Thursday, December 8, 2011

First Niagara: Just Another Incompetent Bank Board of Directors/SWZ Dividend and Buyback/Bought 70 XIDE as LT at $2.75/Sold 50 BMLPRH at 16.8 and Bought 40 ZBPRC at $25.21/

First Niagara (own) priced 52,941,176 common shares at $8.5 yesterday. SEC Filed Press Release  There is an over allotment option for the purchase of an additional 3.97+ million shares. As noted in yesterday's post, the acquisition of HSBC's branches is viewed as satisfactory proof that both the Board and the CEO are incompetent and are destroying rather than creating shareholder value. First Niagara Dividend Slash On the bright side, it does not appear that the extreme incompetence extends to operations.

First Niagara Financial declined only four cents in trading yesterday to close at $8.97. Possibly, institutional investors were relieved that the stock dilution was out of the way and was less than expected.  I have no plans to average down, except by dividend reinvestment, unless the share price falls below $7.

Fitch placed First Niagara's credit rating on a negative watch. This had to be expected.

After the close yesterday, FNFG priced 14 million shares of non-cumulative equity preferred stock. This security has a $25 par value. The bank expects $338.8 in net proceeds. The coupon is 8.625% until 2/15/2017, and then it will turn into a floater, paying a 7.327% spread to three month Libor. First Niagara Financial Group Announces Pricing of $350 Million Preferred Stock Offering FNFG may redeem the security on or after 2/15/2017 at the $25 par value plus accrued dividends. I view those terms as highly unfavorable to the common shareholders, and further proof of the Board's obvious incompetence in allowing the CEO to pay $1 billion for HSBC branches located in declining population growth markets. Now, I know where 1/2 of my common dividend is going.

FNFG is not done yet raising money to fund the incomprehensible decision to buy these HSBC branches for $1 billion. Next up, the bank plans to float a subordinated debt offering.  As the evidence mounts of the true cost to existing shareholders, and unfortunately I am one, there is no way to describe this decision other than with the term idiotic, and that is being too generous and kind to FNFG's Board of Directors and FNFG's 3 million plus per year CEO in my opinion.  I do not view it as bad, however, as Ken Lewis' megalomaniacal decision to acquire Countrywide Financial.

ING reported that it would take a EUR .9 to 1.1 billion 4th quarter charge to cover guaranteed payments under its U.S. variable annuity products issued between 2003 to 2009.  SEC Form 6-K I recently bought 50 shares of IDG, one of ING's hybrids.

Italian banks borrowed €153.2 billion from the ECB in November. CNBC

European countries and banks will need €1.9 trillion to refinance maturing debt in 2012. MarketWatch Of that amount European banks need to raise 500 billion euros in the first six months of 2012.

S & P added yesterday the European Union and a bevy of European banks to its negative credit watch list. Reuters  Fox Business VOA Breaking News WSJ The possible downgrade includes the currently rated "AAA" EU bailout fund.  So far, the market has ignored all of S & P's warnings about Europe this week. A more negative take on Europe's prospects can be found in Anthony Mirhaydari's column published by MSN Money.

On the pop into the close yesterday, I bought back one of the double short stock ETFs recently sold. Stocks, Bonds & Politics: Earnings: HPQ MDT/U.S. GDP/International Swaps and Derivative Association-Greek Government Debt: Another Example of Rot (11/23/11 Post) A recent modification of the trading rules allows hedges to be bought even with the VIX trading over 20.  Mark Hulbert and the Use of the VIX as a Timing Model/Modification # 1 To Vix Asset Model Approved re: Hedging The ^VIX rose .8 to close at 28.93 yesterday.

Maybe the market is being too optimistic about Europe solving its banking and sovereign debt problems.

1. Bought 70 XIDE at $2.75 (LOTTERY TICKET strategy)(see Disclaimer): Exide Technologies (XIDE) is a manufacturer of motor vehicle batteries.

Link to Exide Technologies profile page at Reuters.

Link to XIDE Key Developments page at Reuters.

