H.J. Huneycutt

Hampton Roads Bankshares: Strong Value in the Horrific World of Commercial Banks

Long-term, you're right --- nonperforming assets have to improve. The question is will nonperforming assets slow down in the next few quarters. I think they have enough of a cushion to survive, but it's risky. Still, the potential rewards make it worthwhile at this juncture, so long as one diversifies bank holdings in a prudent manner.


On Nov 11 11:14 AM TBY wrote:

> This is what you need to look at:
>
> Nonperforming Assets Total 6.28% of Assets; Allowance Increases to
> 3.94% of Loans
>
> Nonperforming assets as a percentage of total assets equaled 6.28%
> at September 30, 2009, up from 4.95% at June 30, 2009, due largely
> to a $32.6 million increase in nonaccrual loans.
>
> HMPR could get BK - 6.28% NPA is too large for a bank to stay afloat
>
>
> Tal

Hampton Roads Bankshares: Strong Value in the Horrific World of Commercial Banks

You might be right. I admit I'm taking a risk on this one and I view this as one of the riskier banks in my bank portfolio right now. But it is also one of the ones with the biggest upside if they can ride things out.

I agree with you in regards to Gateway Bank dragging down the portfolio. BofHR and Shore Bank seemed to be run fairly soundly; it's Gateway that has brought about most of the problems.

Strangely enough, though, that's also one of the reasons I like this stock. BofHR has been run fairly soundly, so to gain the customer base of Gateway Bank --- I believe there's some potential there.

I HMPR can ride it out. If I'm right, I stand to gain somewhere between 200% - 1000% on this. If I'm wrong, I lose 100%. That's the way I look at it.

On Nov 11 10:49 AM Big Al45 wrote:

> Don't think HMPR's management can wait until the stock price reaches
> $6 per share. Losses will in their ADC portfolio will force them
> to do an equity raise within the next 6 months. Furthermore, the
> target price for their cancelled equity raise was $5 per share.
>
>
> Suggest you take a close look at the 30 to 90 day overdue loans when
> they file their 3rd Qtr call report. It will give you some idea
> about how quickly their ADC portfolio is deteriorating. The basic
> problem with the BHC is that the Gateway component's underwriting
> was lousy (and the former Gateway CEO was a scumbag) and that's dragging
> down the Shore and Hampton Roads components.
>
> IMHO You're looking at an equity raise of at least 40 Million shares.
> Although they may try to issue hybrid securities like their stronger
> competitor Towne Bank did. But in either case, you're looking at
> a massive equity dilution for the current shareholders.

First Industrial: Contrarian Long Idea Ready to Join the Rally

Great article! Thanks for bringing this company onto my radar screen. I've actually been searching for more quality industrial REITs out there.

I agree with you on the falling USD. Manufacturing could get a surprise boost from this, which means industrial REITs (often neglected when compared to their commercial peers) might be one of the better places to stash money right now; particularly when you consider the discounts the market is putting on them still. I'm long on DCT right now, as well.

As a random aside, I see you went to Darden. I'm planning on applying to their MBA program in the next couple of months.

Meanwhile, IMF director Dominique Strauss-Kahn says progress is being made on a possible financial sector tax, also known as the IMF tax, which would be an incentive to take less risks, but also create an insurance fund to be used in case of a future crisis.

I'm not terribly keen on this idea.

The solution to "too big to fail" could be solved much easier if the American government did the following:

(1) Re-enact Glass-Steagall

(2) Require that FDIC fees/premiums take into consideration the size of the banks. The Goliath banks like BAC and C would have to pay extraordinarily large fees in comparison to smaller banks. These banks are the "riskiest" due to their sheer size, so it makes sense that they would pay the highest premiums to the FDIC. It's sort of like how health insurers would charge higher premiums to smokers because they are a bigger health risk; or auto insurers require higher premiums for accident-prone drivers.

In essence, I'm saying make the FDIC premiums so high that shareholders have an incentive to encourage large banks to split up and stay smaller. This would achieve one of two goals --- either (a) the FDIC would have a large amount of funds in case of bank failures and/or (b) there would be less "too big to fail" banks to begin with. Either way, it would help steer the costs of risk away from the taxpayers to some degree.

(3) Require all foreign-owned banks doing business in the United States to [a] abide by Glass-Steagall and [b] file with the FDIC. Why? So that the too-big-to-fail banks elsewhere in the world will either be required to [a] break up or [b] stop competing in the world's largest market. Making them file with the FDIC might seem silly, but it's more or less just a requirement to say they have to do the same thing as a US bank if they compete on American soil.

Vermont Sen. Bernie Sanders introduces legislation that would give Treasury Sec. Timothy Geithner 90 days to compile a list of banks, funds and insurers deemed too big to fail, and then break them up within a year.

