wolfdog

Well-Capitalized Regional Banks: The Bottom Is In

The total cash vs total debt calculation is a flawed way to look at banks. It will not lead you to differentiating between good and bad. Bank analysis is a much more detailed process whereby the loan portfolio is dissected, piece by piece, loss contents estimated in relation to reserves on the balance sheet, then worst case unaccrued losses attributed to book value, and ultimately to earning power.

I noticed there was a lot of insider buying in CNB, at higher prices. And I did not think that had any signaling power either, b/c if the management is dumb enough to go overboard on real estate lending w/out proper credit standards, they are sure not smart enough to figure out when to buy the stock.

All that said, we are in fact getting close to or at some compelling valuation levels in banks, based on tangible book values. The key is where are we in the credit loss cycle. I believe we are in the 3rd or 4th inning, but by the end of this year could be nearing the 7th inning "stretch". So it is a good time to be doing lots of homework.