I agree totally with principle. The downside of reducing book value is far outweighed by the positives, paying dividend on common stock, paying off preferred stock and increasing liquidity. This should allow the management team to concentrate on banking.
This will put a lot of baggage in the past and allow GFED to legally resume a dividend on the common stock if they chose to do so. The additional shares will save the expense of the dividend on their preferred stock they are redeeming. This will reduce book value per-share, but book value per share was higher than what the stock had been trading at recently.
This should also help liquidity to some extent, so that is a positive. I think this is a mostly positive event.
From what I saw, the ones that were forced to sell all had serious capital deficiency. I won't lump GFED in with them.
Other banks, especially thrifts, sold out because they did not have prospect of earning a fair return, especially under new regulations. For example, thrifts are now under the supervision of OCC. (used to be under OTS.) OCC doesn't cut them any slack just because they are thrift. Many are forced to sell out.
Would GFED feel like to sell? I don't know. But if I have to guess, no. A merger would most certainly cost Burke his job. There are many displaced bank CEOs that had to change career. Last I heard, the ex. CEO of SBAZ was selling real estate. Burke is only 51. He's make the case for staying independent no matter what.
By the sweet heart deals he made for insiders--home loan at near 1% APR, etc.--he's got the ears of the board.
Many banks took the route of your second proposal, i.e., sell shares at a discount to pay tarp off. As this shortens the struggle, it may be an easy sell to the board, especially if it allows insiders to buy in cheaply. I don't think it's good for shareholders, but its so painful shrinking balance sheet and pay TARP off with retained earnings...Besides, who doesn't want to run a bigger bank?
I own some shares of SZBI. SZBI has dominant shareholders and resolved to stick it out. SZBI looks to be able to pull it off although it'll be several years before it gets to pay TARP off.
Another one is GSON. Which is weak but also decided it'll rather suffer than to dilute existing shareholders. They get my vote of confidence.
In the case of GFED, I am afraid the existing shareholder would get the short end of the stick.
I agree with everyone that they should float the shares at a higher price. But the problem is that there will be a big hit to earnings once the preferreds reset to 9%. So how is the share price going to go up if earnings go down?
Seems to me there are only two options:
1. Sell the company - the WSJ had an article a week or two ago about small banks facing the TARP resets and the only option for many is to put themselves up for sale.
2. Float the new shares now, redeem the preferreds, and resume the dividend. This option gets some new investors involved and maybe some support for the stock too (along with reinstating the dividend).
I'm totally with you on this Sam. Who cares, pay 9% for two years, or three for that matter, as you pay off TARP? I do not think offering shares at below book to be good in any way for the existing shareholders.
Because the TARP preferred resets from 5% to 9% this month. They want to redeem the preferred as opposed to taking the hit to earnings. At least this is my understanding.
Under "normal" income tax rate, the bank is earning 8.5% return on equity. Given equity is around $15.5, "normal" earnings is roughly $1.30, or $0.95 after TARP dividends.
Valuation at 10 x PE, may be around $9.5, but why not wait for earnings to improve and valuation approaches $15 before floating new shares? What have I missed?
They really need to get stock price higher to avoid too much dilution. Maybe reinstating a dividend would make the stock jump a little. Need to do something!
Paying off 9% interest is essentially like buying back stock at 11x earnings. Not a bad deal. It will hurt book value per-share, but book value per-share hasn't driven this stock up even though the book value is significantly higher than the current price.
Paying off the preferred stock will allow them to reinstate a dividend, and the current P/E multiple is low enough, I think the yield will be respectable. I don't think 3% at the current price is out of the question at all. With as much inside ownership as they have I wouldn't expect them to make any moves that will hurt the common stock.
Earnings are out. 42 cents per share. Complaining of interest margins and price declines in bond portfolio.
No mention of the share offering. Would think that would be happening soon.
I haven't been in GFED for quite some time, but I am revisiting now. Reinstating the dividend would do wonders and bring in more investors. If they float $23million worth of stock, thats another 2 million added to the outstanding shares. Sure it would help liquidity, but what would it do to EPS? If I can snag any under $10 I probably would.
Anyone here find any gems lately?
I agree that they need to payoff preferred stock before it goes to 9%. I don't think they need to raise $23M though. Surely they will reinstate dividend after preferred is paid off.
They needed to pay off their preferred because it was set to go to from a 5% rate to a 9% rate in 2 months. I really would prefer to see them sell only enough to pay off their preferred shares. This stock has such low liquidity that I believe that issue knocks at least 5% off the trading price because if you have to sell this stock in any reasonable time frame (like a few days even) There's no telling whether you could sell it at all if you have more than a few thousand shares, and there is usually such a big disparity between the bid/ask that it's almost comical. It's not uncommon to see a spread of 40-50 cents which is massive on an $11 stock.
On a side note positive.... a benefactor paid off the loan on the Gilloz Theatre, which has been a mulit-million dollar thorn in GFED's side for several years. *Yay*
With the preferred shares bought back that will FINALLY end any and all residue and tarnish from their TARP loan. That should add some confidence to potential investment here. Additionally, and most importantly, allow them to consider initiating a dividend again.