Tuesday, November 30, 2010

Mike Lee-An Extremist or a True Conservative?/BOUGHT: 100 MSF @ 15.69, 100 GGN @ 17.85, 50 XFB at 25.5

A frequent topic of this blog is how the large reactionary forces in America prefer to be labelled "conservative" since that sounds far more appealing than an appropriate label for them.   One such reactionary masquerading as a conservative is Mike Lee, the newly elected GOP senator from Utah.   An article in the  NYT summarizes some of Mr. Lee's views, which are unfortunately shared by the growing reactionary forces in the U.S., which may encompass as much as 25% of the voting population.   Among his many extremist views, Lee proposes to phase out social security, and to abolish the Departments of Education and Housing and Urban Development based on his fringe and radical constitutional views.  He wishes to repeal the 16 Amendment, which authorizes the income tax.  He has called the 17th Amendment a mistake, since it required the people to elect U.S. Senators, rather than having them appointed by state legislatures. He believes in the right of the states to nullify federal legislation, a frequently heard argument by state's rights advocates in the Old South, in their effort to preserve slavery and later segregation.  It is not surprising that Lee clerked for Justice Alito. CNN.com;

I go into more detail about the reasons for classifying the Mike Lee's of the world as reactionaries in prior posts.  See, e.g.,  Item # 3  Conservative or Delusional Reactionaries?; Item # 3  Rand Paul-Reactionary Not ConservativeConservative: Each to his Own Definition;   What is the Appropriate Political Label; and   Santayana: An Inability to Remember History or Just Creating Your Own Reality to Fit an Ideology.

I do not believe that it is possible for any sensible person, which excludes all True Believers, to view Mr. Lee as anything other than a reactionary, just another GOP extremist wanting to turn back the clock on all progress made in the U.S., starting with legislation passed by the GOP administration of Theodore Roosevelt in the early 1900s. A typical rant against Teddy was made by the demagogue Glen Beck referred to politely as "daffy ravings" by a columnist at  USNewsnews.com.  (Item # 4  Stocks & Politics)  What is this really about? The primary beneficiaries of turning back the clock 100 years or so want to be able to do whatever they please, regardless of the consequences to others or to the environment, to further enrich themselves.   And they are the ones who already control most of the wealth of the country.

1.  Bought 50 XFB at $25.50 (see disclaimer):  I have lowered my standards on buying bonds in the third year of the Fed's Jihad against savers and responsible Americans.  It is become harder to find suitable alternatives to near zero interest rates.  Coping with the Federal Reserve's Jihad Against Savers & Responsible Americans

One previous criteria, which has been abandoned, is that I would not buy a bond trading over its par value.  Another criteria that has found its way into the dustbin was a ban on buying bonds maturing after 2039, given my age.  I at least want the option of holding the bond until maturity, which assumes that I will still be around when that occurs.  At least in the few instances when I abandon those criteria, I do it only gingerly and without any gusto.   The Trust Certificate XFB and its underlying bond mature on 12/01/2045, and I paid fifty cents over the $25 par value for this TC.  I would simply emphasize that I only bought 50 shares, and that this investment is consequently immaterial to me.  However, when I group all of my income producing securities together, it is very significant and their cash flow is a critical part of my investment approach.  

The underlying security in XFB is an investment grade senior bond issued by News America, a wholly owned subsidiary of News Corporation.  The TC has a greater coupon at 8.125%, compared to the underlying bond's coupon of 7.75%.   www.sec.gov  The underlying bond is selling at a significant premium to its par value. FINRA    I suspect that XFB would be selling at a higher price now without the call warrant attached to the TC.  

