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Jeremy Johnson, CFA  

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  • National Bank of Greece: Not Worth the Risk [View article]
    The good thing about a merger is that the combined entity should generate more internal capital then each bank alone due to cost reductions. Internal capital generation is huge deal for a stressed bank. After the Latin crisis most U.S. money center banks were nearly insolvent and they earned there way out through their ability to generate capital internally.

    Another aspect is credit quality at Alpha, if it's better or worse than NBG, depending on terms of the merger then you might be better or worse off. I don't know much about Alpha, so I can't comment there.
    Jun 22, 2011. 04:38 PM | Likes Like |Link to Comment
  • Greece: It's Not Lehman [View article]
    Lehman creditors should recover about 20% when claims start being repaid in 2012 according the Alvarez. The bonds trade about 23-25 cents on the dollar.
    Jun 22, 2011. 02:34 PM | Likes Like |Link to Comment
  • Undervalued Cisco: An Economic Profit Valuation and Analysis [View article]
    I typically only model seasonality when it is statistically significant and material. I test for seasonality using a variety of statistical tests which give me forecast seasonality and also use visual checks using 10 years of quarterly operating earnings data. Visually, an argument can be made that 1Q is slightly weak and 2Q slightly strong but the impact appears small. Also in recent years the very small amount of regular seasonality seems to have dissipated. In addition, the quarter I annualized seems to split the difference between 1Q and 2Q. Cisco's results are somewhat volatile, but boiling this down to an identifiable seasonality effect wasn't possible for me.
    Jun 22, 2011. 02:01 PM | 2 Likes Like |Link to Comment
  • National Bank of Greece: Not Worth the Risk [View article]
    €18 billion of debt to the Government of Greece
    €4.5 billion market value of equity
    €7 billion of tangible equity
    €4 billion of allowances for loan losses

    €5.4 billion is a 30% haircut to debt from the Government of Greece
    A small portion could be taken against allowances

    Assuming a €5 billion hit, most of your tangible book equity value is gone.

    This might be interesting if it were trading at a small multiple of tangible book value, but in fact it's only trading at a slight discount.

    Finansbank (Turkish sub) generates a return on assets of about 2.5% which is very good for a bank. It trades at a $6.5 billion market cap. NBG owns about 80% implying a 5.2 billion value. Some of this is captured in NBGs tangible book value already, how much was difficult to ascertain, but I would guess at least $1-2 billion. Therefore, all else equal, NBG probably has a kick of $3-4 billion to it's value based on Finansbank.
    Jun 22, 2011. 12:18 PM | 1 Like Like |Link to Comment
  • DaVita Will Survive Medicare's Dialysis Payment Bundling [View article]
    Of course I meant overprescribe, not oversubscribe. Too much work on debt syndications for me. I do hate making errors in these comments and that isn't the only one I made!
    Jun 21, 2011. 11:11 PM | Likes Like |Link to Comment
  • DaVita Will Survive Medicare's Dialysis Payment Bundling [View article]
    Of course they will survive bundling. The government isn't trying to put DaVita out of business. What the government wants is less usage of Epogen (more akin to the levels used in Europe) and by bundling they take away the financial incentive to, in the governments opinion, oversubscribe. In any case, you need a more detailed financial model to determine the exact impact of bundling based on the proposed rates.
    Jun 21, 2011. 08:18 PM | Likes Like |Link to Comment
  • National Bank of Greece Appears Undervalued [View article]
    Took a look at most recent annual report and subsequent quarterly report. Bank had a little under €18 billion of Greek Government loans and securities on it's books. Bank has about €7 billion of tangible equity capital and €4 billion of allowances for loan losses. It's hard to say how much other direct exposure the bank has to Greek state finances such as local governments or Greek corporates that are heavily leveraged to the Greek State. But, a 30% haircut to their outstanding loans and securities made to the Government of Greece would be €5.4 billion. It's possible the loan as opposed the general obligation debt securities is secured. However, assuming the 30% haircut the equity capital of the bank would be all but wiped out. That is just the direct effect. In the event of Government default, I would imagine their could be some knock on effects of other borrowers defaulting. Also it seems like loans to Greece are trending up or at least they were as of the annual report.

    As far as I can tell, NBG trades around tangible book value which would seem to indicate it's hardly cheap.
    Jun 21, 2011. 08:08 PM | 2 Likes Like |Link to Comment
  • National Bank of Greece Appears Undervalued [View article]
    This isn't how you value a distressed bank. The only thing you should be looking at is the balance sheet. What are the assets, what are their values, and what are the claims on the bank -- market value of debt, equity, etc; all under various scenarios. Given the current market value of Greek government debt, I *suspect* the bank is technically insolvent although that could change depending on government backstops.