This is the best thing I've read all day.

I doubt it'll pass, but I'd like to see some real discussion of this idea. Personally, I think one year might be too quick; probably should be phased in over the course of a few years, but either way, we need to end "too big to fail" which seems to be another way of saying "too big for taxpayers not to subsidize without wrecking havoc on the entire system."

A new rule that caps the interest rates paid to depositors by banks deemed "not well capitalized" will likely accelerate the rate of bank failures. The cap - 0.75% above the U.S. average - is meant to prevent weaker banks from driving up costs for the rest of the industry.

FDIC should call this the GMAC rule. GMAC (Ally Bank) had been offering exorbitant interest rates at the taxpayer expense in order to gain market share. The FDIC forced them to lower rates.

This is a good rule. If my taxpayer dollars are going to the FDIC, I don't want them to allow banks engaging in reckless practices to drive up costs, which will make even more banks fail, and hence, drive up taxpayer costs even more. The banks doing this are mostly the poorly managed banks that are on the brink of bankruptcy.

Oct nonfarm payrolls: -190K vs. -175K expected and -219K prior (revised from -263K). Unemployment 10.2% vs. 9.9% expected and 9.8% prior. Avg. hourly earings +$0.05 to $18.72. Workweek flat at 33.

Anyone who is "milking" unemployment is dumb. You can use it as a way of just barely surviving for awhile as you search for a job but that's about it.

It maxes out around $10K over a six month period. That's not even enough for many people to live on. It helps you survive while you're unemployed and looking for a job, but it doesn't do much more.

I'd actually say it's one of the better designed government programs, but even if you wanted to "milk", you'd still be poor and your benefits would simply end after a few months anyway.

On Nov 06 08:41 AM Novice Trader wrote:

> You know what's sad? I know 2 people who are unemployed but not willing
> to work for what's being offered to them. They're content milking
> their unemployment benefits. It's b.s. I strongly believe that there
> are tens of thousands of folks like this doing the same f'ing thing.

Senator Christopher Dodd is reportedly readying legislation that would strip the Fed and FDIC of almost all their bank-supervision powers, creating in their place a new agency in charge of supervising all banks and bank-holding companies. The suggestion is in stark contrast to approaches taken by the House and favored by the Obama administration, which have pushed to expand the Fed's powers.

Politics as usual. Dodd has a horrendous track record on these sorts of things and over the past few months, has been desperately trying to do anything to create an image for himself as 'someone trying to take on the big interests.' But it's all a sham, meant to try to save his desperate bid for re-election.

I don't know enough about the details of this proposal to say whether or not it's a better approach than the Administration's. My current feeling is that both are severely lacking.

How about this for reform:

(1) Re-enact Glass-Steagall; phase it in over the next five years
(2) Split up the Goliath banks and create disincentives to form them (e.g. extraordinarily high FDIC fees for banks with certain market caps).

Those are the two best things Washington could do. We need to get rid of "too big to fail" and go back to promoting small business. While we're at it, let's lower corporate taxes on companies under a certain size and create less regulatory hurdles for small entrepreneurs. We've set up an environment where the little guys have difficulty forming and these big massive companies have all the advantages.

Easing Sarbanes-Oxley and the Race to the Regulatory Bottom

"Because of concerns over cost, regulators have already issued guidance instructing auditors to go easy. So if small companies — which have a much higher rate of accounting misstatements than their larger brethren, by the way — don’t want to comply with Sarbox, that’s fine. But they should issue stock privately."

How does this result benefit anyone?

The companies should be required to sign off on internal controls as SarbOx 404(a) requires. 404(b) is simply too expensive for small companies, however.

In an ideal world, would investors be able to audit the internal controls for every company? Yes. In the real world, do the costs of this outweight the benefits? I'd say no.

We could require more and more information from all publicly-traded companies, but each bit of information costs more and more to provide till the costs simply outweight the benefits. SarbOx 404(b) should really only be applied to large and mid sized companies because the high costs discourage companies from ever participating in the system to begin with. In essence, it's like taxing a good at such a high rate, that a black market forms. What good is it to force companies that would otherwise provide public information to the SEC to be private?

I say cap 404(b) to companies with market caps over $500M. Alternatively, allow small cap/micro cap companies that comply with 404(b) to be taxed at a more beneficial corporate rate.

Easing Sarbanes-Oxley and the Race to the Regulatory Bottom

SarbOx is part of it, but US GAAP is a bigger part of that. Companies don't want to have to maintain two accounting teams --- one to do financial statements in IFRS and one to do statements in US GAAP.


On Nov 04 11:29 PM THofler wrote:

> Large German companies are dropping their NYSE ADR listings. Companies
> like BASF. Why? There are several reasons, but a big one is the
> high cost of SarbOx.
>
> The financial crisis has proven that SarbOx's value is nearly nil,
> but the cost is massively high when the unintended consequences are
> fully weighed.

