Wednesday, August 1, 2012

MTY/STLPRA/Sold 50 NABZY at 25.47/Earnings: UVSP NYB, BDN, RSH, FNFG

The Eurozone Manufacturing PMI fell to 44 in July, the lowest level in 37 months.  ‎ 

BNC Bancorp, a LT, reported second quarter net income of 13 cents, including a 5 cent after-tax reduction for acquisition activities, compared to 10 cents in the 2011 second quarter.  The consensus estimate, generated by 3 analysts, is for a 2012 E.P.S. of  48 cents and 74 cents in 2013. BNCN Analyst Estimates

National Penn Bancshares, another bank LT, reported second quarter E.P.S. of 15 cents per share, unchanged from a year ago.

Citigroup Funding Inc. for 3% Min Coupon PPN on Price of Gold (MTY) was ex interest for its annual payment on 7/29/12. The payment will be $.3 per share, made on 8/3/12. This unsecured note paid its minimum 3% coupon for this prior period as expected. MTY is an unsecured senior note with a $10 par value, maturing in 2014, that pays the greater of 3% or up to 35% depending on the price movement of gold. Final Pricing Supplement Any individual investor delving into this area of exchange traded bonds needs to do their homework before even thinking about investing in a "principal protected bond".

Some of my readers are interested in this kind of security. For MTY's current annual coupon period, which started on July 27th and ends on 7/29/13, the starting value for the price of gold is the LONDON P.M. fix on 7/27/12 which was $1,618.25. Past Historical London Fix The maximum level for MTY would thus be 1.35 x. $1,618.25=$2,184.64. One close above $2,184.64 would trigger what I call a Maximum Level Violation which would trigger a reversion to the 3% minimum coupon irrespective of the P.M. fix on 7/29/13.

However, if there was no Maximum Level Violation and the P.M. fix on 7/29/12 was $2,100, the next coupon for MTY would be 29.77% (hypothetical gold closing price on 7/29/13 of $2,100 minus Starting Value of $1,618.25=$481.75 gold price gain during annual period divided by the Starting Value=29.77% coupon on a $10 par value)

I noticed yesterday that one of my trust preferred securities, STLPRA, closed at $10.66 yesterday. Sterling Bancorp Trust I 8.375% Cum. Trust Pfd. Secs., STL.PA I currently own 200 shares in the ROTH IRA and have traded this $10 par value security for small gains using FIFO accounting. Trust Preferred Securities: Links in One Post:

{Bought 50 of the TP STLPRA at $8.99Added 50 STLPRA at 8.69Sold 50 STLPRA at $9.4Bought 100 STLPRA at 8.87Sold 100 of the TP STLPRA at 10.25Bought 100 STLPRA at 10.05;
Bought 50 STLPRA @ 10.21Bought 200 STLPRA @ 10.14Sold 100 STLPRA at 10.47Added 40 STLPRA at 10.14 in Regular IRAAdded 100 of the TP STLPRA at $9.87SOLD 250 STLPRA at 10.2}

Since STL had less than $15 billion in assets as of 12/31/09, it does NOT have to phase out the use of this TP as Tier 1 equity capital. (section 171(b)(4)(C) of the Dodd-Frank Act at page 153 .pdf) Sterling may continue to deduct the interest paid on this bond, while treating the bond as equity capital for regulatory purposes, unless Congress changes its mind and repeals this section.

While this is beneficial and explains why banks issued TPs, I want to remind everyone that this TP can now be called at its $10 par value plus accrued interest. Prospectus If STL elects to retire this relatively high cost debt, anyone buying at an amount greater than par value plus accrued interest could lose some money in the event STL redeems the underlying bond owned by the Sterling Bancorp Trust I, which would of course trigger the redemption of the STLPRA.

My total average cost per share on the remaining 200 shares is $10.17. Each investor has to make their own decisions on how to approach buying bonds at premiums to par value when the issuer can redeem the bond at par value plus accrued interest. My general rule of thumb is to pay no more than par plus accrued interest, though I might go a few dollars above that amount when I start to become desperate for yield. I will also consider whether the issuer can refinance at lower cost in arriving at a maximum price.