As discussed in many earlier posts, the owner of the call warrant has the option, not the obligation, to redeem the trust certificate, pay par value plus accrued interest to the TC's owners,  and take possession of the bonds.  When the underlying bond trades at a premium to its par value, as is the case with the News America bond, it would be profitable for the owner to exercise this option.  The mere existence of that option, in my judgment, will restrain the price appreciation potential of XFB above its par value plus accrued interest.  Since XFB just went ex interest, it is really not carrying any meaningful accrued interest at the current time. That is another reason for limiting my purchase now to just 50 shares.   I would not fool with buying even 50 shares of this TC, particularly at above par value, unless I had just run out of alternatives. 

The underlying bond in XFB was originally issued in 1995, and I could not find any filings at the SEC's web site for either News Corp or News America that far back.  I therefore could not read the guarantee reportedly given by News Corp in that original indenture for this News America bond.  As described in the prospectus for XFB, News Corp and certain of its subsidiaries guarantee News America's obligations.   The News America bonds are listed by  Finra  under the News Corp bonds in the Search Results

This is a link to the trustee's last filed distribution statement, Trustee's Distribution Statement, and to all of the SEC filings for XFB.

 Trust Certificates: Links in One Post 

2. BOUGHT BACK 100 GGN at $17.85 AND 100 MSF AT $15.69 (see Disclaimer):  These two stock CEFs were recently sold.  I sold 100 shares of MSF  at 17.02 earlier this November, and simply view the recent buy back as saving me about $120 in lost appreciation.  Those shares were bought at $13.57 in June, and I also had a prior profitable trade in this CEF.   Sold  100 MSF at 15.3  This CEF invests in emerging market stocks.  The net expense ratio is 1.55%, and the gross expense ratio is shown at 1.59% at the sponsor's web site:  Fund Details MSF-  Morgan Stanley InvestmentManagement  The last semi-annual report can be accessed in PDF format at the sponsor's web site, morganstanley.com .pdf, or at the SEC.   I am considerably underweight emerging market stocks, viewing them now has having a strong positive correlation with U.S. stocks with a higher beta.  

Net asset value information for MSF can be found at the  WSJ.com.  Last Friday, MSF closed at $15.80 per share and had a net asset value of $15.8, creating a discount to NAV of -5.9 at that time.   That is below its three year average discount by almost 2%.   Morningstar  The discount expanded on Monday, 11/29, to -6.48%, based on a market close of $15.74 and a net asset value of $16.83.  So the net asset value rose some on Monday as the market price declined by a few cents, thereby expanding the discount from Friday's close. 

I  just sold the stock CEF GGN at 18.13.  I would prefer a CEF that invests in gold stocks that sold at a discount to net asset value. GGN sells at a small premium.  NAV information for this fund can be found at the Closed-End Fund Association web site, at the fund sponsor's web site or at the WSJ.com.  I would just copy my previous comments about this CEF: 

"Another issue that I do not like is that a significant part of the dividend distribution represents a return of capital. GAMCO Investors, Inc. The current dividend rate is 14 cents per month. If that was actually earned, through dividends and security gains, it would certainly be a plus since the yield at that rate would be 9.65%. The current data at the GAMCO website shows that around 46% of the monthly dividend is not being earned and represents a return of capital. Those figures could change by year end. With improving markets for the securities owned and more optimal conditions for the fund's option writing strategy, the fund could return to earning that dividend. If this does not happen soon, it needs to be cut in my opinion.

The last shareholder report is available at the SEC's web site. This fund invests in natural resource stocks. For the period ending in June 2010, the fund had a 28.4% allocation to energy and energy service stocks and 53.2% to mining.

Morningstar does not care for this fund, rating it just two stars. And the expense ratio is high. So why buy it at all with all of these negatives.

I really have almost no exposure to gold stocks. This purchase was just a quick way to gain exposure, and possibly Paulson may end up being more right about gold's future prospects than me.

