Wednesday, February 2, 2011

Sold 50 STIPRA at 20.9 & Added 50 MSPRA at 19.54 /NRIM FBSS/RB BOUGHT: 1 Circus Circus Senior SUB Bond Maturing 2013/Bought 30 HBAN @ 7.25 as LT/CEF Table

The foregoing table is my current CEF portfolio, a balanced portfolio of bonds and stock CEFs, both domestic and foreign.  

The ISM manufacturing survey for January was released yesterday and gave the market a lift.  The PMI was reported at 60.8, the highest reading since May 2004.  The new orders component jumped 5.8 percentage points to 67.8 in January from the robust 62 reading in December 2010.  The employment component was 61.7, an increase of 2.8 from December.

1. SOLD 50 STIPRA at $20.9 on Monday (see Disclaimer):  I just do not find this particular equity preferred floater attractive at its current price.  STIPRA is a non-cumulative equity preferred stock that pays the greater of 4% or .53% above the 3 month LIBOR rate. Final Prospectus Supplement  It is the float provision that I view as unattractive, compared to several of the others that have a higher percentage spread and/or the same guarantee with a lower stock price.     The security is rated junk. I bought this security in late December at 19.85.   I substituted yesterday 50 of MSPRA for STIPRA.   I have simply not been able to hold onto STIPRA for very long, and have traded it for small gains, collecting a few dividends along the way. The prior trades from 2009-2010 are discussed in the following posts:  Sold: 50 STIPRA @ 21.24 (Dec. 2010);  Bought 50 STIPRA @ 19.75 (Oct. 2010); Sold 50 STIPRA at $20.90 (March 2010); Bought 50 STIPRA at $17.2 (Sept. 2009)

Suntrust recently reported earnings of 23 cents per share.  SEC Filed Press Release The consensus estimate was for 9 cents. NPLs were down to 3.54% of total loans from 4.75% as of 12/31/2009. I suppose that is progress of one sort.  The net interest margin was 3.44%. The capital ratios were still being supported by a boatload of government money invested in equity preferred stock. STI is a large regional bank with 1,688 full service banking offices. 

2.  Northrim BanCorp (NRIM)(own: Regional Bank Stocks' basket strategy):  Northrim reported 4th quarter net income of 1.8 million or 28 cents per share, down from 30 cents in the year ago period.  As of 12/31/2010, tangible book value per share was $16.86; the net interest margin was 4.57 in the 4th quarter; the tier 1 risk adjusted asset ratio was 14.08%; tangible common equity to tangible assets was one of the highest in my regional bank basket at 10.36%; NPAs to total assets was at 2.07% (down from 3.47% as of 12/31/2009);   the allowance for loan losses as a percentage of NPLs was at 126.21%; and the efficiency ratio was at 65/96.  For 2010, Northrim earned $1.4 per diluted share up from $1.2 in 2009.

Bought 50 NRIM at $16.66 (March 2010) 

3. RB Bought 1 Senior SUB Circus Circus Bond Maturing on 7/15/2013 at 97.75 on Tuesday (98.55 with concession, i.e. commission)(Junk Bond Ladder Strategy)(see Disclaimer):  This bond was originally issued by Circus Circus Enterprises, later known as Mandalay Resort Group.  This company was later acquired by MGM Mirage in 2005, now known as  MGM Resorts International.  The bond that I bought yesterday can be found grouped at Finra with the other MGM bonds.  According to FINRA, this bond is well into junk territory, Caa3 by Moodys and CCC- by S & P.

The coupon is 7.625% and the bond matures on 7/15/2013.  LB denies all responsibility for this purchase, and noted that this is about what it expected with the RB and the Old Geezer at the helm of the trading desk. RB bought the bond since it enjoyed going to the Circus many moons ago, before the LB became all powerful and started reading the IRS code for entertainment.

My confirmation states that the current yield is 7.737% with a YTM of 8.288%.  

This bond was originally issued in 1993 and the Edgar Online does not go back that far.  I was consequently not able to find the prospectus.   I do know that this bond is not really a senior bond.  It is junior in priority to a senior bond. Senior subordinated bond just sounds better when making a sales pitch rather than just saying that the bond is a junior bond.

This note is listed among MGM's debt in note 3 to its last filed Form 10Q.  This company is burdened with debt in the extreme.  RB's prayer is that business will improve sufficiently by 2013 that MGM will have no problem continuing to service its debt and to pay off HK's loan on 7/15/2013.

4. RB, in Consultation with the OG, Bought 30 HBAN as a LT at $7.25 (LOTTERY TICKET strategy) (see Disclaimer):   LB would simply note that the meeting with the RB and OG on this purchase lasted about three seconds, and consisted of the following exchange:  RB:  "Let's buy a 1,000" and the OG replied: "I will get in trouble with HK if I buy a 1000 shares, let's buy 30 and maybe our Great Leader will not even notice, where is my bag of Hershey Kisses"  In other words, there was nothing of substance exchanged in that conversation, not much can be discussed when the speakers have a maximum attention span, combined, of less than five seconds".

I previously bought and sold HBAN shares as part of my regional bank strategy. Bought 50 Huntington Bank at $4.27 /Added to HBAN at $3.7  Sold 90 HBAN at 5.83  I am not putting these LT shares in that category again, since I am required to monitor those positions daily, and to read all earnings reports.