For STLPRA, I am not trying to do anything other than capture the yield in the ROTH without losing money on the bond. So far, I have booked a net realized gain of $178.54 in the foregoing trades, with most of that coming from a single 100 share purchase:

2010 STLPRA 100 Shares +$122.03
I will be running behind discussing my trades during earnings season. I will just mention a recent add that some of my readers may want to research  in more detail. I hope to discuss it briefly tomorrow or Friday: Yorkville High Income MLP, YMLP Fund QuoteYorkville New ETF; sponsor's website: Yorkville High Income MLP ETF (YMLP)

1. Bar Harbor (own: Regional Bank Basket Strategy): Bar Harbor Bankshares, a small bank headquartered in Maine, reported second quarter net income of $3.1 million or 79 cents per share, up from 72 cents in the 2011 second quarter. The one analyst providing an estimate had predicted 83 cents.

The capital ratios are good:

BHB Capital Ratios as of 6/30/12

As of 6/30/12, the net interest margin was 3.17%; the efficiency ratio was at 54.6%; NPLs to total loans stood at 1.41% (down from 1.77% as of 12/31/11); and the company reported an annualized return on assets of 1.01% during the quarter.

Bar Harbor Bankshares increased its quarterly dividend to 29.5 cents per share from 29 cents.

I own 50 shares as part of my regional bank basket strategy.  Bought 50 BHB at $30

Bar Harbor Bankshares rose 34 cents in trading yesterday to close at $34.83.

2. UVSP (own: Regional Bank Basket Strategy)Univest Corporation reported net income of $4.8 million or 28 cents per share for the second quarter, up just one cent from the year ago quarter. The main reason for keeping my 50 shares is the dividend yield.  Bought 50 UVSP at $15.1 At the current quarterly rate of 20 cents per share, the dividend yield at a total cost of $15.1 would be about 5.3%. Needless to say, it is not easy to pick up 5% today. {I hope to generate about 40% to 50% of my total return over the life of this strategy from dividends}

The estimate from one analyst was for 31 cents per share.

The capital ratios are good:

UVSP Capital Ratios as of 6/30/12
As of 6/30/12, the net interest margin was 3.97%; the efficiency ratio was 67.6%; NPLs to total loans stood at 3.05% (down from 3.42% in the 2011 2nd quarter); the coverage ratio was 68.18%; tangible equity to tangible assets was at 10.11%; and the return on average assets for the quarter was .88%.

Univest Corp. of Pennsylvania closed at $15.91 yesterday.

3. NYB (own: Regional Bank Basket Strategy)New York Community Bancorp reported  a second quarter GAAP E.P.S. of 30 cents. Net income rose 9.8% year-over-year to $131.2 million. 

The consensus estimate was for 27 cents per share (21 analyst contributing)

The capital ratios are good:

NYB Capital Ratios as of 6/30/12
The return on net tangible assets was reported at 1.36%.

As of 6/30/12, the net interest margin was 3.3%; the cash efficiency ratio was 36.78% (GAAP at 38.12); NPLs to total loans stood at .84%; and the coverage ratio was 54.73%.

The Board announced the regular quarterly dividend of 25 cent per share.  My average total cost per share is $11.86:

150 Shares of NYB Total Average Cost Per Share=$11.86
The dividend yield at my total cost number is 8.43%. I am not reinvesting the dividend.

I have also traded shares, which were not included in my regional bank basket when bought.  The largest gain was in a regular IRA:

2010 Regular IRA 50 Shares +$331.03
In retrospect, I would have been better off selling all of my NYB at the price realized on that 50 share lot. I calculated the price, after commission, at $17.35. But, it is hard to find income and this is a good income stock at its current dividend level.

New York Community Bancorp rose 19 cents to close at $12.98.

4. Brandywine Realty (own): Brandywine Realty Trust, recently purchased in the Roth IRA, reported funds from operations of $44.6 million or 30 cents per share. 

The consensus F.F.O. estimate was for 30 cents per share. (14 analyst contributing)

As of 6/30/2012, the core portfolio of 218 properties, comprising 24.3 million square feet, was 89% leased.

Brandywine Realty Trust announced the sale of an office building in Exton, PA for $52.7 million.

Brandywine Realty Trust closed at $11.88. I recently added this stock to my ROTH IRA before the last quarterly dividend. Bought Roth IRA: 50 AVK at $15.3 and100 BDN at $11.24

5. RadioShack (own 2 2019 maturity senior bonds: Junk Bond Ladder Basket Strategy): A few months ago, I argued that RSH needed to eliminate its common stock dividend. Another one mentioned in that post was SuperValu. (introduction: Stocks, Bonds & Politics 4/9/12 Post). 

