Senator Carl Levin (D) is doing his best to distort the facts and to engage in political theatre in anticipation of Lloyd's appearance before the Senate this morning. BusinessWeek
And Senator McConnell (R) continues to grossly distort the reasons for the 50 billion fund in the financial reform bill, calling the fund an incentive for banks to engage in risky behavior knowing that they would be bailed out again. NYT This is at best a knowing misrepresentation about the purpose of that fund, which would be funded by the banks, and used to wind down the affairs of a seized bank. The only explanation for his comments is that he protecting those financial institutions from the levy, rather than the purported rational of preventing another taxpayer bailout.
Maybe the Senator from Kentucky needs to think for a second about what happens when the bank is seized. It is invariably a bad day for top management, the shareholders, and the owners of unsecured bonds. Nothing is gained by them. All would be punished for the improvident risk taking. According to McConnell, the orderly wind down of a large financial institutions is viewed as encouraging unwarranted risk taking?
All of the republicans voted against starting debate on the financial reform legislation, effectively preventing the bill from advancing to a vote. NYT This is to be expected.
One thing is clear. Both political parties are so fed up with the bailouts that the European burden sharing policy will look good to the owners of U.S. bank Trust Preferred issues, when the next financial crisis arrives and it will come again. If I am sufficiently compos mentis to sniff out another approaching 2008 financial meltdown scenario, any bank TPs will certainly be among the first securities jettisoned.
The treasury auctioned the 5 year TIP yesterday. The coupon is .5%. With the OID, the yield would be .55%: www.treasurydirect.gov .pdf The five year non-inflation protected treasury was priced to yield 2.56% yesterday: Bloomberg.com: Government Bonds This indicates a break-even of about 2% which would be the market's current forecast of the average rate of inflation for the next 5 years.
1. Bought 100 of the ETF CDZ.TO at 19.24 CAD and 100 of the ETF CLF.TO at 20.10 CAD/Currency Risk Discussion (see Disclaimer) Both of these ETFs are offered on the Toronto exchange. Since I pay more in brokerage commissions to execute trades on the Toronto exchange (16 CAD), I am less likely to trade these two ETFs for small profits. The primary purpose for buying them was to increase by exposure to the Canadian dollar through the purchase of securities that pay dividends in Canadian dollars and to further diversify my holdings.
I came across these Canadian ETFs by performing a search for the web address for Claymore ETFs and accidently clicked on the link to Claymore's Canadian site. I knew that I made a mistake after arriving, but decided to take a look around to see how the offerings differed from the ETFs sponsored by Claymore which trade in the U.S.
The Old Geezer was interested in several of the ETFs offered on the Toronto exchange.
The ETF CLF uses a ladder strategy to buy Canadian government bonds. The ladder is weighted into five equally weighted baskets, with maturities of 1 to 5 years. So, while I face currency risk, my interest rate risk is limited since there is a constant roll in bond maturities. Claymore 1-5 Yr Laddered Government Bond ETF - CLF - Claymore Investments, Inc. The ETF has 25 securities with a duration of 2.535 years. Dividends are paid quarterly. The last distribution was 21.2 Canadian cents per share. At that rate, the current yield would be 4.21% annualized. I would expect the 15% Canadian withholding tax to be applied to the distributions. Management fees are .15%.
The annual report for CLF is available at Claymore's Canadian web site ( see pages 15-22: claymore /annual_report-_12_31_09 PDF)
Since I maintain a Canadian currency position anyway, I am always looking for ways to diversify my Canadian dollar position to generate income payable in Canadian dollars, which I will then use to buy additional securities that do the same. I am a long term holder of Canadian dollars, recognizing and understanding the currency risk. It goes without saying that the currency risk could easily wipe out the value of the dividends for a U.S. investor having to sell a position after a serious decline in the Canadian currency against the U.S. dollar. I am willing and able to assume that risk since I do not need to sell and can certainly hold the position until I receive a more favorable exchange rate. So far, my investments in Canadian dollars have worked out, as the Canadian dollar has risen in value against the U.S. dollar. I could now liquidate all of my Canadian holdings, convert the proceeds to U.S. dollars, and make a return just on the currency exchange. I do not intend to make that exchange for the foreseeable future. If I could convert at some point where a Canadian dollar would buy $1.2 U.S., I would have to consider making the exchange then.
