GWB is a large Aussie bank with the “wherewithal” to close. So, the buyer is not the issue. The Friday announcement states that the primary issues are regulatory in nature. I suppose that the EVP resignation and the June 30 restatement may be connected. Also, I suppose these two events combined with ongoing OTS supervision have made the regulatory hurdles more challenging to overcome. Nonetheless, it would appear that the OTS and FDIC would ultimately desire the GWB transaction to close because of the significant benefit it would have to the capital ratios. However, in the meanwhile, they may want to extract another pound of flesh from TONE for going below the targeted ratios. Without the GWB deal or deleveraging on a similar scale, TONE is in trouble. With the deal, TONE has bought a good deal of time to weather the economic tsunami with book value significantly greater than $10 a share. Even assuming best case, TONE probably won’t be as efficient of a bank as before, and as such, it should trade at a sizeable discount to book value until normalized earnings return. At a normalized 1% ROA, that would be $21 million net income or $1.17 a share – albeit that may be a decade from now. Given the uncertainties that exist, I estimate that TONE could trade between its 52 week low of $1.13 and $5 a share. As the certainty grows on the GWB closing, I would TONE’s stock price to increase and trend closer to the $5 range. Currently, TONE isn’t like the banks that are being shuttered. You can pull the FDIC call reports to compare. Some of those banks that were shut last month have capital ratios in the 1% to 3% range. For the time being, TONE is significantly higher than that. TONE needs to close the GWB deal before it approaches those levels. In the meanwhile, TONE could still suffer significantly more losses and still exceed the normal “well-capitalized” thresholds (albeit not the OTS elevated thresholds).
Well it's obvious you have put alot of thought into your reasoning, very good! Though I don't quite agree with all your numbers and assumptions, it seems we do agree on the eventual outcome and the realization of investment potential.
There is still alot of shorts waiting to cover so I am expecting a few better entrance points to materialize. But I do see those opportunities evaporating right before the asset deal is closed.
I posted a 2 part post back to VooDoo last night that addressed some of this, but it seems this morning that post, along with the whole thread, is now gone. :( ?