I have been increasing my exposure some to commodity stocks. One plausible scenario for the future is a replay of the 1970s, a decade where stocks and bonds failed and commodities shined. Between 1/1/1970 to 12/31/1981, the annualized inflation adjusted return of the S & P 500, with dividends invested, was -1%. Between 1970 thru 1982, inflation averaged 7.88%. Consumer Price Index, 1913- | The Federal Reserve Bank of Minneapolis The ten year treasury had an average rate for those years of 8.36%, using annual data from the FED:www.federalreserve.gov"  Stocks & Politics: Sold 200 HTD at 15.42/Bought 300 MMT at 6.95/Bought 50 DKI at 24.95/Bought 100 BDSI as LT at 2.93/Sold 100 JTD at 12.38/Bought 100 GGN at 17.41 (Oct 2010 Post). 

I previously bought GGN in an IRA but I do not have sufficient funds in those accounts now to buy 100 shares.  I am currently waiting to receive the proceeds of two bond redemptions in the Roth IRA (DFY and DKK).   

GGN closed at $17.83 on Monday, with a net asset value of $17.31 per share, creating a premium to net asset value of 3%.  At a total cost of $17.85, the posted dividend yield is about 9.41% at the current monthly 14 cent per share, but I would exclude from that yield calculation any portion of the dividend later classified as return of capital.  A return of capital creates an illusion of yield which unfortunately deludes many individual investors.  

The ING and Aegon hybrids that I own went ex dividend yesterday. 

Monday, November 29, 2010

Bought: 50 CWHN @ 21, 100 CSQ @ 8.94, 100 XLU @ 30.83/Pared Trade Added 50 ZBPRC @ 25.3-Sold 100 ZBPRA @ 18.95/Sold: 300 FUND @ 7.2, 181 DVM @ 12.76, 100 IGI @ 20.75, 100 TLSYY @ 13.78

Over the past week or so, I have been in a trading mode for small positions in  double shorts. On a recent market dip, I sold one that was recently bought.  I have been timing some of these transactions off one or more of the volatility indexes, including the ^VIX and the ^RVX. While some of that timing is based on movements below or above 20 in the VIX, I bought one index double short on Friday where the volatility index had risen over 8% at a time when the index was virtually unchanged and the double short for that index was close to unchanged for the day. I am using both index and sector double shorts now as small hedges, primarily to keep me from selling more stocks. 

1. Sold 300 of the stock CEF FUND at $7.2 on Wednesday (see Disclaimer):  This CEF was bought in September  at 6.22. I decided to spread the proceeds from this sale to my long term positions in both RVT and RMT, hopefully at lower prices than prevailing now.  All of those stock CEFs are part of the Royce stock CEF family.  I currently own 300+ shares of RVT and 499+ of RMT. All of these funds ceased paying their managed distributions in 2009.  Some of previous buys of RMT and RVT are discussed in earlier posts: Bought RMT at $6.73 Added to CEF RMT at $7.64  Added 50 ADX at 9.7 and 50 RMT at 7.82 with Cash Flow Added to RVT at $ 9.69  

RVT did recently declare a 3 cent dividend,  Royce Value  RMT declared an 8 cent dividend.  I do not believe that either fund has paid a dividend since around March 2009 when they ended their managed distribution policy in order to avoid distributions supported by returns of capital.  These kind of stock CEFs require capital gains to support a managed distribution policy, and the Near Depression removed that option for them.  In the report to shareholders for the period ending  in June 2007, RVT reported a net realized gain of over 85 million for the prior six months, and had an unrealized gain in its positions of almost 487 million.  www.sec.gov Two years laters (6/2009), the fund had a net unrealized loss of over 19 million and had suffered a net realized loss of over 109 million. sec.gov  Easy come, easy go.   

As a result of that change in dividend policy, which I support,  the discount to net asset value expanded and is still currently in excess of historical levels. As of 11/26, RVT closed at a -14.42 discount to its net asset value of $15.46 per share.  RMT closed at a -15.28 discount to its $10.6 net asset value per share.  FUND closed at a -11.71 discount.  