Currency movements are volatile. I would prefer to do what I am doing than to invest passively in the Canadian currency or to own the currency ETF (FXC) for Canada. A five year chart of FXC shows the volatility of the currency exchange: Rydex Specialized Products LLC ETF Chart
And RB said that all of this is in furtherance of its secret plan to acquire Canada, all of it. It is good to have goals, RB added with emphasis. HK just said for the RB to hush, that plan is secret. The price may go up if the Canadians get wind that the HK is gradually acquiring their nation.
The other Canadian ETF CDZ:TO is designed to replicate the S & P/TSX Canadian Dividend Aristocrats Index. Claymore S&P/TSX Canadian Dividend ETF - CDZ - Claymore Investments, Inc. Management fees are .6%. Dividends are paid monthly. The current dividend yield is around 4.95% (excluding withholding tax and currency exchange values). The ETF contains 56 securities and a list of them can be found at Claymore S&P/TSX.
I also mentioned an Ishares product,EWC, which is an exchange traded fund available in the U.S. when I purchased shares at $15.55 in March 2009. This one pays semi-annual dividends. Distributions. EWC is based on the MSCI Canada Index: iShares MSCI Canada Index Fund (EWC): Overview While this fund is denominated in U.S. dollars and sold on a U.S. exchange, a U.S. investor in EWC also faces currency risk as the securities contained therein are after all Canadian stocks.
I would add that CLF is available for trading in the U.S. on the Grey Market: Claymore 1-5 Year Laddered Government Bond ETF - CLFMF. For those unfamiliar with this market, it is very difficult to trade, but it is possible. The main problem is that there is no transparency. The bids and offers are not displayed. There are no market makers. OTC Market Tiers, OTCQX, Pink Quote/OTCBB, OTCBB, Pink Sheets, Grey Market, Caveat Emptor Limit orders have to be used. I have entered orders in the Grey Market and have had difficulty receiving fills. I therefore just prefer going to a market which has transparency which was the Toronto market for the ETF CLF.
2. Enterprise Bancorp (EBTC)(own- Regional Bank Stocks strategy): It is hard to keep up with the earnings reports for the stocks contained in my basket. Enterprise Bancorp did report earnings last Thursday at 32 cents compared to 19 cents in the year ago period. As of 3/31/2010, NPLs as a % of total loans was 1.36%, and the net interest margin was 4.44%. The tier 1 capital to risk weighted assets increased to 11.18% from 11.08% as of 12/31/2009. Bought 50 EBTC at 11.75
3. MYP (own): MYP is a principal protected note issued by Citigroup Funding and guaranteed by Citigroup. I bought 100 shares at $10.12. As mentioned in that post, I knew then that the first annual coupon period had experienced a reversion to the 3% guarantee due to a maximum level violation. I mention MYP now simply to highlight that the first annual coupon period ended April 26, 2010 with the S & P 500 closing at 1212.05,^GSPC: Historical Prices for S&P 500 INDEX . The prospectus states that a "coupon period will begin on the last index business day of the preceding coupon period," Pricing Supplement The starting value for the second coupon period would then be the closing value of the first period, which was 1212.05. This means that the S & P 500 can not have a single closing day over 1,599.906 without causing a reversion in the second annual coupon period. The maximum level for an increase in the S & P 500 is 32% from its starting value. As long as there is no maximum level violation during the relevant coupon period, one day is enough, then the owner of MYP would receive the greater of 3% or the percentage increase of the S & P 500-up to 32%-from the starting value to the closing date. The next closing date is April 25, 2011. Assuming Citigroup survives to pay the $10 par value in 2014, my downside is the small premium paid to par value and the 3% guarantee, while the upside would be an annual distribution between 3% and 32%. I will receive my first coupon payment based on the guarantee on 5/3/2010 (i.e. $30 for 100 shares).
4. Bought 50 FNB at $9.36 (Cat. 2-Regional Bank Stocks) (see Disclaimer): FNB was scheduled to report after the close of trading yesterday. If I was going to buy more than 50 shares, I would have waited to review the report. FNB is the replacement for Synovus which was sold after one too many disappointing quarterly reports.
F.N.B. Corporation is the holding company for First National Bank of Pennsylvania (FNBPA). As of 12/31/2009, it had 224 community bank offices in Pennsylvania and Ohio, and 57 consumer finance offices in those states along with Tennessee. It had 3 commercial loan offices in Florida and 1 in PA. The Florida offices focus on managing the loan portfolios acquired in that state from prior years.
