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CapitalSource Inc. Message Board

  • dickieg17 dickieg17 Mar 30, 2008 5:55 PM Flag

    CSE and survival

    If CSE survives for a year, it is a great buy. If they sink it would be due to lack of liquidity,i.e. some lender demands payment now, they don't have the cash, have to liquidate assets and can only sell them at a huge discount and bingo a viscious cycle down and out. Does anyone have a studied opinion regarding their ability to meet all demands for cash the next 12 months? Dick

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    • it would be ironic if that were to happen because that is the way cse treats its borrowers. cse and the shareholders would get a taste of their own medicine.

    • pat..good analysis of CSE Liquidity issues. Thanks. Your concerns about shrinking loan spreads don't take into account that lenders are in the stong bargaining position as smaller companies are having a particularly hard time borrowing. I think CSE can therefore maintain or improve their margins with their customers.

      • 1 Reply to dickieg17
      • I tend to think you are right, and that management is on this. They said their 2/21 conference call that the market was presenting them with very good lending opportunities, and that they expected the market to get even better going forward.

        Also (and I have not checked this in a while, so forgive me if it is not correct), Delaney said on either the conference call or at the investor conference, that the company had raised even more capital than expected in the last quarter due to dividend reinvestment and direct stock purchases.

        I really don't think liquidity is a problem for CSE. Most longs incredulous about the stock price are looking at the fundamentals only. The fundamentals (assuming management has been giving it to us straight) are only about half of what explains a stock price. Market psychology is also key, and currently financials, including CSE, are heavily disfavored. You can look at dozens of other boards where people are complaining that their stocks are not fairly valued. Simply put, fundamentals alone are not enough, especially in this market.

        To me, the main long term risk that this stock has is if management lets ego/emotion drive a continued $0.60 dividend when it is not warranted. I don't know if the dividend is warranted or not, and leave that entirely in management's hands to exercise proper discretion for the shareholders. I need to trust them. I can't put my faith in the market or posters who have their own financial agendas to educate me (though I appreciate all posts and try to evaluate them objectively to learn as much as I can). The market doesn't know the company like management does. They are the foremost experts in this business, and not a single poster here, long or short, can hold a candle to them. All that said, it wouldn't be the first time that a company's management let down its shareholders with a "damn the torpedos" approach to things. If I could say one thing to Delaney, it would be this: "If it is appropriate to sustain the dividend, then sustain it. If not, don't let your ego get in the way, or the psychological difficulty of reducing the dividend from $0.60 to something reasonable. You can always raise it later when circumstances warrant. Your shareholders are counting on you to do the right thing for them long term." I trust them to do this.

    • Their balance sheet looks like they have a liquity problem in the range of 500m. Hate to say it but I bought them at 26. This comes down to management. Heard one message board guy describe them as a bunch of arrogant pricks. Having listened to their last conference call I would have to agree. Hoping for the best but I think I just took a $26,000 loss. That's ok. I also owned some of Bear Sterns thanks to Horizon Asset management

      The good news is DSX, EGLE ACAS GRMN (lots of doubters here) ETP USB will do well even in a lousy market. GM is getting clobbered on a strike that is actually good for them. Do your own homework. Financial experts will retire like the guy from Bear Sterns - bad reputation but enough money to get over it.

    • >>Does anyone have a studied opinion regarding their ability to meet all demands for cash the next 12 months? <<

      My understanding, gleaned from reading the more inteeligent comments on this board as well as studying their last two presentations, is that they're fine with cash. They have large untapped credit facilities, and the vast majority of their debts don't have nearby due dates.

      Also, the majority of their assets are performing well, and the majority of their loans are secured.

      Thus, they are quite immune from the problems that have sunk and are sinking much of the financial sector.

      The real danger with CSE, as I see it, is death by a thousand cuts. A small but troubling fraction of their assets fail. They are unable to fully collect on some loans that they've given and that have gone into default. The spread between their borrowing costs and what they can get lending narrows to the point that profits nearly vanish. New opportunities fail to arise, due to a devastating recession. Et cetera. Every one of these things takes a tiny cut out of the company until it is unable to pay much of a dividend and/or its NAV drops precipitously. At that point, the price is extremely low and they get bought out at a bargain basement price, much like happened with Bear Stearns.

      Please understand that this is an extreme worst-case scenario. I sincerely doubt that it will happen. This is why I'm holding onto my CSE, which accounts for about five percent of my portfolio. (ACAS and ALD are another five percent.) I'll hold until it drops to zero, because I have faith in it long-term. It's just that the next year or so may be mighty darn rough, and failure, while unlikely, is always a possibility.

    • <<If CSE survives for a year, it is a great buy.>>

      You have absolutley no knowlage about the company therefore you can't make such a statement.

      Actualy they have planty of liquid on hand and no margin theyr lending is very conservative with minimum risk.

      CSE is agreat buy now, survival is not
      questionable in this case.

      They are not involved in any subprime lending tath caussed a lot of damage to other lenders.

    • Research the company before you ask stupid questions.

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