2.  PARED TRADE: SOLD 100 ZBPRA at $18.95 and Bought 50 ZBPRC at $25.3 on Wednesday (See Disclaimer):  The Old Geezer was nervous about the exposure to Zions' securities. This pared trade had the effect of reducing the overall exposure by a sufficient amount so as to relieve the OG's anxiety attack. This was done in several ways. First, the sale of 100 shares of ZBPRA netted a 140% long term capital gain on the shares bough at $7.8, plus dividends,  and that gain financed the addition of 50 shares of the higher yielding ZBPRC.

Second, at their current prices, ZBPRC yields about 4% more than ZBPRA. ZBPRC has a 9.5% coupon on a $25 par value. Prospectus Supplement  Both securities are at the same level of priority. If Zions eliminated the dividend on one, it would have to do so on the other too. Both ZBPRA and ZBPRC are at the same level of priority as the governments "D" preferred stock. For Zions to eliminate the dividends on the "A" and "C" equity preferred stock, it would have to defer paying the government on its "D" cumulative equity preferred stock.  Both the "A" and the "C" equity preferred stocks pay qualified dividends under current law and those distributions are non-cumulative.  (see Item # 7: Bought 50 ZBPRB in Roth at $19.9)

 As mentioned in earlier posts, while ZBPRA pays the greater of 4% or .52% over the 3 month Libor, I do not regard the floating rate provision to be worth the current 4+% differential in yield. For one, the 3 month LIBOR would have to increase to over 6.5% for the yield of ZBPRA at $19 to surpass the fixed coupon yield of ZBPRC at a total cost of $25.3. (6.5% 3 month Libor + .52%= 7.02% x. $25=$1.755 per share annually ÷ $19 cost= 9.23% vs. ZBPRC's fixed 9.5% coupon). This kind of comparative analyses has been done at various prices in several posts:  Analysis of Prior Question: ZBPRA vs. ZBPRC OR ZBPRB; Item # 4  ADDED TO ZBPRC AT 23.75)

Third, since I judge my exposure to known risky issues by reducing my current dollar exposure by the amount of realized gains and distributions received, the gain on ZBPRA raised that number to +$1,790 for this grouping of three securities which includes the higher priority TP shares, ZBPRB. When I subtract that number from the total remaining dollars invested in both ZBPRC and ZBPRB, I am back to my comfort level of $3000.

ZBPRC Prospectus:  Prospectus Supplement

ZBPRC  closed at $25.4 on Friday and is ex dividend today. ZBPRA is also ex dividend today. The TP,  Zions Capital Trust B, ZBPRB, went ex interest on 11/26.  

3. Sold 181+ of the CEF stock fund DVM at $12.76 and pared 100 of the 300 bond CEF IGI at 20.75 on Wednesday (see Disclaimer): The DVM discount to net asset value has narrowed considerably over the past few weeks.  As a result, and due to DVM's concentration in U.S. REITs which appear to me to be overvalued now after a very robust rally since March 2009, I elected to sell the entire DVM position. (see last filed Form N-Q showing 48.6% weighting in U.S. REITs, www.sec.gov)

In an interview in  Barron's, the President of Green Street Advisors and its director of research are slightly more positive about U.S. REITs, arguing that they are near the "upper end of a fair valuation range". In their view, U.S. REITs are "fairly expensive" relative to stocks and are "fairly priced" compared to Baa corporate bonds. The Vanguard REIT ETF  (VNQ) currently yields about 3.43% according to Marketwatch. It has risen from a low of $21.15 on March 6, 2009 to close at $53.81 last Friday, with those prices unadjusted for dividends: VNQ Fund Charts In early October 2007, VNQ was trading near $77. s

DVM closed at $12.83 on Wednesday, 11/24, and had a net asset value as of that date of $13.63 per share. The discount to net asset value based on those numbers was then -5.87. WSJ.com I intend to buy another CEF that has a broader selection of common stocks which is also selling at a greater discount to net asset value than DVM.   