    Greece only has three options, restructuring government debts while maintaining the Euro, leaving the Eurozone and defaulting on euro-currency debts, or having it's debts guaranteed by a federal Eurozone entity for at least 5 years and more likely a decade or more. There is no chance of Greece raising private money when interest rates are ~15%. In either the 1st or 2nd case, your NBG equity is probably worthless in dollar terms, although it's been about a year since I closely inspected the balance sheet. So really you have an event driven play here based on Eurozone policy response to Greece.

    I would probably look harder at the Greek telecom company, since your operating assets should stay more stable in Euro terms.
    Jun 21, 2011. 04:23 PM | 5 Likes Like |Link to Comment
  • The Challenge of Using Betas to Measure Risk for Tech Companies [View article]
    Beta is a broken concept. Buy-side analysts disregard it as measure of cost of funds. It's usefulness is in the ability to manipulate value with a single easily changed number -- because you can calculate beta a multitude or ways (1yr, 3yr, 5yr, industry average, against any number of indices, etc) it's easy to get the value you want for a company by simply calculating it a different way. That's why it's useful for accounting firms giving "fairness" opinions and sell-side shops recommending stock.

    If you do use beta, it needs to be a de-levered sub-industry beta re-levered using the firm's debt-equity ratio. This is to be statistically significant since the beta of one firm over three years has very little statistical significance. Each business segment of a company needs a separate beta based on the sub-industry they are in and then the separate betas need to be recombined on a percentage basis. What you'll often find at the end of that process is that most companies' betas are close to one which comports with the economic reality that most large companies have a similar cost of funds.
    Jun 19, 2011. 07:02 PM | 1 Like Like |Link to Comment
  • Apple's Valuation: The One Article Every Investor Should Read [View article]
    They are not splitting because it doesn't matter. Studies done in the past 10 years show it may even reduce liquidity. The people still splitting are living in the past.
    Jun 7, 2011. 03:10 PM | 1 Like Like |Link to Comment
  • Valuation and U.S. Debt [View article]
    A lot of the securitization boom was driven by the desire to hold riskless "AAA" assets by large financial institutions (and to a lesser extent the "AA" piece). The way the capital regulations work, a bank could fund nearly limitless "AAA" tranches and earn 20-25 basis points risk free.

    The problem was always selling the "A" and "BBB" and "BB" tranches which limited how much could be done... not to mention finding enough underlying assets. I would love to blame the banks, but it's a highly regulated and competitive business. Making half the money of the bank next door will get you fired. Ask Phil Purcell.
    Jun 4, 2011. 07:30 AM | 1 Like Like |Link to Comment
  • My Advice to Cisco: Double the Dividend and Cut the Conference Calls [View article]
    The Company need to return it's cash to shareholders, but they will wait in order to try to get a tax amnesty or fundamental tax law change on foreign earnings.
    Jun 4, 2011. 07:23 AM | 1 Like Like |Link to Comment
  • Valuation and U.S. Debt [View article]
    Pre-crises the Fed was monetizing less than 0.5% of GDP per year, post-crises it is in excess of 3%. There is an argument that as long as inflation is below some threshold, say 2% that the Fed can replace treasury assets (bills, notes, bonds) with Federal reserve assets (deposits at the Fed) at whichever rate it chooses. I don't see the logic in this argument. It doesn't matter whether base line inflation is 1% or 3%, the purchase of treasury securities with Federal Reserve assets is a transfer of purchasing power from the private sector to the public sector with no promise to repay.

    The authorities will continue to monetize because it is the most politically achievable way to effect a tax increase. And since the Government has nearly full control over the banking sector, it can create enough financial repression to tie up funds in excess reserves in order to control inflation. All the banking acts and regulations are purposeful acts to constrict credit creation to effect that end.
    Jun 3, 2011. 06:55 PM | 2 Likes Like |Link to Comment
  • How a New Cisco CEO Could Move the Stock Price Up 40% [View article]
    The US worldwide income tax policy will have to change eventually. It's a significant disadvantage. However, US firms have many competitive advantages to offset this, so it has been and remains only a minor drag. As the world competes better, the tax rules will have to change.
    May 24, 2011. 06:13 PM | Likes Like |Link to Comment
  • Cisco's Flip Cam Failure and the Consumerization of IT [View article]
    I like the article, but I doubt IBM is lamenting the disposal of ThinkPad given the further commoditization of that business
    Apr 18, 2011. 01:06 PM | Likes Like |Link to Comment