Instead, in the LT category, I am allowed to just forget about it, possibly I will look at HBAN again around this time of year in 2016.  This is the same approach that I am taking with the recent LT purchases of FHN and KEY.   Bought 30 KEY at 8.75  Bought 30 FHN as an LT at 11.34

I decided to come back to HBAN after it successfully raised enough funds to pay back 1.4 billion in TARP funds (EX) and reported 122.9 million in earnings, or five cents a share, for the 4th quarter.    SEC FILED PRESS RELEASE  The bank reported a 2009 net loss of over 3 billion dollars or $6.14 per share, see page 36 of 2009  10k)  Horrible does not do that justice.

Part of the capital raise came from the issuance of 300 million in a 7% subordinated note maturing in 2020: Prospectus  Unfortunately for its shareholders, HBAN has been selling a lot of stock to weather the Near Depression and its aftermath and to repair its self-inflicted wounds (e.g. subprime loans from Franklin Credit acquired as part of the SKY Financial merger in 2007).  The most recent dilution occurred last December with the sale of 146,031,747 shares at $6.3 per share.  I noted in a prior post the issuance of another boatload of common shares in September 2009 at $4.2 a share.  SEC Filed Press Release  I have not attempted to determine if there was another dilutive offering.

To judge those kind of share issuances, I just consult a stock chart, and this is a link to the Huntington Stock Chart going back to 1990.  Ouch!  Those huge issuances were at  prices prevalent in 1990-1991, the last time the Masters of Disasters at American financial institutions blew up their banks.  So that explains why I have limited myself to just 30 shares, after having already booked a profit on 90 shares as mentioned above.  My total profit from that transaction was precisely $139.64.  So I am not exactly risking much by buying just 30 shares    at $7.25, particularly after subtracting that profit from the cost of purchase.  

I feel sorry for the long time shareholders.  It would certainly be a fair question for them to ask what did the well compensated wizards at HBAN really accomplish since 1991 to justify their perks and large salaries.  It is just disgusting.

Morningstar rates HBAN 3 stars.  The current dividend is 1 cent per quarter, and I would expect that to be raised at some point in 2011.   The annual dividend rate was at $1.06.  I doubt that it will reach that level within the next ten years.   A best case would be a return to a $15 to $18 price in five years, which would represent a double.   The bank makes a majority of its loans in Ohio followed by Michigan

5. Added 50 MSPRA at $19.53 in a Taxable Account (see Disclaimer):  MSPRA has been adequately discussed in several prior posts.   It is a non-cumulative equity preferred stock that pays the greater of 4% or .7% above the 3 month LIBOR rate on a $25 par value.  Bought 100 MSPRA at $12.88 (May 2009); SOLD 100 MSPRA at 21.43 (Jan 2010); Bought 50 MSPRA at 15.7;  Sold MSPRA at 18.50Bought 50 MSPRA @ 19.57 Bought 50 MSPRA at 19.71

Yesterday's purchase of 50 shares of MSPRA  is viewed as the replacement for STIPRA, discussed in #1 above, that pays  the greater of 4% or .53% above 3 month LIBOR on a $25 par value.  There was a lot of volume for this security yesterday, as it closed down 7 cents.   Morgan Stanley, MSPRA Stock Quote

MSPRA Prospectus:

The current coupon is the guarantee.  Historical 3 month LIBOR rates can be found at LIBOR.

Advantages and Disadvantages of Equity Preferred Floating Rate Securities

6.  Fauquier Bankshares (FBSS)(OWN:Regional Bank Stocks' basket strategy):  RB bought shares in this bank based on the name sounding French for Amour.   It should not be surprising to anyone, LB noted, that Fauquier is one of the few losers in the regional bank strategy. Fauquier Bankshares reported 4th quarter net income of $870,000 or 24 cents, up from 23 cents in the year earlier period.  This was an uninspiring report.  The one analyst following the bank had predicted 29 cents.   FBSS Analyst Estimates

I did notice last night when checking the SEC filings for Fauquier that the money manager Royce & Associates had filed a Form 13G/A on 1/12/2011 claiming ownership of 8.34% of the common shares.

The bank cut its dividend after I purchased 50 shares, even though it had strong capital levels and was at that time, and up to the present, reporting earnings in excess of the dividend prior to it being slashed.  I noted the efficiency ratio jumped from 69.53% in the third quarter to 73.34%, so maybe that is where some of the shareholder money is going.   The net interest margin decline to 3.96% from 4.14% as of 9/30/2010. As of 12/31/2010, NPLs to total loans was at .45%, which is excellent; NPAs to total assets was also good at .92%; net charge-offs to total loans during the 4th quarter was .01%; and the allowance for loan losses to total NPLs was a very comforting 299.1%. The press release noted the bank's capital ratios as follows:

   "Fauquier Bankshares' regulatory capital ratios continue to be deemed "Well Capitalized," the highest category assigned by the Federal Reserve Bank of Richmond. At December 31, 2010, the Company's leverage ratio, an important indicator of financial health, was 8.55%, compared with 8.68% one year earlier. The company's tier 1 and total risk-based ratios were 11.30% and 12.55%, respectively, at December 31, 2010, compared with 10.97% and 12.21% at December 31, 2009.  The minimum capital ratios to be considered "Well Capitalized" by the Federal Reserve are 5.00% for the leverage ratio, 6.00% for the tier 1 risk-based ratio, and 10.00% for the total risk-based ratio."  

As noted in a prior post, I am going to stick with this bank.  It has a high market share in two counties in Northern Virginia and I view it as takeover bait easily swallowed by another banking institution. Item # 1 Bought:  50 FBSS @ 13

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