I sold my highest cost shares of the term bond CEF IGI in a taxable account for a small profit, and kept the shares recently bought a few days ago at 19.85, IGI closed on Friday at $20.76 with a net asset value per share of $21.37. 

4. BOUGHT 50 OF CWHN AT $21 on Wednesday (see Disclaimer): CWHN is an exchange trade bond issued by Commonwealth REIT, which I have bought and sold at lower prices.  Bought 100 HRPN at 19.32  Sold 100 CWHN at 21.22 in Roth The symbol on this bond was HRPN when this REIT was known as HRPT Properties. The coupon is 7.5% on a par value of $20. The bond matures on 11/15/2019 and may be called on or after 11/15/2014 at its par value plus accrued interest.  Interest payments are made quarterly. www.sec.gov I also own the common shares of CommonWealth Reit (CWH). At a total cost of $21, the current yield is around 7.14%. 

Due to a large number of bond calls, I am having to return to issues previously sold to reinvest the redemption proceeds.   I am also taking into account bonds that I own which will likely be called soon. In some cases, there has not been a formal announcement, but another filing made by the company indicates an intent to call all or part of a bond using proceeds of a new issuance. An example is the recent issuance of 200 million in a 6.875% senior note due in in 2059 by Telephone and Data Systems. www.sec.gov In the prospectus, TDS says that it will use the proceeds to redeem part of the 7.6% coupon senior note, which I own, that matures in 2041 ("We expect to use the proceeds to redeem some of our 7.6% Series A Notes due 2041, of which $500 million in aggregate principal amount is outstanding.") The 2059 senior note is a newly listed exchange traded bond, symbol TDE with a $25 par value. 

5. Sold 100 TLSYY at $13.78 on Friday (see Disclaimer): Since the USD appears to be gaining strength, I decided to unload TLSYY recently bought at 13.29.  On Friday, FXA, the currency ETF for the Australian dollar, fell 1.86%.  The value of TLSYY will depend in part on the relative value of the Australian dollar against the USD which is starting to look overextended to me: CurrencyShares Australian ETF Chart 

6. Bought 100 of the ETF XLU at 30.83 on Friday (see Disclaimer):  I have bought and sold this ETF in the past. Bought 100 XLU at $29.14 Sold 100 XLU at 31.25/Bought 100 SO at 33.27 This ETF owns the utility stocks that are part of the S & P 500. The expense ratio is .21%: sectorspdr.com factsheet XLU.pdf This is a link to the sponsor's web page on XLU and to its components. This is the current weighting for the top 16 holdings as of 11/24/2010: 

1Southern Co.SO8.52%
2Exelon Corp.EXC7.09%
3Dominion Resources Inc. (Virginia)D6.69%
5NextEra Energy Inc.NEE5.78%
6PG&E Corp.PCG4.99%
7American Electric Power Co. Inc.AEP4.68%
8Public Service Enterprise Group Inc.PEG4.23%
9Consolidated Edison Inc.ED3.71%
10Entergy Corp.ETR3.66%
11Progress Energy Inc.PGN3.51%
13PPL Corp.PPL3.33%
15Xcel Energy Inc.XEL2.94%
16FirstEnergy Corp.FE2.91%

I also own EXC, DUK, ED and FE.  Possibly, one reason for adding this ETF was to keep me from averaging down on either FE or EXC, or both.  XLU's distributions vary by quarter.  In 2009, this ETF paid $1.27309 in distributions from ordinary income and no capital gains distributions. Distributions At that rate the yield would be 4.13% at a total cost of $30.83. So far in 2010, with one quarterly dividend left to be paid, the fund has paid out $.9003 per share.  The fact sheet shows that XLU has a .5 correlation with the S & P 500 and the portfolio has a P/E of 12.3. sectorspdr.com XLU.pdf at page 2. 

