Stress test research note from UBS

[m22au]

The bizarre thing for me is .... that this wasn't already priced in yesterday.

Everyone knew that the Govt owned 25 + 20 + 7 billion of preferred stock.

Everyone knew that there were other preferred shareholders.

I'm amazed that common shareholders had not already sold the stock down to this level already, given that the preferred shares were worth a lot more than the common.

As an extension of this thought, the US govt currently owns $45 billion of BAC preferred.

Current market cap at 4.50 share price * 5.02 shares outstanding = 22.59 billion.

So if we assume that the Govt converts 25 billion of BAC preferred at a price of $6.50, then another 3.84 billion common shares will be issued.

If we assume the same negative reaction in the BAC share price, then BAC should be down another 20% or so to $3.50.

Quote from Daal:

$1.26. FNM FRE all over again

 

[Daal]

Quote from m22au:

The bizarre thing for me is .... that this wasn't already priced in yesterday.

Everyone knew that the Govt owned 25 + 20 + 7 billion of preferred stock.

Everyone knew that there were other preferred shareholders.

I'm amazed that common shareholders had not already sold the stock down to this level already, given that the preferred shares were worth a lot more than the common.

I keep trying to get into the mind of the avg bank stock shareholder to understand they do. I think they are all childs of the equity market boom since the 80's, they keep thinking dips are just buying opportunities and the US always comes back.
But I think I will just pick up the dollar bills laying the street and just forget why they are there

 

[m22au]

It's just crazy to think that I could have shorted Citigroup yesterday at $2.50 and then covered this morning at $1.50, following the (shock horror) "news" that the preferred would be converted to common.

The WSJ has been doing articles about this conversion for days now! How much more advance notice did the common shareholders want exactly ?

Like you said Daal, despite everything that has happened in the last 2 years, some shareholders still don't quite understand how some things work.

Quote from Daal:

I keep trying to get into the mind of the avg bank stock shareholder to understand they do. I think they are all childs of the equity market boom since the 80's, they keep thinking dips are just buying opportunities and the US always comes back.
But I think I will just pick up the dollar bills laying the street and just forget why they are there

 

[ASusilovic]

Commentator of the day :

Citi's Pandit: Deal puts all nationalization fears to rest

 

[m22au]

What a crazy statement.

If the govt converts their entire remaining preferred stake at $3.25, then their ownership will go over 50%.

Quote from ASusilovic:

Commentator of the day :

Citi's Pandit: Deal puts all nationalization fears to rest

 

[ASusilovic]

Goldman Sachs Group Inc.’s analysts, led by Richard Ramsden, recommended that investors avoid Citigroup shares because “it is unclear whether this is the last round of capital restructuring, which means that existing equity may be further diluted in the future.” The analysts also noted that the bank’s new 4.3 percent ratio of tangible common equity to total assets falls to just 2 percent if deferred tax assets are excluded. Those will only become valuable if and when the bank returns to profitability.

 

[Daal]

Quote from ASusilovic:

Goldman Sachs Group Inc.’s analysts, led by Richard Ramsden, recommended that investors avoid Citigroup shares because “it is unclear whether this is the last round of capital restructuring, which means that existing equity may be further diluted in the future.” The analysts also noted that the bank’s new 4.3 percent ratio of tangible common equity to total assets falls to just 2 percent if deferred tax assets are excluded. Those will only become valuable if and when the bank returns to profitability.

Not to defend their misleading CFO, by he said they have 10 to 20 years to use the tax assets

 

[m22au]

http://seekingalpha.com/article/124335-bofa-wells-fargo-no-equity-after-accounting-for-bad-loans

BofA, Wells Fargo: No Equity After Accounting for Bad Loans

http://www.bloomberg.com/apps/news?pid=20601039&sid=aqf2tyZHBcgw&refer=home

Wells Fargo, BofA Loan Values Are a Scary Sight: Jonathan Weil

In total, eight of the 24 banks in the KBW Bank Index had negative tangible common equity on a fair-value basis, including SunTrust, KeyCorp, Fifth Third Bancorp, Huntington Bancshares Inc., Marshall & Ilsley Corp. and Regions Financial Corp.

***

m22au comment:

These 6 banks are on my radar due to the TARP injections being a large percentage of market cap.

Although my figures are 1-2 days old, my figures are:

STI at 140%
RF 160%
FITB 425%
MI 207%
HBAN 350%
KEY 87%

BAC 245%
WFC 73%