Friday, September 18, 2009

Proctor Upgrade/Bought 50 Huntington Bank as Lottery Ticket/Sold 50 ISF at $14.65 and Bought 50 AEF at $16.82/ Pared JZH by Selling 50 at $20.2

1. Proctor & Gamble (owned): I noted that Citigroup upgraded PG to buy from hold and raised its price target to $66 from $54. I do not have access to the report. Some of the reasons are summarized in this story: MarketWatch

2. Bought 50 Huntington Bank (HBAN) as Lottery Ticket at $4.27 (see Disclaimer): I have never bought this stock prior to today. I have noted that Cramer has a positive opinion of its turnaround potential. I am not so sure. But, with a Lottery Ticket, I can have a lot of doubts about the firm's prospects. And, it is okay that a LT has deservedly been smashed in its price to low single digits, since almost every single LT purchased over the past two years has been smashed to smithereens for good reasons. That is sort of a requirement for a LT. Huntington Bank stock is certainly no exception.

Huntington announced today that it had raised 400 million dollars by selling common shares at $4.2. $400 Million Common Stock Offering To anyone still holding this stock from a purchase in say 2006, that is one dilutive share offering. For someone buying now, knowing about the dilution which is basically priced into the offering price, the new equity gives some assurance that the bank will survive, and that is important to the new shareholder. Huntington has lost all of its share price value going back to November 1990 at the current price. So, that is pretty awful and serves to emphasize the saying that boring is good for banks. Huntington has about 600 branches in the Midwest with around a 50% share of the market in Ohio.

I have bought several bank LTs. The general idea is to hold them as a group for several years, hoping for a few large gainers and accepting the likelihood of a few losers. One small loser has already been jettisoned, UCBH, which fired its leadership recently. After I sold my stake of 50 shares at a small loss, UCBH quit paying the government its dividends and deferred paying interest on its junior debt. To my knowledge, this is the only publicly traded bank that has not been seized yet that has deferred paying dividends to the government for its preferred stock acquired with Tarp money.

With an LT like Huntington, patience and a long term perspective are the operative words.

3. HOUSE ENDS PRIVATE STUDENT LOAN PROGRAM: As expected, the House of Representatives passed legislation on Thursday that will basically end Federal subsidies and guarantees for private student loans and replace private lending with government lending to students. The Senate will now to pass the bill and Obama will unquestionably sign it. The changes will take effect 7/1/2010. I would not buy a long term Sallie Mae bond given these events. I am more comfortable, though still very queasy, about OSM maturing in March 2017.

4. Sold 50 JZH at $20.20 (see Disclaimer): JZH is a Trust Certificate containing a senior bond from Prudential. I sold just 50 shares today at $20.2, reducing my position to 150 shares with the last shares bought in November 2008 at $9.75. TRUST CERTIFICATE JZH: PRUDENTIAL SENIOR BOND I do not intend to pare again. I also bought some shares in a regular IRA at around $14 back in September.

5. Change of Posture on ING and Aegon Hybrids-Sold ISF at $14.65 and Bought AEF at $16.82 in retirement accounts (see disclaimer): I have mentioned several times that I have a more positive view of the Aegon hybrids than those from ING, viewing it as more likely that ING will be required to do a deferral by the EC than Aegon. Of course, no one really knows for certain what is going to happen. But I had bought 50 shares of ISF at $4.6 during one of the worse meltdowns in these hybrid securities, back in late February 2009: Masters of the Universe=Masters of Disaster/AIG & Financial Black Holes/M, CBR,TGT/BUY OF ISF So that is about a triple with the dividends after I sold it today. Since I have more confidence in Aegon, at least for now, I decided to plow those proceeds into a buy of AEF, which has the highest fixed coupon of the Aegon hybrids traded in the U.S. at 7.2%. Normally, I would want to hold a security paying a qualified dividend in a taxable account whereas I would try to put one paying interest taxed at the highest U.S. marginal rate in a retirement account. I have been putting these European hybrids from ING and Aegon in a retirement account this year due to my perception of an enhanced risk of dividend deferral. The Quantum site does list AEF as one of the hybrids that pays qualified dividends but they may not have first hand knowledge of that and there are disclaimers in the introduction at that site: Preferreds eligible for the 15% Tax Rate Table -

I still own INZ in a retirement account bought at the $7 and change level.

This is a link to the prospectus for AEF:

Par value is $25. At my cost, the yield is around 10.65%. ISF has a similar yield at the price that I sold it today. I am not sure that price for ISF compared to AEF takes into account the greater possibility of an ING deferral. But, maybe, more sophisticated people than me are not concerned about it or have a different opinion on the likelihood. Moody's said a few weeks ago that it viewed it highly probable that the EC would ask ING to defer and a low probability on Aegon. Who pays attention to the rating agencies anymore? I have discussed in many prior posts several arguments that could be made by the hybrid owners that could throw a wrench into the EC plans.