The annual dividend rate is currently 48 cents per share, which translates into a 5.13% yield at a total cost of $9.36. I would not be surprised by a dividend cut. The bank did cut its dividend in half during the Near Depression period, reducing it from 96 cents annually to the current 48 cent annual rate.
On the bright side, the bank did remain profitable during the recession, though earnings did decline substantially from 2007.
In the annual report for 2009, the bank shows diluted E.P.S. of 32 cents in 2009 and a cash dividend of 48 cents. The bank earned 44 cents per share in 2008 and $1.15 in 2007 (page 61: e10vk)
The bank did redeem the government's preferred stock in September 2009. The bank sold 24.15 million shares at $5.5 a share in June 2009. The net proceeds were 125.8 million dollars.
The bank has operations in Florida which appear to me to be a disaster. The non-performing loans in Florida were a truly horrendous 31.65% of total loans in that state. I do not know the origins of the foray into Florida. Fortunately, the Pennsylvania operation is much bigger and had non-performing loans at .85% of total loans as of 12/31/2009. (page 49: e10vk). What can you say? Just another bank that got away from its roots and thought they would find the city of gold in the sunshine state. The net interest margin was 3.75%.
The bank earned just 4 cents per share for the Q/E 12/09.
The holding company had a total capital to risk-weighted assets ratio of 12.9%, with the bank FNBPA at 12.4% as of 12/31/2009. (page 109: e10vk)
After the close F.N.B. Corporation reported an E.P.S. of 14 cents per share, beating the consensus estimate by 2 cents. The total risk based capital ratio was 12.8%, the tier 1 risk based capital ratio was 11.4, and the leverage capital ratio was 8.7%, all as of 3/31/2010. The net interest margin was 3.74%.
5. SOLD 100 HSE:TO AT 30.48 CAD (SEE Disclaimer): Husky Energy was bought recently at 28.99 Canadian. I received one quarterly dividend payment. This transaction leaves me with over a 3 thousand Canadian dollar surplus which I intend to invest into two more of the Claymore Canadian ETFs. The Canadian dollars do not earn anything sitting in the brokerage account so I will put them to work again soon.
RB just said that this is typical LB tunnel vision. RB bets that the NERD buys the Canadian ETF for corporate bonds and another containing Canadian preferred stocks (mostly TPs). How on earth is the HK going to acquire Canada with those kind of investments?
6. HMA (owned): Health Management Associates, Inc. reported earnings of 19 cents, two cents better than the consensus estimate. My recent buy was viewed at the time of purchase as a long term hold, based on a belief that hospitals would ultimately be the long term winners in the recently passed health care bill, unless the republicans successfully repeal it which they will try to do. Bought 100 HMA at $8.82
The bad debt expense increased to 12.4% of revenue from 12% in the year ago quarter. If the republicans are not successful in repealing the recently passed health insurance bill, which is one of their primary goals, this bad debt problem will not likely be a serious problem starting in 2014, and certainly nothing like 12% of revenues.
The company issued guidance for F/Y 2010 of between $.56 and $.61. The current estimate is for an E.P.S. of 57 cents. HMA: Analyst Estimates for Health Management Associates
7. Sold Two LTs ACTI at $3.19 and RCMT at 3.53 (See Disclaimer): Headknocker is not being reasonable when making the request that LB work more than 24/7. Even when other staff member are sleeping, the LB is working, mulling the one million or so variables and contingencies that impact its decisions. The LB is at its limit and does not believe it is possible to work more than 24/7. As a consequence, LB refused to buy yet another regional bank stock advocated by the RB unless LB could sell two Lottery Tickets. Hence, to appease the LB, and to lighten its work load, the decision was reached to jettison ACTI bought at 2.20 and RCMT purchased at $2.15. RB acknowledges that it was behind those LT buys, but wants everyone to know that it voted for buys of 10,000 shares each. It was the LB that wanted only 50 shares.
8. UBSI (own-regional bank strategy): I was curious when UBSI would start to correct. The stock closed Friday at $31.54, up from my purchase at $16.56 last November. I like the dividend yield at my cost which is about 7%. UBSI fell $1.47 yesterday to close at $30.07 after reporting its 1st quarter results. The estimate was for 40 cents. UBSI: Analyst Estimates for United Bankshares, Inc.
Before the market opened yesterday, United Bankshares, Inc. announced earnings of 40 cents per share. NPLs were 1.29% of loans. As of 3/31/2010, the risk-based capital ratio was 12.6% and the Tier 1 capital ratio was 11.3% (6% is considered well capitalized). The net interest margin was 3.65%.
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