Nouriel Roubini says Jim Rogers' forecast of $2,000 gold is "utter nonsense." Speaking at the Inside Commodities conference, Roubini repeated that asset prices have gone up "too much, too soon, too fast," and said oil hasn't gone from $30 to $80 just on supply and demand. Predictably, Rogers doesn't agree: "It’s clear Mr. Roubini hasn’t done his homework, yet again." (previously)

Roubini is right here. I like Rogers. He's a great commodities investor, but he's also been a commodities investor during one of the most massive commodity bull runs in history. His economic sense isn't very sound in many cases. And his prediction on gold is utter bunk.

The case for $2000 gold is that the US will go through a period of hyperinflation. It's not happening. Any inflation at all will be somewhat of an achievement. It's possible we see a return to double-digit inflation once the economy picks up again, but if that happens, all the fear that has driven the current gold bull will be removed.

I'm not saying 'don't invest in gold.' I'm just saying anyone who thinks they're going to make some monstrous return doing that is fooling their self. Gold is a safety asset. The gold miners, right now, look to be severely overpriced in the aggregate.

Nouriel Roubini says Jim Rogers' forecast of $2,000 gold is "utter nonsense." Speaking at the Inside Commodities conference, Roubini repeated that asset prices have gone up "too much, too soon, too fast," and said oil hasn't gone from $30 to $80 just on supply and demand. Predictably, Rogers doesn't agree: "It’s clear Mr. Roubini hasn’t done his homework, yet again." (previously)

Citi's deposits grew by 16% in 2007, while their loans increased by 14.4%. Which is to say, "leverage" wasn't the sole problem with US banking system over the past decade. It was more of a "perfect storm" thing --- high leverage, reckless loan practices by certain actors, a widespread belief that RE prices would continue going upwards indefinitely, etc.


On Nov 04 12:04 PM Jeff Nielson wrote:

> Here's something for "Bubbles" Roubini to chew on. While he and the
> other idiots talk about "bubbles" in China, there was some VERY interesting
> data released that China's big-banks have seen their deposits QUADRUPLE
> while their lending has only tripled.
>
> Obviously, when bank deposits rise faster than lending, this means
> that China's banks are getting LESS leveraged - not more so, as Roubini
> and others claim. Since bubbles are BUILT on leverage, as leverage
> declines, so does the mis-pricing of assets.

Boston Private: The Tide Is Turning

Great article. I'll have to look into this one a bit closer.

My biggest question after reading this article, however, is "how does this company have earnings power of $2.80 per share?" Even in 2005, it was only at $1.50 per share. You could say revenues have doubled since then, but so has the number of outstanding shares. Are you anticipating significant growth?

Synovus Financial: Not All Banks Will Be Wiped Out

Great analysis.

Not sure if I agree. I looked at SNV a few weeks ago and, based on the numbers, thought it looked intriguing. However, I found myself skeptical of their business strategy.

Why do they hold so many different banks? It would appear that they have 31 different subs. Why not integrate that network of banks? It's like they went on an acquisition spree and it's not clear how well they understand the operations of all these banks.

I'm not saying it's a bad stock. It just seems a bit opaque to me and that scares me. Maybe my fear is a bit irrational. On the whole, it does look very cheap and the earnings potential looks good --- guess I'm just skeptical due to their structure.

I've debated buying into this stock --- I've gone back and forth. Thus far, I haven't bought in mostly because I believe there are other more transparent operations that seem to offer the same favorable risk-reward dynamics; but I could simply be overlooking what SNV has to offer.


Also, I'm trying to reconcile something here --- why do you like SNV's dilutive offering but dislike WAL's dilutive offering earlier in the year? It would seem like SNV's would have a more adverse affect on the underlying value of equity. Was your peeve with WAL more that you felt they were misleading to existing shareholders, while SNV was not?

Is Berkshire’s Burlington Move All About Coal?

I think saying it's a "bet on coal" is an oversimplification. BNSF does depend on coal for a good chunk of their revenues, but growth is coming due to (a) consolidation in the industry, (b) a better operating environment for railroads, (c) higher oil prices, (d) problems associated with funding for the highway system that could potentially undermine the subsidizes that have benefited truckers for decades, and (e) environmental favoritism.

In essence, rail will grow because the future outlook for trucking is questionable at best. The trucking industry can't compete nearly as effectively in a world with $4/gallon gasoline and increasing tolls and fees.

As far as coal goes, BNSF is in the best position because Western coal tends to be cleaner than Eastern coal; but really, all BNSF has to do is maintain its current coal shipments. Coal doesn't have to see radical growth for the company to grow significantly over the next two decades.