Colonial Bancgroup: Sell or Hold?

These last few days, I knew what Gordon Gekko felt like as Bud Fox was screwing him on the Bluestar deal. Colonial Bancgroup (CNB) kept dropping for no reason, and unfounded bankruptcy rumors swirled around it. Now, after there was a 40% (now around 30%) jump in CNB's price in the last two days, having sold most of my position, I know what Bud Fox felt like when he switched sides and worked with Sir Lawrence Wildman. In fact, I am so pumped, if someone gave me Daryl Hannah's phone number right now, I'd make that call, and I'd close the deal.

But wait - people forget Bud Fox didn't exactly have a happy ending. He got greedy and overconfident. That's why, after seeing CNB jump 40%, I sold most of my shares. The earnings release was not terrible - although CNB lost money (five cents a share), the bank still appears to be well capitalized. The main information I wanted to see was the following:

 

Foreclosed assets rose by $94 million, bringing bad loans to 2.62 percent of loans and other real estate.

 

A bad loan ratio of 2.62% is still far from the informal 5% threshold that indicates a bank won't be able to pay out a dividend or will need to take active measures to shore up capital.

I will wait until after the ex-dividend date, and then decide whether to hold the remaining shares. For now, however, it's good to be king, having correctly called a short-term bottom in well-capitalized bank stocks.

Disclosure: The author owns CNB.

Comments

[Carl W.:]

Just like to say I bought in at $6/share and then increased my position at $3.20 after reading your article. I was convinced it was bottomed out as well. Tried to buy more than I did but couldn't get $ in my account quick enough. Thanks for the info and helping me make a great purchase!

2008 Jul 17 03:51 PM

[Matthew Rafat:]

User 227819, I am not a licensed securities broker (no series 7, 63, or 66) and have no formal training in accounting or finance, so I do not recommend anyone follow my picks or rely on my writing. I am glad, however, that you seem to have made a very well-timed purchase. I liquidated my position in CNB today (July 17, 2008). I thank you for reading about my economic journey, and I wish you the best in the future!

2008 Jul 17 06:25 PM

[User 226788:]

I also bought CNB on the 15th and 16th around $4.00 a share and reduced my basis significanly for underwater shares I bought months ago. Great timing and obesrvatons on CNB. Thank you for sharing. I wish you much future success.

2008 Jul 18 04:20 PM