This LT selection was based primarily on the usual statistical criteria.  Price to sales is .07; price to book is at .59;  the five year estimated P.E.G. is .6; and the F/Y March 2013 estimated P/E is 3.27, all according to XIDE Key Statistics at YF. Another factor is that the share price has been squashed over the past several months. The stock traded over $12 back in February and was over $9 in May before the bottom fell out. XIDE Interactive Chart  I also read an interesting article about battery technology and XIDE at Seeking Alpha. Of course, I have no technical expertise in this area whatsoever. 

For the quarter ending 9/30/11, the company reported a loss of 5 cents per share on revenues of $772.953 million.  SEC Form 10-Q Exide Technologies Reports Preliminary Fiscal 2012 Second Quarter Results and Revises Fiscal 2012 Guidance

Snapshots of trades made pursuant to the Lottery Ticket strategy can be found at Lottery Ticket Strategy: New Gateway Post. I may harvest the largest unrealized LT gain early in 2012, hovering now over 1500% excluding a 75% annual dividend at my cost basis. 

Exide Technologies closed at $2.75 yesterday.  I am considering buying Exide's senior secured bond. 

2. Sold 50 BMLPRH at $16.8 Last Tuesday (see Disclaimer):  I discussed yesterday BAC's privately negotiated exchange offer for its equity preferred stock. BAC Privately Negotiated Exchange Offers If any public offer is forthcoming to exchange common shares for equity preferred shares, it is unlikely to be meaningful as to the amount, given that 311 million common shares were exchanged in the private offer and BAC previously stated that 400 million was the maximum.  I therefore decided to reduce my position in the equity preferred issues by selling BMLPRH, realizing a total profit on the shares of $10.58. BOUGHT 50 BMLPRH at 16.27 June 2011 I now own only 100 BMLPRJ among the BAC equity preferred stocks.

I only make snapshots of the trades when the profit or loss exceeds $30. (see snapshots at Advantages and Disadvantages of Equity Preferred Floating Rate Securities)

Floaters: Links in One Post

BML.PH  closed at $15.74 Wednesday, down $1.14.

3. Bought 40 ZBPRC at $25.21 Last Tuesday (see disclaimer): I replaced 50 shares of BMLPRH with 40 shares of the fixed coupon equity preferred stock ZBPRC. I have bought and sold ZBPRC. Bought 30 ZBPRC at 18.4 November 2009  ADDED TO ZBPRC AT 23.75 July 2010  Sold 30 of 150 ZBPRC @ 26.47 February 2011  Sold 120 ZBPRC at 26.91

ZBPRC pays non-cumulative preferred dividends. The issuer is Zions Bancorporation whose common shares are currently rated 4 stars by Morningstar.  It has a 9.5% coupon on a $25 par value. Prospectus Supplement

As previously discussed, I have nothing positive to say about the management of this bank. This equity preferred is in my opinion deservedly rated well into junk territory.  That opinion is based on the banks expansion into the Southwest (Arizona and Nevada) when it was clearly apparent that both states were experiencing a real estate bubble. Bank managers are paid a great deal of money to avoid that kind of obvious mistake.

Zions still have government preferred stock on its balance sheet which is not a recommendation for it. Yet, as previously explained, Zions would have to defer the government's cumulative preferred dividend in order to eliminate the dividend on ZBPRC. While that is a possibility, it would be a big step for the bank to take. A very detailed explanation of this issue, as applied to Zions' equity preferred stocks, can be found at Item # 7  Bought 50 ZBPRB in Roth at $19.9

See also: Analysis of Prior Question: ZBPRA vs. ZBPRC OR ZBPRB (December 2009 Post).

ZB.PC closed at $25.15 yesterday.

4. Swiss Helvetia (SWZ: own): The Swiss Helvetia Fund declared a long term capital gain distribution of $1.074 per share and an income dividend of $.168 per share. Both dividends will be paid on 1/27/12. I am reinvesting dividends to buy additional shares. The ex dividend date will be 12/16/11. The fund also announced that it may purchase up to 500,000 shares of its stock. On 12/6/11, the fund closed at $11.16, with a net asset value of $12.59 per share, creating a discount to NAV at that time of -11.36.

More information about this fund is available at the sponsor's website: - Swiss Helvetia Fund It has a heavy concentration in Nestle and Novartis.  Closed-End Fund Association

Swiss Helvetia Fund closed at $11.33 yesterday, up 13 cents.