After RSH announced a second quarter loss of $21 million or 21 cents per share, the company "suspended" its common share dividend to enhance liquidity. RadioShack Reports The company had no choice but to eliminate that overly generous dividend in my opinion.  This report caused the credit default rates on RSH debt to soar. Bloomberg Fitch downgraded the senior unsecured note to CC from B-, which seems aggressive to me.  TEXT-Fitch A negative article about RSH can be found at  Forbes.

This was an awful report. Revenues did increase 1.2% year-over-year, and same store sales were essentially flat. 

The company claims to have over $900 million in liquidity and positive cash flow for the first six months of 2012. Cash and cash equivalents stood at $517.7 million. The remaining liquidity comes from a senior credit facility that expires in January 2016. There is a debt maturity of $375 million in August 2013. That debt is a busted convertible. RSH intends on retiring that debt by refinancing about 1/2 of it and with the balance paid down at maturity with cash on hand.

I will not average down by buying more bonds. Two will be my limit.

I have a risk rating of 7 on this bonds in my Personal Risk Ratings For Junk Bonds which is already high. I will raise it if the next quarter is a bad one. I am not yet as pessimistic as Fitch.

6. FNFG (own: Regional Bank Basket Strategy): First Niagara has been by far the most disappointing stock in this basket, more so than Valley National, due to its extreme underperformance and the comparative size of my position.

The basic problem was that this bank bit off more than it could chew with a $1 billion acquisition of branches formerly owned by HSBC. This point is not even subject to debate in my opinion. This acquisition caused the bank to slash its dividend by 50% to generate capital for this ill-advised purchase, and to sell a boatload of stock at a historically low price. SEC Filed Press Release Further cash was raised by offering equity preferred stock on very generous terms, Pricing Term Sheet, and selling notes with a fat yield. SEC All of the foregoing were negative for existing shareholders in my opinion, and the stock chart confirms my opinion. FNFG Interactive Chart

This acquisition has already proven to be one too many for this bank. While the acquired branches will make FNFG a bigger fish in slow growing or declining markets, the damage inflicted on shareholders by FNFG's management and Board will take years to repair. First Niagara: Just Another Incompetent Bank Board of DirectorsFirst Niagara 50% Dividend SlashFNFG-Destruction of Shareholder Value

It will certainly take years for the shareholders to recoup the losses associated with the dividend cut. I estimate currently that it will be seven to ten years before the Board restores the dividend to the level prior to their 50% slash (2018-2020 is my current estimate, maybe longer, not likely to be shorter). The quarterly dividend was cut from 16 to 8 cents per share. SEC Filed Press Release Perhaps the overpaid CEO will take a 50% cut in his pay soon. He referred to the acquisition of the HSBC branches as a "home run", more like hitting yourself in the groin with a bat. Possibly, someone needs to explain baseball to him. A home run is good for the team that hit it, maybe that will suffice as an explanation.

While I have blasted the bank for this boneheaded move, I also believe that the market has overreacted to the downside, when the shares approach $7. The current price would be understandable only if you expected management and the Board to do something else really stupid again, which is of course possible.

First Niagara reported Non-GAAP second quarter net income of $59.1 or 17 cents per share, down from 19 cents in the second quarter of 2011. The GAAP number was a loss of 5 cents per share which included acquisition and restructuring costs associated with the HSBC branch acquisitions.

The consensus estimate was for 18 cents per share. The shares declined 2.24% in response to this report, closing at $7.2 (7/27/12). A new five year low was established also on 7/27/12:  FNFG Interactive Chart I voted against the Board and can not even comprehend why other shareholders voted overwhelmingly in support. As shown in a 10 year chart, the stock has returned to 2002 levels, losing a decade of value. Chart

The capital ratios are trending down:

I am reinvesting the dividend to buy additional shares and hope that the Board will not cut it further or embark on another clearly indefensible acquisition. It will take a minimum of 5 years, for the stock to return to levels prevailing before the HSBC branch acquisition announcement. I suspect that the range will be closer to 7-10 years. The quarterly dividend of 8 cents per share is back to 2004 levels. Stock Splits & Dividends - First Niagara

I have an unrealized loss of over $1,000 on 350 shares bought in the market plus shares purchased with dividends. First Niagara Financial Group closed at $7.58 yesterday, back to a price prevailing in 2003.  First Niagara Financial Group Inc. Stock Chart It is hard to call that result a "home run" without breaking out in laughter.

7. Sold 50 NABZY at $25.472 Last Friday (see Disclaimer): I recently received a dividend payment from National Australia Bank, who ADS shares are traded on the U.S. pink sheet exchange under the symbol NABZY. No foreign tax withholding was made (or if made, not yet shown):

I am having some trouble keeping track of the foreign tax issues. I have enough trouble with U.S. tax issues.

