Holdings Review: Barclays, Scotiabank, DryShips and Sampo

Today's further unlinking of indexes with individual stock performance increases my confidence in the stock-picking way we invest. The further breakdown in the link between the price of gold and that of oil further increases my confidence in micro-economic rather than broad-brush investment advice.

But having said that, I think there are lessons which can be drawn about the situation of companies in the same industry from the experiences of their rivals.

Here is an example. Theory holds that it is impossible to value bank assets properly in the current market. And that the result is that well-managed banks cannot get access to capital or make profitable loans because the zombie banks get in the way. So you don't want to own bank shares at all. Below are some contrary examples.

The boring business of looking at stock markets one company at a time must be our playbook. That's what we do and what we will continue to do.

• Barclays (BCS) reported profits before tax of £6.08 bn ($9 bn) for full year 2008, down 14% from 2007. Chairman Marcus Agius said the bank had been "solidly profitable despite strong headwinds" experienced during the year. It beat analysts's estimates by about 5%, boosting the share price in Monday trading.

There was good news and bad.

BCS's charges on bad debt, including U.S. sub-prime mortgages, almost doubled to £5.4 bn. Profits at the bank's commercial arm were down by 7%, to £1.27bn.

Barclays' profits included £2.41 bn of gains from acquisitions, mainly from its takeover of the American operations of Lehman Bros. Profits from retail banking were up 7%, from to £1.37bn.

Profits from the Barclays wealth management division more than doubled, £671 mn. Moreover, it said retail and commercial lending increased.

Last month, CEO Varley and his team were so concerned about the fall in its share price - sparked by worries over the bank's financial strength - that Mr Agius and Mr Varley published an open letter to reassure investors that the bank was sound. They said Barclays was well funded and would not need any British government financial support.

The letter added that Barclays' 2008 profit would be "well ahead" of market forecasts. It worked for a few days. Then Moody's down-rated Barclays' rating over anticipated "significant further losses" to write down credits. It dropped BCS to a C short-term, from a B.

Barclays' shares have fallen more than 80% over the past 12 months in sterling. For dollar investors (ouch) the bite is worse.

• In today's Barrons, Vito Racanalli writes of Bank of Nova Scotia (BNS): "it's the least exposed to assets south of the border, with no U.S. subprime. It doesn't need billion in government aid to survive and won't have to take huge write-downs on exotic instruments gone bad." Any rise in the loonie will help too.

• Two of our companies are working together, Sampo (SAXPY.PK) and DryShips (DRYS). Sampo, a Finnish insurance group, via Nordea Finland plc is the largest shareholder of Nordea Bank of Norway which will be a beneficiary of the new Oslo government bank refinancing scheme. Norway will create two new funds with a combined 100 bn kroner ($15 bn) to finance banks and to buy corporate bonds, its Finance Ministry announced.

DRYS today made a preliminary agreement with Nordea Bank Finland, obtaining a covenant waiver over the $800 mn Loan to Primelead, the DRYS sub which financed its of Norway's Ocean Rig ASA. As of today, the outstanding loan amount under the facility is $650 mn, said DRYS.

The waiver terms for DRYS require (i) that it pay a restructuring fee of 0.15% on the outstanding loan amount under the facility plus 1% per annum on the loan outstanding from January 9 to the Effective Date of the waiver agreement; (ii) that $75 mn of principal repayment due this month may be postponed to this May; (iii) that the margin on the facility will increase by 1% to 3.125% per annum; and (iv) that regular principal payments will resume as of August.

In addition, among other things (left presumably to the Finnish-Swedish imagination of Sampo CEO Wallrus), lender consent will be required for acquiring DrillShip Hulls 1837 and 1838, for new cash capital expenditures or commitments, and for new acquisitions for cash until the loan has been repaid to below $375 mn. The waiver agreement must become effective before August 12, 2009, at which time DRYS expects to be in compliance with the restructured loan covenants. The agreement is preliminary and is subject to formal approvals by DRYS and the syndicate banks (in addition to Nordea, DnB NOR Bank ASA and HSH Nordbank AG).

Disclosure: Author owns 600 shares of 600 shares of DRYS, 600 shares of BCS ADRs and 300 shares of Barclays' London shares. She also owns 200 shares of Sampo and 400 shares of BNS.

Comments

[James Wilson:]

TOPS is in shipping too.

Feb 17 08:49 AM