Friday, April 23, 2010

Qwest and CTL Bonds/Sold SNV/Sold 50 KMB at $62.13/Bought 50 STD at 13.35/Earnings NHTB WBS KMB GBCI OCFC

LB is sick and tired of reading these regional bank earnings reports. Maybe, when no one is looking, LB may sell all of them. Besides, LB does not receive any credit for its magnificent work. LB is not even paid for working 24/7. Then to add insult to injury, Headknocker says that the LB is paid more than its worth. Isn't there a law about sweat shops? HK replied that the LB needs to work harder and longer than 24/7 to advance the Great Leaders' capital base.

LB, being somewhat versed in arcane legal matters, also believes that there is a law about a lame brain RB claiming credit for all of LB's fine grunt work, all of that focus on details. RB just said "Don't Sweat the Details, Nerd!". And, HK just leveled another criticism at the 16 year old Stock Stud, claiming the Fabulous LB may be losing it, may not have all the functioning brain cells claimed by it.

Okay, LB will admit that it neglected to mention in a recent post that the HK also owned KVW, bought at around $16, one of the AON TCs, and inadvertently claimed HK only owned DKK and KTN. Bought 50 DKK AT 24.5 And, sure, given the large number of banks in the regional bank strategy, with the no wit wanting to add more by the day, the LB loses track every now and then. So what, the LB lost track of a few of them and temporarily could not remember whether it owned one with operations in Virginia. Who can remember a name like Fauquier? Besides, that name sounds both French and obscene.

The LB may be close to perfection, but never has claimed yet to be perfect. And it goes without saying that the LB still has all of its brain cells And just to show who is boss in the operation, the LB sold 50 shares of SNV yesterday and will never read again one of that bank's earnings releases. The sale was at near break-even.

1. Qwest (own senior bond in TC form only-PJA): CenturyLink and Qwest have signed a merger agreement whereby CTL will acquire Qwest in an all stock transaction. I have never owned the common stock of either company. This is the second time that I have owned bonds issued by a company acquired by CTL. In the first case, CTL acquired Embarq, and I owned a senior bond issued by Embarq in the TC FJA. BOUGHT 100 of the TC FJA at $15.35 Bought another 50 FJA at $ 14.2 The acquisition of Embarq was pending at the time of my purchases of FJA, and this bond has subsequently performed well. FJA closed yesterday at $22.87, down 82 cents. FJA had a current yield at my purchase price of over 12%, matures in 2036, and is rated investment grade. So, assuming no early call and CTL survives to pay value, that is a long time to be earning 12% annually, year in and year out, from an investment, plus the additional yield by capturing the spread between my cost and par value at maturity. (prospectus:

I will be following over the next few days and weeks how the bond ghouls price Qwest and CTL senior bonds. CTL is currently investment, while Qwest's debt is rated junk. My exposure to Qwest's debt is small. I recently purchased last February a senior Qwest bond in TC form. Bought 50 PJA at 19.45 PJA rose yesterday $1.41 to close at $24.

This merger will not create what I would characterize as an over-exposure to CTL bonds. I will start to monitor some trades in the underlying Qwest and CTL bonds, however.

Qwest 2031 Bond: FINRA
CTL 2036 Bond: FINRA

According to Finra, the Qwest bond, which is the underlying security in PJA, is currently rated B1 by Moody's and B+ by S & P. It will be interesting to see how the ratings agencies respond in their ratings of both the Qwest and CTL bonds.

I am somewhat concerned that the acquisition may result in a lowering of the CTL bond ratings. I was not surprised to read a news story yesterday that S & P placed its CTL bond ratings on a negative credit watch. MarketWatch As expected, S & P said the merger would be a positive for the ratings on Qwest bonds. This explains their rally yesterday. The merger will likely result in the Q bonds to be upgraded and the ones from CTL to be downgraded.