I do remember that the Swiss insurance giant Zurich did not withhold any taxes on its recent dividend payment since that distribution was classified as a return of capital. The dividend was large and reduced my tax cost basis in the stock by the amount of the dividend. Item # 2 Zurich Financial (dividend of $184.48 on 100 shares, reducing my cost basis to $22.95)

However, as of now, there has been no brokerage adjustment in my NABZY cost basis.

While I am not sure why no tax was withheld and no adjustment made to the cost basis, perhaps the explanation lies somewhere in the cryptic statement made by the bank at Shareholder Dividend - NAB The bank stated that the dividend was 100% "franked", whatever that means.

I then discovered another statement by the bank that says no withholding taxes are levied on the franked part of a dividend payment:

"Franked" and "Unfranked"Dividends & Withholding

So, I clipped the dividend with no withholding and no return of capital adjustment, and made some money on the shares bought last March: Bought 50 of the ADR NABZY at $24.55 And, I learned a new term. 


  1. I would sell the Sterling- take the +/- $100.

  2. Thanks so much for sharing your wisdom. I've really enjoyed following your blog.
    As a former Aussie, I thought I'd offer some help on the "franked" and "unfranked" dividends from Aussie companies.
    If the dividend is fully franked, that means the company has paid the tax owed on the dividend directly to the Aust Tax Office, and the shareholders are paid the net amount as a franked dividend. The company calculates their gross dividend, pays the tax on that gross amount and forwards the net to the shareholders. This saves paperwork for each individual shareholder, and makes sure all the appropriate tax is collected at source.
    Unfranked just means that no tax has been withheld/paid by company, so each individual shareholder has to remit the tax. In this case, as a US investor, you'll see a withholding amount deducted from any dividend you receive.
    Hope this helps. - Jan

  3. Jan: Thanks for that information. I have owned NABZY prior to this year and simply did not notice anything on this issue. Usually, for Australian stocks, I stick with EWA and will infrequently meander into individual names. I have occasionally bought FXA but I am a little concerned about the current level of the Aussie Dollar. If I had bought Aussie Dollars at the same time I bought Canadian Dollars, I would use those AUDs now to purchase directly on the Australian stock exchange. However, since I do not own any now, I am not going to covert my USDs into AUDs to effectuate that purchase at the current exchange rates.

    The NABZY dividend recently received was 100% franked.

    It does raise a question for me whether the U.S. investor will be able to claim a foreign tax credit for the amount paid by the bank.

    If there is no double taxation in Australia, as there is in the U.S., then I suspect that there would not be right for the U.S. citizen to claim a tax credit. So, does Australia just tax the income once for Australian citizens and companies? If that is the case, I wish the U.S. had the same rule.

    There is no reason to reply. I am just curious. I suspect that I will not be able to claim a foreign tax credit for a dividend paid by an Australian company which is 100% franked.

  4. On STLPRD, you may be right but then what do I do with the cash.

    At my cost, I am almost receiving the coupon yield which is good in today's market. I am not concerned with the credit risk.

    And, Sterling has had the right to call this TP since 3/31/2007 and has not called it for over 5 years. So, maybe the bank is content with that rate and finds the TP continued use as Tier 1 equity capital appealing. After all, it can continue to deduct the interest and treat that bond as equity capital, since it is grandfathered as an exception. I had to insert the word "not" which was unintentionally omitted in a statement that I made. STL does not have to phase out this TPs use as TIER 1 equity.

  5. I repeat, take the $100. Old Geyser forgot it's "buy low & sell high"? This household OG reminds you of a possible Black Swan making this the most dangerous market perhaps ever. Transports divergence, revenues negative, no more QE and Friday's jobs will be stinking (do not believe ADP, believe Philly reports and ISM), many other divergences, technically while this market has made a BEAR FLAG and watch it break down, not up.. so... My .02.

  6. I have noted the problematic ISM surveys in my surveys. The equivalent one for Europe released by Markit is worse, as I would expect. These are dicey times, without a doubt.

    The economic data does not support in my view the current market level, and another correction will likely be forthcoming unless data points start to turn positive relatively soon. It is impossible for me to say when the market will quit looking at bad economic news with rose colored glasses, apparently hoping that more bad news will provoke the FED into another round of QE. I do not believe that a further reduction in rates will solve anything; and I have maintained that it could easily be making matters worse by depriving the Saving Class of income to spend. So the market is hoping that bad news will spur more Fed action, hoping that the third time will be the charm, and that hoped for expectation does not seem reasonable to me. I would not view QE3 as a positive development anyway.

