Timmothy Posey

The Next Shoe to Drop in Banking: An Options Strategy

Do you mean a 6 cent credit? +0.38 cents in credit to sell the Sept $12 put and $15 call, -0.32 to buy the Jan2010 $12 put:

0.38 - 0.32 = 0.06

Monday's Options Recap

Roubini has been predicting a recession and Dow 5k since 1997. I think everybody has forgotten he is a pariah and has only gotten attention lately because he was finally right about an oncoming recession.

Even a broken clock is right twice a day.

Mark-to-Market Marches Towards Extinction

M2M is already "waived" when there is no liquid market. Read up on the FASB 157 clarification from September 2008 where they specifically state and cite the MBS market since it does not work when there is no "orderly transaction".

M2M is just a political rallying cry for many banks so they can go back to Mark-to-whatever-I-fee... and have huge write-ups.

And let's pop the myth now that M2M is for all assets. It's not, it's only for trading assets that are not intended to be held to maturity. Thus, if your neighbors are selling their houses all for $10k, and you are selling a very similar house for $200k, you're probably a little overpriced, and thus the market reflects that. If you aren't selling your house, you don't have to worry about any margin calls or anything like that since you are holding to "maturity".

However, insurance companies are probably the only ones targeted unfairly in this case. Insurers are required to post all of their assets at fair value at any given time (since there may be a sudden outbreak of hurricanes or bird flu and they need to sell those assets immediately).

Eight Reasons Bank of America Is Going to $20

Long BAC commons is basically a call option. Either you're going to lose it all, or you're going to make a bunch of money.

Nationalizing Bank Losses

This is probably going to offend many people, but I will go ahead and say it since not many are willing to stay it:

You can blame the banks all day, but the people who lied on their mortgage applications, speculated, or stopped paying the mortgage are mostly also tax payers. I agree it is unfair that the majority of Americans are responsible, but the problems of a few are causing the assets to become 'toxic' and default. So don't put all the blame on "greedy Wall Street", that's an easy cop-out. Someone needs to blame the greedy "investor" who used their house as an investment vehicle.

Are Banks Stemming Growth Despite TARP?

I honestly don't blame them for not lending or reducing their lending. First of all, the TARP capital injections were (get this..) CAPITAL. You don't lend capital, you use capital to bulk up your Tier 1 and 2 CAPITAL ratios. You lend out bank deposits. Citi for example had -6% growth in deposit growth, so to see them reduce lending by only 3% really means they kept lending up a little more than what they should.

Secondly, would you lend money to a borrower who's job prospects are declining, or lend against collateral that is declining 10% per year in value?

Sure, there are "stories" of people with 850 credit scores and 20% down payments who can not get mortgages (yet LendingTree.com has had no problems, so I don't believe these stories). According to Fair Isaac, the average American's FICO score has been reduced 20% to 580, which is well below prime.

I would do the same if somebody gave me capital. I would hoard it until the recovery took place. Let other banks (US Bank, BB&T, WFC, etc.) be the brave ones and increase their credit risk profiles.

Banking Is Tanking Worse Than Ever

Well the good news is that it can't go much lower. XLF is already down to $8. Citi is at $3, BAC @ $6.

Is Nationalization Contagious?

A bondholder doesn't theoretically own the company, the shareholders and preferred shareholders do. The bondholder is just someone the bank owes money to, with the contract/agreement that certain assets are guaranteeing that loan.

E.g., so if the bondholder doesn't get paid, they have the right to force liquidation of the company.

If the bank is nationalized, the bondholders would get paid because the government wouldn't want that liquidation (or do they?)


On Jan 23 12:56 PM User 293585 wrote:

> Why shouldn't bond holder lose something in a "nationalization" of
> a bank?
>
> Can anyone explain that to me?

Is Nationalization Contagious?

The nationalization of ANY major bank would spread instantly throughout the financial markets of the world. XLF would be $1/share or less.

Nationalization is just a really bad idea. We need to ATTRACT private capital so the need is reduced for government money. However, not many people are willing to pile money into a bank right now knowing that their preferred shares or common will get wiped out just like TPG did with WaMu in 2008.

Nationalize Citigroup and Bank of America

Can't we all just get along?

10 Banks 'Guaranteed' to Survive and Prosper

I would not put Citi (C) in the group of guaranteed not to fail. They are selling off their most profitable units, which one can easily speculate that the government is silently forcing their breakup.

Another Big Bank Failure: More Likely Than Not to Occur

He also forgets that GS and MS have full FDIC protection on anything they issue for the next two years. So if they have a true problem, they can VERY easily raise cash by issuing the FDIC-backed corporate bonds at ridiculous interest rates and "borrow" their way out of whatever problem is hounding them.

Except, there aren't any problems hounding them. Sure they lost and will continue to bleed quarterly, but they have access to the Fed Discount Window and for all intents and purposes are money-center banks.

Financials Future Still Uncertain

Come on guys, you are all starting to sound like the Chicken Littles from MarketWatch

Financials Offer Patient Bulls Many Opportunities

I believe C has more upside potential than any of them. I believe it is undervalued (Future P/E of 10) than any of the others in the XLF index. Plus with a 5.1% dividend yield, that provides some cushion.

I also agree with the article on BX, however it would be a 5-year play. I don't see it doing anything but trading sideways until they the credit crisis gets worked out.