2. Valley National (VLY)(own- Regional Bank Stocks strategy-CAT 2): Valley National Bancorp reported net income of 27.4 million or 17 cents per share for the 1st quarter of 2010 (adjusted earnings at 18 cents). As of 3/31/2010, tangible common equity to tangible assets was 6.55. Net interest margin was 3.48%. Total NPLs as a percentage of loans was .96%.

3. New Hampshire Thrift Bancshares (NHTB) (own-Regional Bank Strategy): Admittedly, the LB had a temporary memory impairment on this one, the kind where the memory is there but the storage box has been moved to an unknown location, even hidden, probably by the infamous RB to make LB's work even harder. Everyone knows that the LB would never misplace anything, "Everything has its Place" in one of its favorite sayings, but the nefarious RB is always up to mischief, doing its best to create chaos out of order.

New Hampshire Thrift Bancshares reported earnings almost two weeks ago and the Board declared the regular 13 cent per share quarterly dividend. The stock has already gone ex dividend, all of the foregoing was unknown until yesterday to the LB, the RB hastened to add. Net income increased to $1,721,497, a 29.23% increase from the year ago quarter. The E.P.S. number was 29 cents up from 21 cents in the comparable quarter a year ago. The net interest margin was 3.53%. The Tier 1 Capital to assets ratio was 8.46% as of 3/31/2010.

This one does not have a consensus analyst estimate.

4. Webster Financial (WBS) (own-Cat 1- Regional Bank Stocks strategy): LB hungers to sell this one, and can not comprehend why the HK will not let it capture an almost 400% gain. Now, that may have something to do with the rumor about HK needing to be forcefully committed to the Old Folks home. LB would never repeat such a rumor, which goes without saying. Admittedly, the market may be looking into the distant future when pricing WBS now, forecasting a continued improvement in credit trends deep into the future.

RB added "Have Your Cake and Eat it TOO, Nerd!

Babble, worse than a cockroach, somewhere between a parasite and cockroach, was the Great LB's reply.

What will the stock be worth- Mr. Tunnel Vision- when the dividend returns to pre-Near Depression levels, saith the True Visionary RB- Have one's cake and eat it too, Worthless, Mind Numbing NERD!!!!

Webster did beat the consensus estimate by four cents. BUT, the bank still reported a loss of 8 cents per share. Tangible book value was 12.44. Book value was 19.41. Net interest margin was 3.28%. The total risk based capital ratio was 14.37%. The tier 1 common equity to risk-weighted average ratio was 7.9%. WBS rose 81 cents yesterday to close at $21.48. RB made the buy at $4.58 in March 2009 during its frolic and detour, in what LB then referred to as a scatter gun approach to the neophyte regional bank strategy.

Fortunately, the LB would later give the strategy the structure that it needed to grow and prosper. LB wants to quote some comments made by the RB about the WBS in the above referenced post, and then rest its case: "Right Brain (RB) is always optimistic, willing to not only throw caution out the window but also to bury it where Left Brain (LB) can not find it again" and "RB does not weigh pros and cons, just brings the idea to LB for analysis by the deep thinker." Come to think about it, that last quote sounds sarcastic.

5. Enterprise Bancorp (own-RB strategy): EBTC was a recent addition to the regional bank basket strategy. Enterprise Bancorp reported E.P.S. for the first quarter of 32 cents compared to 19 cents in the year ago quarter. The Board also declared a 10 cent quarterly dividend, a 5.3% increase over the rate in 2009. Net interest margin was 4.44%. Total capital to risk weighted assets was 11.18%.

6. Glacier Bancorp (GBCI) (own RB Strategy): Glacier Bancorp reported net income of $10.07 million or 16 cents per share for the 1st quarter. The net interest margin was 4.23%. The allowance for loan losses is high at 3.53% of total loans. Non-performing assets as a percentage of total bank assets is likewise too high at 4.19%. Tangible book value was $9.44 per share as of 3/31/2010. If the YF estimate is correct, the forecast was for 8 cents: GBCI: Analyst Estimates for Glacier Bancorp, Inc. I noticed that Briefing.Com claims that the consensus estimate was 11 cents, which would make it a 5 cent beat.