    Jobs and housing need to do better than now.

    Having said that, I know that you are pessimistic. I was not as pessimistic as you are now even in October when the financial system was tottering on collapse. The market cataclysm between September 2008 and March 2009 is a normal and reasonably anticipated event in long term secular bear markets, and provide rare opportunities to buy at fire sale prices, assuming the investor has money left.

    I would have more cash now if I could earn say 3% or 4% in a relatively risk free investment like a bank savings account from a sound institution and within the FDIC insurance coverage limits. That is not an alternative. I have a large cash stash earning nothing, so I will have plenty of firepower, as I did in March 2009, to buy in the event of the Black Swan event that you envisage. I see no reason to add materially to it by selling bonds from issuers like Sterling.

    There is no Mr. Geyser here, just an Old Geezer who would like to go to sleep and wake up in a year or two.

    Constant vigilance by our LB is still required. Danger is everywhere. I agree with you that investors are too complacent now.

    The most profound Black Swan event ever would be a failed U.S. treasury auction, followed by another failure shortly thereafter, when the world has gorged itself on our government's paper and says not a dime more. It is hard to rationalize why the U.S. government paper is viewed as a safe haven when our budget deficits are running over a trillion per year with no end in sight. And, there is no political will to do what is necessary, both on taxes and spending.

  7. Considerate reply, as always. I follow this Walker chart guy, you can see the divergences, like in 2007. Market moving up opposite of many, if not all technical indicators. Transports (Dow Theory) is negative.

  8. After looking at Walker's charts, I can not believe the extent of the breakdown! Transports, Russell, etc.
    Here's another excellent

  9. I would certainly agree with Mish's comment that "another round of QE is pointless".

    I will look at the average mortgage rates published by Freddie Mac on a weekly basis. The average 15 year mortgage rate is 2.8% and 3.49% on a thirty year. Knocking those numbers down a few basis points is meaningless for a housing recovery.

    The charts that you reference do signal a potential for a correction. The Russell 2000 is probably in need of a good one.

    Some of the same comments that are being made by that technician have been echoed by others for many months. I noted similar comments by Richard Russell in a December 19, 2011 post, which I will copy here:

    Randall Forsyth summarizes the opinions of Louise Yamada and Richard Russell in his Barrons column. Both Yamada and Russell are decidedly negative about the stock market's prospects. I am inclined to agree with Russell that the rally off the March 2009 lows was a bear market rally, rather than the start of a new long term secular bull market. I have repeatedly made that point.

    Russell believes that the appropriate analogy is to the bear market rally of 1929-1930, which occurred after the October 1929 crash, that was followed by the bear reasserting itself on steroids, punishing severely anyone who bought into the bear market rally and failed to exit their positions in time. Russell believes that the bear will take over when the DJIA falls below 10,000 and surprise everyone with its downside vigor. This is a possible scenario.. ...

    Forsyth titles his column "survive the bear to invest another day". If the Russell scenario happens, the only way to survive is to preserve capital in order to buy at lower prices.

    A similar dire scenario was proffered by Felix Zulauf and discussed by me in an earlier post. Zulauf/Faber and Financial Armageddon Redux/Debt Burden of the American Household (June 2011 Post). As I mentioned in that post, the opinions of Zulauf, Russell and many others, relating to future events, are frequently stated with certainty, even though no one can have any degree of certainty about the future.

    I prefer to create a frame of reference that includes several possible scenarios and then assign them various decrees of likelihood. Each scenario might have a particular investment strategy attached to it. If I believed now, for example, that the market rally since March 2009 was the start of a long term secular bull market in stocks, I would substantially increase my stock allocation. If I was certain about the Russell scenario, I would own almost no stocks. I do not have that kind of certainty. I view both of them as possible, even though completely at odds with one another, and have accordingly kept a significant stock allocation (the bull case) after making a substantial reduction (the mega bear case).

    Whatever scenario comes to fruition, I do believe that the downside risk is more dominant now than the upside. That opinion requires a tilt toward preservation of capital. Part of that tilt is manifested by a high allocation to cash.

    At the moment, it appears to me the market is forecasting a very mild and short term downturn in Europe, a successful resolution of the European sovereign debt and banking problems, and 2 to 3% U.S. GDP growth in 2012. Those are the forecasts baked into the market's current level. A less optimistic scenario is the more likely one, which is why the downside risk is more pronounced in my opinion.