7.  Added 100 of the CEF CSQ at 8.94 on Friday (see Disclaimer): I recently sold my 100 position in this CEF in the Roth IRA at  9.13, as part of a risk reduction move. Those shares were recently bought at 8.49. CSQ is a leveraged CEF which by itself entails more risk than a similarly invested non-leveraged fund. It is a balanced fund, with around a 51% weighting in stocks, 22.7% in corporate bonds, and 20.5% in convertible bonds and preferred stocks. Calamos Investments- Composition Dividends are paid monthly at a current rate of $.0525 which was reduced from $.0625 in November 2009.  Assuming a continuation of the existing rate, the dividend yield at a total cost of $8.94 would be about 7%.   The fund is selling at over a 12% discount to its net asset value.  On 11/26, the net asset value was $10.15 per share and the discount to NAV based on a closing market price of $8.93 was a -12.02. 

The last filed form N-Q which contains the list of holdings for the period ending in July 2010 can be accessed at  the SEC's web site. With the 100 share purchase on Friday, I now own 200 shares in a taxable account, and I changed my distribution option from cash dividends to reinvestment into additional shares.  

Friday, November 26, 2010

Bought: 50 NWBI at 10.45, 50 RFPRZ at 24.49, 50 MRK at 34.78, 50 ASRVP @ 25/Sold 100 of 200 NQS at $14.55

The initial unemployment claims number declined by 34,000 to 407,000 on a seasonally adjusted basis for the week ending 11/20. ETA Press Release: Unemployment Insurance Weekly Claims Report This number is volatile around Thanksgiving.

The savings rate was at 5.7% in October, as Americans continued to repaid their balance sheets. BEA : Personal Saving Rate Personal income increased in October by .5% and disposable personal income increased by .04%. News Release: Personal Income and Outlays, October 2010

Orders for durable goods, excluding transportation, fell 2.7% in October (Economic Indicators.gov), while the consensus estimate for that number was an increase of .6%.

Consumer spending rose .4% in October.

1. Added 50 MRK at 34.78 on Tuesday (see Disclaimer): When I bought 50 shares of Merck at 35.55 in early September, I intended to round the lot up to 100 shares, provided I could do so at a lower price.  The purchase on Tuesday of 50 shares at $34.78 did lower my average cost by a small amount. The dividend yield at my cost is over 4%. Merck recently declared its regular 38 cent quarterly dividend with a 12/13 ex date.  I am going to reinvest my dividends into additional shares.   

The news about Merck has been favorable since I last discussed this company. On 11/17, Merck reported at the annual meeting of the American Heart Association that its drug anacetrapib raised good cholesterol by 138 per cent while lowering LDL by 40 per cent. BusinessWeek Bloomberg Video - WSJ.com Promising results were found in the interim phase 2 study of ridaforolimus in the treatment endometrial caner, a development discussed in this Seeking Alpha article. That drug was developed by Ariad(ARIA), which I have owned in the past. Bought Another 100 ARIAD And Merck released results from a 9,000 patient study which showed that Vytorin "significantly reduced major vascular events in patients with chronic kidney disease". Merck News Item Merck also a trial involving  a patient's claim  that the use of Merck's drug Fosamax caused her severe jaw problems. 

2. BOUGHT 50 RFPRZ at $24.49 on Tuesday (see Disclaimer): I hold Regions Financial (RF) is less esteem than Zions. It is just impossible for me to say anything positive about the managers responsible for the huge losses suffered by this banking institution over the past two years. I am not able to see a ray of light for its shareholders.  I recently sold my 50 shares in RF at $6.57, having bought those shares at $3.47.  I have previously bought and sold RFPRZ at lower levels, satisfied to make a few bucks on the shares and to collect one quarterly interest payment. Bought 50 RFPRZ at 22.88  Sold RFPRZ at 23.46

RFPRZ is a typical trust preferred stock except in one important respect.  Unlike most bank TPs which permit deferrals of interest payments for no more than five years, Regions can defer payment for up to 10 years, though an alternative payment mechanism may become applicable after five years of deferral. The prospectus for this TP has standard stopper language that would prohibit Regions from paying a distribution on a junior security during any such deferral period. (see page S-40 Final Prospectus Supplement) In effect, this would mean that Regions would have to eliminate its meager one cent common share dividend and defer payment on the government's equity preferred stock before it could defer payment on RFPRZ.  

