BDHPlayer

Capital Crossing Preferred Corp: Too Cheap?

The claim is as of 9/15/08. The bank took significant write offs at 9/30/08. I wonder if some of the perceived decline in value for these items was already reserved at quarter end.

The 12/31/08 financials will give a better clue of where Lehman Brothers Bank stands.


On Feb 05 07:30 PM User 351933 wrote:

> Despite the fact that the potential return has grown on this play,
> I still do not find the risk-return favorable.
>
> In the prospectus for CCPCN, it reads: "The returns from your investment
> in the Series D preferred shares will depend to a significant extent
> on the performance and capital of the Bank. A significant decline
> in the performance and capital levels of the Bank or the placement
> of the Bank into bankruptcy, reorganization, conservatorship or receivership
> could result in the automatic exchange of your Series D preferred
> shares for preferred shares of the Bank, which would represent an
> investment in the Bank and not in us. Under these circumstances."
>
>
> So how healthy is the Bank?
>
> The Bank currently has a 2.2 billion claim against Lehman Bros. Holdings,
> for loans that were to be purchased by them on Sept. 15. But bankruptcy...
>
>
> Let's assume that the 2.2 billion lawsuit delivers nothing for the
> Bank. It is then my suspicion that the loans will not be saleable
> at their carrying value. Sept 30, 2008 data from the FDIC (the most
> recent available) shows a YOY drop in equity capital of over 1 billion.
> Current equity capital stands at 1.009 billion. If the 2.2 billion
> has a 10% haircut, that will wipe out over 20% of remaning equity
> capital. I'll let you figure the more gruesome scenarios.
>
> This of course still assumes that all the rest of the banks' assets
> are fine. June 30, 08 to Sept 30, 08 shows a drop of over 700 million
> in equity capital. In sum, I suspect that the Bank is a couple bad
> quarters away from receivership.
>
> See Buffett's rule #1--don't lose money. There is a real risk of
> permanent capital loss on this one.