Wednesday, October 27, 2010

Bought 50 PIS at 25, 50 CBU @ 23.18, 50 GFW @25.04/FIBK MBVT FNB UBSI WSBC VLO/Sold: 200 ERF-UN.TO @ 28.05 CAD, 100 DKW @ 25.25

I can not do anything to change the double spacing that appears later in this post which is apparently a safari browser issue and does not impact users of internet explorer or firefox.

1. Bought 50 of the TC PIS at its $25 Par Value on Monday (see disclaimer): If I can sell this TC at break-even after collecting a few interest payments, I will be pleased. PIS is a trust certificate containing a senior Liberty Media bond. While my trading record on this TC is good, I would highlight an obvious problem which inevitably arises by virtue of the constant movement in and out of securities. I last sold this TC at $17.05 in July 2009, having bought those shares at $13.69. Prior to that PIS transaction, I sold in an IRA another 50 shares at $16.5 with a $9.85 total cost per share (10/2008). Those sales may have made some sense at the time (mid-2009). And, I do have many prejudices against the way John Malone treats bondholders in companies that he runs, which was the prime motivation noted for selling some of the PIS shares. SOLD 1/2 OF PIS POSITION I still have that negative opinion.

I have sold out of, more recently, another TC containing a Liberty Media bond, PKK at 24.1, and consequently had no position whatsoever to this company prior to buying back 50 of PIS on Monday. This buy back of just 50 shares is more of a knee jerk reaction to the continued Jihad by the FED against savers, though playing with the house's money and the current yield are also justifications for this latest foray.

There are several TCs that contain Liberty Media bonds, all junk rated of course. PIS had the highest yield when I placed the trade on Monday.

PIS Prospectus: PIS has a 8.75% coupon, higher than the underlying bond at 8.25%. The bond matures on 2/1/2030. The underlying bond was trading slightly above its par value on Monday: FINRA That bond is also the underlying security in the TCs PYL and PYA.

2. Regional Bank Earnings: FIBK, MBVT, FNB, UBSI, WSBC (all owned):

First Interstate is a disappointment. The bank released disappointing earnings soon after its IPO. When discussing those earnings, I argued that the IPO would have had to be substantially reduced in price, if the market had even a hint of what was about to come. Item # 6 FIBK So I have an unrealized loss on lost on 50 shares of FIBK at 15.64. More importantly than the loss, it just stinks.

First Interstate reported diluted earnings per share of 18 cents, down from the 36 cents earned in the 3rd quarter of 2009 before its IPO. The consensus estimate made by 5 analysts was for 15 cents.

Merchants Bancshares, a small bank headquartered in Vermont, reported an E.P.S. of 73 cents, beating the 59 cent estimate made by 1 analyst. This bank earned 61 cents in the 3rd quarter of 2009. As of 9/30, NPLs as a percentage of total loans was just .38%; NPAs to total assets was lower at .23%; and net interest margin was 3.7%. Bought 50 MBVT at 22.9 Perhaps, the Masters of Disaster at the larger financial institutions can learn something from the small banks. Maybe it is better to make good loans and investments. But, how can the Masters of Disaster make millions for themselves by being prudent and responsible, and after all, it pays so well to be stupid and irresponsible?

F.N.B. reported net income of 17.2 million for the 3rd quarter, or 15 cents per diluted share, down from 16 cents in the 3rd quarter of 2009. This missed the expectation of 16 cents. I own FNB primarily for the dividend yield which is around 5.5% at a $8.65 price. The valuation is also reasonable based on anticipated 2011 earnings of 74 cents per share: FNB Analyst Estimates I currently own 150 shares bought in fifty share lots at 7.8, 8.42and 9.36. Most likely, I would sell the higher cost lot near $10.

I have a decent unrealized percentage gain in shares of Wesbanco bought at 13.3. Wesbanco reported an E.P.S. of 34 cents, up from 9 cents in the 3rd quarter of 2009, and higher than the consensus estimate of 30 cents made by 7 analysts. The current consensus is for $1.42 in 2011. WSBC Analyst Estimates | WesBanco As of 9/30, the tier 1 leverage ratio was 8.17%; the allowance for loan losses to NPLs was at 66%; NPLs to to total loans was at 2.69%; and the net interest margin was at 3.61%, up from 3.35% as of 9/30/2009.

United Bankshares reported earnings of 40 cents, in line with estimates. The total risk based capital ratio was at 13.36%. NPAs to total assets stood at 1.61%. The tier 1 capital ratio was estimated at 11.97%. Net interest margin was 3.6%. I have one of my larger unrealized gains in the regional bank basket in shares of UBSI. Bought 50 of UBSI at 16.65 One reason for sticking with it is the dividend yield, which was close to 7% at the time of my purchase in November 2009. The yield at a price of $26.5, near where it is currently trading, is around 4.5%.

Regions Financial also reported, but I will no longer view its reports on the grounds that they make me nauseous. Bought 50 shares of RF at $3.47 Maybe in another three or so years, I will be able to look at a Region's report without triggering a upchuck reaction.

