The Banks and Brokers Most Likely to Fail Daryl Montgomery September 10, 2008 Copyright 2008, All Rights Reserved The contents of this presentation are editorial opinion and should not be considered as a recommendation to buy or sell any security.
What to Look For • An insolvent financial institution must have repeated capital infusions from: 1. Issues of new common or preferred stock. 2. Asset sales. 3. Selling a stake in the company. 4. Government loans. • Big and numerous earnings losses, especially those well-below expectations; reduced dividends. • Has fired its CEO/Chairman. • Involved heavily in subprime, Alt-A mortgages and/or in bubble areas of the housing market. • It has higher rates on CDs than competitors. • Look for stock price drop of 80% or more from high.
Large Banks/Brokers • • Washington Mutual (WM) – 93% off high Lehman (LEH) – 91%* off high Wachovia (WB) – 87% off high Merrill Lynch (MER) – 78%* off high Citibank (C) – 75%* off high UBS (UBS) – 73%* off high Royal Bank of Scotland (RBS) – 73% off high Key Corp (KEY) - 82% off high * Bear Stearns failed the day after its stock reached an 80% sell off
Washington Mutual – Down 93% • Highest 1 -Yr CD-rate in U. S. • Lost $3. 3 billion in Q 2. Losing money in Mortgages, Retail Banking, and Credit Cards operations. • Sold $7 billion in common at $8. 75 when stock was selling for $13. 15 (has to pay buyer if sells any stock below $8. 75). • CEO forced out Sept 8, 2008. Wachovia – Down 87% • Bought major mortgage lender Golden West in 2006. Famous for its pick-a-payment loans. Stopped this June. • Lost $8. 8 billion in Q 2. • Raised $15. 3 billion in bond and stock sales. • CEO forced out. Being investigated for money laundering.
Lehman – Down 91% • Lost $5. 19 a share in Q 2 and $5. 62 (so far) in Q 3. • Raised $14 billion by selling common, preferred and increasing debt from Feb to June 2008. • Has sold billions (not clear how much) in illiquid assets. • Will sell part of Neuberger Berman and other assets. Merrill Lynch – Down 78% • Raised capital in Dec 2007, Jan, April, and July 2008. • Sold stake in Bloomberg. • Lost as much as $10 billion in Q 2. • Sold CDO bonds for 5. 5/not 22 cents on the dollar. • CEO was ousted in October 2007.
Citibank – Down 75% • Raised capital 5 times in 5 months – sovereign wealth funds, stock sales (10% controlled by Persian Gulf). • Sold Assets: Citicapital, Citistreet, Dinner’s Club. • Plans on selling $400/$500 billion more in assets in next few years. • CEO ousted in Nov 2007. UBS – Down 73% • Most Write Downs in the world – they exceed total earnings of security unit since the banks creation. • Raised capital through stock sales and foreign funds. • Clients jumping ship. • Ousted chairman. Are these 2 banks too big to fail?
Medium Size Banks/Brokers • • • E*Trade (ETFC) – 92% off high Corus Bankshares (CORS)- 94% off high First Horizon (FHN) – 91% off high National City (NCC) – 88% off high Provident Bankshares (PBKS) – 88% off high Colonial Banc. Group (CNB) – 88% off high Fifth Third Bancorp (FITB) – 83% off high Regions Financial (RF) – 83% off high Zions Bancorp (ZION) – 80% off high Huntington Bancshares (HBAN) – 80% off high This list only includes banks with over a $1 billion market cap.
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