7. More Evidence of Government Bad Faith in Goldman Case Dribbled Out: Yesterday CNBC reported that ACA selected securities that contributed to the failure of Abacus after rejecting recommended by the Paulson hedge fund. / This suggests to me that the core problem was not the alleged failure to inform ACA about Paulson's role but the competence of ACA.

8. Kimberly-Clark (KMB)(SOLD 50 of 100 at 62.13)(see Disclaimer): I was rubbed the wrong way about the KMB earnings. The company warned yesterday that, due to pulp price increases, the 2010 earnings will be at the lower range of the forecast given about a month ago. Before that guidance, several analysts were arguing that KMB was being too optimistic with its forecast giving those pulp increases. KMB KMB basically shrugged their comments off by reiterating the guidance. Kimberly Clark Update (KMB) I don't think that circumstances have changed that much over the past few weeks since KMB reaffirmed its guidance without the qualifier made yesterday. KMB also missed the consensus forecast for both its 1st quarter sales and earnings slightly. Most of the lift from sales came from currency exchange. The volume of goods rose only 1 percent.

My reaction to this report was to sell 50 shares of the 100 owned at $62.13. KMB was purchased in late March at $60.58 pursuant to the dividend growth strategy after it raised its dividend by 10%. While I am disappointed in this earnings report, the dividend growth story is still intact. So the compromise was to shed 1/2 of the position, possibly buying it back on a slippage below $58. In the meantime, I will simply redeploy the proceeds to a new name to be included in this strategy.

9. Bought 50 Banco Santander (STD) at $13.35 (See Disclaimer): I will frequently purchase a firm's securities up the entire capital structure, from the common stock to the senior bonds. My only limitation is that I will not exceed a 10 thousand capital expenditure on purchases of securities from one firm. I am well under that limit with STD. My only existing positions are in the floating rate equity preferred, STDPRB. Bought 100 STDPRB at $15.3 Added to STDPRB at 18.6 Odd Lot Trade on STDPRB

Santander has been under some selling pressure as of late due to Spain being its home market. STD also has large operations in South America (close to 40% of STD's earnings) that are not impacted by the severe recession and high unemployment in Spain.

The bank also pays a generous dividend. The next ex dividend date is 4/28/2010 at .2396 before withholding. The last 4 dividend quarterly payments were .1363, .3218, .1563, and .2774. At that rate, the total was $.8918 over a four quarter period, resulting in a yield of 6.68% before the withholding tax and at a total cost of $13.35. This gives me a better current yield before tax than the guaranteed rate of the floater, STDPRB, at its current price of $18.69, as of 4/22/2010. (a 4% guarantee of the floater works out to around a 5.35% yield at a total cost of $18.69) Due to the problems in its home market, the stock has declined in 2010 from a closing price of $16.92 on 1/4/2010 (STD: Historical Prices for Banco Santander) And the stock is currently trading below its 200 day moving average: Banco Santander, S.A. Sponsored Share Price Chart | STD If STD comes close to the $1.89 estimate for 2011, then there is room to run on the share price and a decent total return possibility with the dividend. The unknowable downside is the potential longevity of the problems in Spain. Needless to say, it is not possible to forecast the future economic conditions in Spain from a desk in the SUV Capital.

10 OCEANFIRST (OCFC)(RB STRATEGY): OceanFirst Financial reported earnings of 24 cents for the 1st quarter. This is 2 cents more than the consensus estimate provided by YF: OCFC: Analyst Estimates for OceanFirst Financial The consensus estimate for 2010 before this report was 96 cents and $1.09 for 2011. The Board also declared its regular dividend of 12 cents per share. The net interest margin increased to 3.76%. The NPLs as a percent of total loans stood at 1.95% at the end of the 1st quarter.

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