capital preservation.

Alec wrote on Mon, 4/14/2008 - 7:11 am

Drew

Besides the 2 I mentioned, who else has the market share, ability to work the float and ability to expand?

I won't hold my breath for your response.

Billy Hill wrote on Mon, 4/14/2008 - 7:26 am

I honestly hate to say this but for those who have balls blackhat (and perhaps mp and conjure fit here), you sift though and pick over those that have 'fessed up and who's numbers look crappy but going forward have potential and buy. After all, it's the suckers that hold the stocks now that are screwed not the new money coming in.

I don't see how you can get over the lack of transparency.

Alec wrote on Mon, 4/14/2008 - 7:57 am

Lack of transparency?

It's easy.

Assume everything said in something besides an SEC compliant document is wrong/ a lie.

Look at the markets where duff loans were made and find out the amount of loans outstanding. From there, assume Citi has 1/3 of it and after that, go by market share.

After that, use the haircut values that have been badied about to get to fair value & take 5 cents off that, there's your losses.

Except Citi, who somehow haven't learned a damn thing from Japan and are doing their damndest to strech things out as long as possible.

ipodius wrote on Mon, 4/14/2008 - 7:57 am

Alec I am sure BoA will be left standing, and pretty much intact, which is more than I can say for C. I do think, however, that BoA will have to scale back retain operations, and get honest about its CRE exposure. My "not a fan" is because I think they are predatory on their fees and retail operations (especially in customer treatment) and I think that's going to hurt them in this very challenging environment. So my opinion is they are going to take a market share hit, in addition to other hits.

Alec wrote on Mon, 4/14/2008 - 8:19 am

ipodius,

the retail side of things is easy to correct, but oddly thy behave that way because they want to ditch marginal custies so they can load up on takeovers and expand their footprint.

The other thing I forgot on how to look at banks is look at their tier I levels and work backwards from there to determine the writedowns.

Citi will writedown $12bn minimum, prolly closer to $15bn. The pier sale helps now, but that sale is gonna linger like herpes as a drag on earnings for the next couple of years.

Ken wrote on Mon, 4/14/2008 - 10:50 am

Anyone have any thoughts on this commercial lender that's buying Fremont's CRE book and deposits. Doesn't seem like the wisest move to be buying CRE loans right now at basically book value. Any thoughts on the pricing for this deal and CapitalSource as a potential short?

thks,
K

SurferDude wrote on Mon, 4/14/2008 - 11:14 am

all of the banking supervisory agencies (federal and state) are woefully understaffed in terms of quantity and quality. they do not have the numbers or the talent to do the necessary work.

while supervisors are classifying more assets, they are still not getting it accurately rated. i hear many anecdotes where a c&d loan is supported by a project that has stopped where advances greatly exceed construction in place. no portion is being classified as loss.

also, the supervisors are not yet requiring writedowns on REO in any meaningful manner. most will allow the bank up to a year to obtain a new appraisal. except in the most egregious of cases, it is unlikely for the supervisors to argue for a lower carrying value for REO than the appraisal. we are a long way off before any systemic REO writedowns happen.

to ffdic -- while the fdic has disbanded merit or drive-by exams; the effect of the program is still in place. the overall budget for exam hours is largely static. should more hours be needed in bank a, then cuts need to be made at bank b or bank c. because of this, many fdic examiners are worried that drive-bys will go on in the yet to be identified problem universe.

Alec wrote on Mon, 4/14/2008 - 11:33 am

Ken,

does sword of damocles catching work for you?

Ken wrote on Mon, 4/14/2008 - 3:49 pm

Alec,

So shorting CSE would be like trying to catch the sword of Damocles or going long would bring about my impending doom?

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