siegfried

These 32 Commercial Banks and Thrifts May See the Dung Hit the Fan

agree--the home equity crisis is a ticking time bomb. now take your list and cull it for banks that have already taken the hit, raised additional equity and moved on, then adjust the remainder for banks "hidden assets" like the KO stock on STI's balance sheet that will add $1 billion of equity this quarter and then cull out the banks operating in geographies that have not been hard hit. You will get banks like CMA, BBT, and SNV. Still trading above book and still under reserved. Then its a race--will they have to write down before the recession turns. If the recession lasts through the year and they have to do year end house cleaning (again) then they will trade down 20% to 30% from here. If not, then you are stuck with watching them trade between their 50 day MA and their 200 day MA for the next 2 quarters.

Financial Stocks: A Look at the Big Picture

As of 12/31/05 BBT had $11.94 billion in construction and land development loans. As of 12/31/07 BBT had $19.47 billion. The $7.53 billion in construction and land development loans underwritten in the last 2 years represent commercial and residential construction projects underwritten during the boom years of real estate expansion and are now being finished--just in time for the biggest contraction in real estate values since BBT was created. This portfolio of construction loans is now turning into devalued real estate assets. This means the $7.53 billion might be a 50% write off in 2008. Current loss reserves for BBT are slightly over $1 billion. These construction loans are the bomb that could sink BBT just as sure as sub prime mortgages sank Bear Stearns. Don't say you weren't warned.

Financial Stocks: A Look at the Big Picture

BBT has 21.24% or $19.5 billion of its loan portfolio in construction loans. This is 153% of shareholder's equity, which by the way has a bunch of goodwill in it. As of 12/31/07 BBT had $3.3 billion of Alt A loans. BBT's loss reserve as percentage of its loan portfolio was 1.11%. Does valuation even matter any more?