A junior bond is senior in priority to equity preferred stock.

In effect, this security is a junior bond issued by Regions Financial. The coupon is 8.875% on a $25 par value. By buying this security at $24.49, I raise the yield to me to slightly over 9%, paid in quarterly installments. RFPRZ is a trust preferred stock that represents an undivided beneficial interest in the assets of the trust, and those assets are a junior bond issued by Regions: " Each Trust Preferred Security represents an undivided beneficial interest in the assets of the Trust. The Trust will sell the Trust Preferred Securities to the public and its common securities to Regions. The Trust will use the proceeds from those sales to purchase $300,010,000 aggregate principal amount of 8.875% Junior Subordinated Notes due 2078 of Regions " Page S-1, Final Prospectus Supplement

This security is deservedly rated junk at Ba2 by Moody's and BB+ by S & P, according to QuantumOnline.com (free site, registration required).

This is a link to the last filed FORM 10-Q.  RF has not earned any money for at least two years. FORM 10-K

I would classify myself as a weak holder of this security.

I would add that Regions has more than 15 billion in assets and will have to phase out the use of TPs as equity capital under the "financial reform" legislation recently passed by the Democrats. Trust Preferred Securities & Financial Reform  The same is true for Zions' TP.

3. Added 50 NWBI at $10.45 on Tuesday (Regional Bank Stocks' basket strategy)(see Disclaimer): Northwest Bancshares has not performed well, and is one of my losers in the regional bank basket. This last purchase of 50 shares was an average down from prior purchases  at $11.88, $11.47 and $11.10. I am reinvesting the dividend to buy more shares. I discussed its last earnings for the Q/E 9/2010 in Item # 2  NWBI.

This bank, based in Pennsylvania, is currently paying a quarterly dividend of 10 cents. At a total cost of $10.45, that equates to a dividend yield of 3.83%. The bank reported a tangible book value per share of $10.28 as of 9/30/2010. Press Release The latest capital ratios are set out at page 34 of the last 10q filing. As 9/30, the total capital to risk weighted asset ratio was 20.58% and the Tier 1 capital to risk weight assets was at 19.33% (6% well capitalized).  NWBI has 171 banking offices.

Possibly, some of the share price loss is due to the current P/E. At a price of $10.5 a share, and a consensus estimate of 66 cents for 2011, the forward P/E is 15.9. But that 66 cents is almost a 18% increase over the estimate of 56 cents for this year. NWBI is one of the larger positions of Scout Capital Management as disclosed in its latest Form 13 F SEC filing. NWBI recently authorized a stock repurchase program of up to 10% of its outstanding shares. Due to a regulatory consideration, the stock purchases could not commence prior to 12/18/2010.

The regional bank basket gained $791 on Wednesday or 1.75%.  NWBI is the third largest loser in that basket. First Niagara has recently moved slightly into the plus column after being a laggard since I started to purchase shares.  While FNFG is still trading below its 200 day moving average line, it has moved above its 50 day average:  First Niagara Financial Group I Stock Chart | FNFG 

4. Bought 50 of the TP ASRVP at $25 on Wednesday (see disclaimer): This is another TP viewed as too risky for the retirement accounts, and I could barely muster enough courage to buy 50 shares at its $25 par value. ASRVP is a typical trust preferred stock.  It is atypical in that the responsible bank is tiny. The common stock of AmeriServ Financial (ASRV) is currently hovering around $1.5, and has a market cap at the current price of less than 33 million. It is headquartered in Johnstown, Pennsylvania. I counted 19 branch offices at the bank's web site: AmeriServ Financial

The bank's TP has a $25 par value and a 8.45% coupon (originally issued under the name of USBancorp Capital Trust I, the bank changed its name to Ameriserve). As previously discussed ad nauseum, the bank forms a trust controlled by it, and that trust issues preferred stock to the public. The trust then uses the proceeds realized from the sale of preferred stock to buy a junior bond from the bank. The preferred stock represents a beneficial interest in that bond. The TP pays interest, not dividends.  