3. Valero (owned): I bought a small stake in VLO at 17.12, viewing the company to be undervalued over the long term at that price. Valero Energy Corporation reported a profit of 51 cents for the 3rd quarter from continuing operations, up from a loss of $.61 per share on the same basis in the 3rd quarter of 2009. This beat the estimate by 3 cents. Refining throughput margins increased to $7.87 per barrel from $2.79.

4. FirstEnergy (FE) (own): FirstEnergy reported non-GAAP earnings of $1.21 for the 3rd quarter, up from a similar non-GAAP $1.11 per share from the 3rd quarter of 2009. GAAP earnings were much lower at 59 cents and included, among other items, a 60 cent charge for some plant charges, discussed in a August press release from this electric utility: FirstEnergy Corp. Investor: Investor Information: News Release The consensus estimate, which usually does not include one time items, was for an E.P.S. of $ 1.14 on revenues of 4.1 billion.

5. SOLD 200 ENERPLUS RESOURCES FUND (ERF-UN.TO) at 28.05 CAD (see Disclaimer): This security has been a good income producer. And I may buy it back after it completes a conversion to a regular corporation which is currently scheduled to take place on 1/1/2011. Enerplus Announces Plan to Convert to Corporation I do not care for the tax headache to a U.S. investor caused by such a conversion. As previously noted from last year, the conversion of another Canadian energy trust to a regular corporation was treated as a sale on the date of the conversion and the receipt of shares in the new corporation. Then, as I understand it, and my understanding may be in error on any tax topic, particularly complex ones, the U.S. investor assumes the cost basis at the price of the new shares on the date of the conversion. I was just as soon not fool with that process again. I have enough problems with creating these additional tax issues. The problems encountered last year on Advantage Oil are described in several posts: Item # 4 Canadian Trusts Converting to Regular Corporations; Warnings on Canadian Trusts Converting to Corporations I mentioned that I would not own Enerplus at the time of its conversion in a prior post due to my experience with the Advantage Oil conversion: Item # 2 ERF I believe the only buy of Enerplus discussed in the blog is a purchase of 100 shares on the Toronto exchange at 23.95 CAD.

6. Sold 100 DKW at 25.25 (see Disclaimer): I decided to go ahead and sell this TC, which was called by the warrant holder at par value plus accrued interest. Alert on TC DKW-Exercise of Call Warrant/SOLD 50 OF 150 @ 25.20 I bought those shares a at 22.86 a few days ago based in part on a possible call.

7. Bought 50 GFW at $25.04 in the Roth IRA (see disclaimer): This was an average up in the Roth account for this security. I bought 50 shares of GFW at 22.63 last February in the Roth.

I took a profit on 50 GFW bought at 22.76 in a taxable account by selling those shares at 25.13.

The only positive comments that I can make about this kind of trading activity is that I did sell GFW at a profit in the taxable account, and in effect moved the position entirely into a retirement account which is where I prefer to own bonds.

I will just copy from an earlier post my discussion of this security, making a deletion that describes my yield at the lower purchase cost:

"GFW is a senior bond from AAG Holding, which is a wholly owned subsidiary of Great American Financial (GAF) (History), who guarantees this note, and GAF's major subsidiary is the Great American Life Insurance Company.Great American Financial Resources, Inc. - Home Great American Financial is in turn a subsidiary of American Financial Group (AFG), a insurance holding company. AFG is the only public company in this litany. This is a link to its last earnings report for the Q/E 12/31/2009.ex991020910.htm

GFW has a maturity date in 2033 and has a coupon of 7.5%. . . . This is a link to the prospectus: Final Prospectus Supplement The quantum site shows that this bond is rated investment grade, and I did not attempt to verify that claim as either accurate or current. Exchange-Traded Debt Securities Table -

American Financial Group is controlled by the billionaire Carl Lindner and his sons."

The current yield at a total cost of $25.04 would of course be a tad below the coupon of 7.5%. Interest is paid quarterly, which is a plus compared to regular bonds traded in the bond market where semi-annual payments are the norm.

One way to look at it is that the interest generated by a security yielding 7.5%, bought in the Roth IRA, would in essence be equivalent to an investment grade tax free municipal bond yielding 7.5% in a taxable account. And, we all know that such a creature does not exist. That is about the only way that I can justify to myself the purchase of these senior bonds in a IRA at current prices.

I decided to add 50 shares of CBU near the close at 23.18 on Tuesday after discussing it in a post from earlier that day. That discussion was made in connection with its proposed acquisition for stock and cash of Wilber, which is still owned. (Regional Bank Stocks basket strategy) (see disclaimer). Since most of the price to be paid for my 151 shares in Wilber was to be paid in CBU stock, I looked into CBU as a preliminary step in deciding whether or not to keep the GIW shares. I was not familiar with CBU before reading about the merger proposal.

I had several other trades on Tuesday, and hope to discuss most of them in the next post.

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