Mark from Reston

Why Mortgage Modifications Have Failed

Would like to hear more about your conversations with the banking regulators. Like why didn't they see the problems with the pay option ARMs mortgages out of BankUnited, Downey, WaMu, IndyMac and Golden West (Wachovia) until all of these institutions failed. When all of these institutions' originations were almost 100% pay option ARMs as early as 2005 and 2006, didn't the regulators think that there could be a problem down the road or at least see what this type of mortgage was doing to home and condo prices in California, Las Vegas and Miami? How crazy was it to let someone finance 125% of the purchase price of a house and then not expect all these mortgages to blow up and take the banks and the housing market with them.

Markets Suffer Through More Lies and Statistics

Wasn't it Mark Twain, not Churchill, who uttered the phrase about lies and statistics?

Flag Pattern: Comparison to 2003 Shows Prices Could Grind Higher

I'm fascinated by technical analysis within the larger historical context. From your charts above, it looks to me like the rally in 2003 off the bottom in March and broke through the 200 ma only to retreat to support at 850. Then it looks like there were several runs at the 200 ma in April, including what looked like a pattern of lower highs. It wasn't until it moved through 875 (was that resistance there from the Nov - Dec period?) and cleared 900 that it really took off before going sideway during the Jun to Sept period. So does that mean we come back all the way to 800 (or even 750) where there may be support before we start a new assault on the 200 ma? Seems to me in 2003 there were several attempts to break through the 200 ma on the second move up (which might have created plenty of doubt as to whether the move was for real). Maybe that means the break through will be when the 200 ma declines to 900 and we finally go through it and stay above it. Not to complicate matters, but what was the economy doing during this time in 2003 versus what we can expect in the next few months?

White Knight for BankUnited?

Your stock will most likely end up worthless. Usually after a bank holding company has its bank taken from it, the holding company files bankruptcy since most of its assets are in the bank (which it no longer owns). The holding company may have a few assets, but they also have millions of debt. I believe BankUnited has over $900 million of sub debt at the holding company level. Since the holding company has few assets to service this debt, they declare bankruptcy. The common stock usually winds up worthless along with most of the preferred stock and debt. The FDIC also has the right to sue the holding company for any losses that the FDIC insurance fund suffers from taking over the bank. So the FDIC get first claim on the directors and officers insurance policy.

I used to work for the FDIC and it's one of my pet peeves that the financial press does not do an adequate job of explaining how this process works, especially when most of these banks have publicly traded stock and the headline flashes "XYZ looking to buy ABC Bank."

There have been a couple of cases where a bank was sold without failing first, like with Wachovia and National City, but BKUNA is in much worse shape. At least Wachovia had a brokerage operation and money management arm. I do not believe there is any compelling reason for the FDIC or Treasury to save the stockholders of BKUNA.

On Apr 29 09:36 AM IndyRockStar76 wrote:

> mark,
>
> If the bank is seized what happens to the shareholders? Do we lose
> everything or do we profit from the pursuing auction?

White Knight for BankUnited?

You could do a better job of explaining how the FDIC sells a failed bank's deposits, branches and assets. Many are assuming that the publicly traded holding company is going to be purchased by these bidders. That could or could not happen, but as with Downey and Indy Mac and other banks with such bad assets, the usual way is for the bank to fail and then for the FDIC to sell the deposits and assets. The bank holding company then files for bankruptcy since it's primary asset -- the bank -- was seized and it is left with substantial debt at the holding company level without any assets to service it.

What's Fording Canadian Coal's Takeout Value?

My apology, but I have made several mistakes in my message. First, I misstated the amount of reserves for ANR and thus all my numbers are off. It has been reported to me that the industry looks at total reserves, which includes 3 different categories. Also, I erred in trying to calculate FDG's price by forgetting to account for the prior stock split. On a pre-split basis, FDG would already be at 3 times its current price, so the comment about comparing the current met coal price to the stock price is inaccurate. Again, apologies for bad work.

What's Fording Canadian Coal's Takeout Value?

I haven't read Hughes' analysis so I don't know how he got his number, but based on the ANR deal, I tried to run some numbers also to come up with a value for FDG.

First, because the Cleveland Cliffs offer for ANR was part cash/part stock, the value of the deal has fluctuated with the movement of Cleveland Cliffs' stock price. Originally, the deal was reported to be worth $10 billion, but they also used an $8.3 billion figure. To be conservative, let's use Yahoo Finance's current market cap figure for ANR of $6.86 billion, which also has the effect of backing out ANR's debt.

Based on the ANR deal and the info contained in their deal presentation, I used 2 metrics disclosed in the ANR deal and applied them to FDG. One is value to revenue and the other is value to reserves.
For value to revenue, ANR had $2.5 billion in estimated 2008 revenue of which 56% is from met coal or $1.4 billion in met coal rev. Using the $6.86b deal value, gets you a multiple of 4.9 times revenue. FDG is expected to have $3.7 billion in revenue (using the Yahoo Finance estimates, which may or may not reflect the new contract price for met coal). Using the 4.9 multiplier and dividing by approximately 150 million outstanding shares for FDG, gets you approximately $120 per share.

The valuation based on reserves is a little trickier. ANR has 61.8 mm total reserves, of which 73.4% or 45.36 million tons are met coal. The deal value to reserve ratio is thus $6.86 b divided by 45.36 mm or $151per ton of reserves
Fording's website states their reserves at 664 mm tons. I don't know if this is an apples-to-apples comparison with the "type" of reserves for ANR (i.e. proven or proven and probable), but it is the lowest figure stated on the FDG website. In addition, it's not clear if this figure represents FDG's 60% interest in the Elk Valley coal mine or if it is the total amount of reserves. For the sake of argument, I will assume FDG has 60% of those reserves or 398 mm tons. Multiply by the $151per tn from the ANR deal and you get a total value of $60 billion. Divide by 150mm shares and you get a figure of over $400 per share. That seems high to me and maybe the reason is that since FDG has larger reserves and a longer time to sell them, they have to be discounted over a longer time frame. Also, the ANR deal could have placed a greater weighting on the steam coal portion of ANR's business on the theory that the demand for steam coal will be more constant without the huge variations in price that we have seen in met coal over the past few years.
At any rate, a few years back when met coal prices rose to approximately $200 per ton, FDG share price rose to approximately $120 per share. It's hard to imagine with met coal prices close to $300 per ton and the possibility that they stay close to that range for possibly another year that FDG's stock price does not surpass $120.

The Quest for Marcellus Shale Exposure

What about a mention for Range? They hold the second most number of acres and are valued at the third lowest per acre. Reasonable debt level. They recently announced that they are looking at 30 million feet per day in the first quarter of 2009. Do the math.

The Problem With Capital One Financial

I've been looking to short COF but am also waiting for the rate cut first. I don't think the FHLB can accept auto loan paper as collateral. They are limited to mortgages, MBS, munis and AAA stuff. Not sure what the capital ratios are like at their bank, but the OTS should be awake now and looking more closely if they try to cram their crap into the bank. Those TV adds must cost a bundle.

The Problem With Capital One Financial

Not sure whether the FHLB's would take their auto paper especially if it is of the subprime variety. Like the Fed, the FHLB's take home mortgage paper or AAA securities and usually with some type of haircut. Although Countrywide sure used its thrift to access the Atlanta FHLB to keep afloat. Sen. Shumer was all over them so I'm not sure the FHLB's will be up to extending the type of collateral they accept.