The underlying bond owned by the trust and the TP both mature at the same time, in this case with ASRVP on 6/30/2028. Payments may be deferred for up to five years but will accumulate and earn interest at the coupon rate (see page 9 of the prospectus  www.sec.gov). There is at that same page in the prospectus what I would label a typical stopper provision, that is, the bank can not defer payments on this TP and make a distribution to the owner of a junior security.   

The bank is not paying a common dividend, but it is paying the government a government a dividend on 21 million in equity preferred stock. That stock is junior to the bond owned by the trust. If the government's payments are deferred, I would expect the bank to defer the payments on the junior bond too, but it is conceivable that would not happen. My thinking on that subject is that a bank would not likely stiff the government and continue to pay the private owners of a more senior TP. The important point from my perspective is that the bank would have to defer paying the government in order to defer paying interest on the bond owned by the trust. 

To find the SEC filings for this small bank, I had to use its old name as the search term, since the SEC's web site returned no results under its current name.  The bank did manage to earn a 2 profit per share for the Q/E 9/2010. Form 10 Q. I thought that the following statement contained in that report was significant and this representation made by the bank pushed me over the edge to make this chicken buy of 50 shares:

"The Parent Company had $17.3 million of cash, short-term investments, and securities at September 30, 2010, which was down $2.6 million from the year-end 2009 total.  We have elected to retain $14 million of the total $21 million in funds received from the CPP preferred stock at the Parent Company to provide us with greater liquidity and financial flexibility. ($7 million of the CPP funds were downstreamed to our subsidiary bank to help the Bank maintain compliance with our own internal capital guidelines.)  

Additionally, dividend payments from our subsidiaries can also provide ongoing cash to the Parent. At September 30, 2010, however, the subsidiary bank did not have any cash available for immediate dividends to the Parent under the applicable regulatory formulas because of the loss it incurred in 2009. The Bank will not provide any dividend support to the Parent Company in 2010. As such, the Parent Company will use its ample supply of cash and short term investments to continue to meet its trust preferred debt service requirements and preferred stock dividends which approximate $2.1 million annually"

Of course, this may change if the condition of the operating bank worsens, and the parent company has to shore it up. But I did note in that last 10 Q filing that the bank had established allowances for loan losses equal to 84% coverage of NPLs as of 9/30/2010.     

5. Sold 100 of the 200 NQS at $14.55 (see Disclaimer):  NQS is one of the leveraged municipal bond CEFs that I picked up a few days ago, at a time when the municipal bond market was undergoing a sharp correction which was magnified in the realm of leveraged municipal bond CEFs, as one would anticipate.  I mentioned buying 100 of this CEF in a post. Actually, I bought 200 shares and I reduced the position by 1/2 by selling 100 shares at $14.55 on Wednesday. Bought 100 NQS @ 13.7  The OG is fortunate to do as well as he does keeping up with all of this trading, being well past his prime.  

I  look at the WSJ pages every day on the closing net asset values for CEFs. When I was buying the municipal bond CEFs a few days ago, most of those funds had gone from selling at small premiums to discounts to NAV, and those discounts were expanding by significant amounts every day during the municipal bond selloff. I noticed on Tuesday night that the market price for NQS had moved from around a 5% discount when I purchase shares to a +3.94% premium to net asset value, as of 11/23, WSJ. That move was sufficient to cause me to trim my position, but I like the TF yield at the $13.7 cost enough to keep 100 shares for now. 

The remaining trades from Wednesday will be discussed in the next post. I sold two stock CEFs on Wednesday.