PANICK ILL TAKE THE ODDS BETTER THEN 2/1 ON THE PATS... ! ! 10 ClAMS THATs A GREAT LONGSHOT COMES IN..roll em i LIKE THE FOOTPRINT. what i really like is a detail well thought out scenario with realistic factors that back up your opinion.If 20 is the end number whats not to like.hoping for a good buy sign.
It's clear from the press releases and SEC filings that the post deal (if no changes are made) book value will be about 300 mil. The book value will include many claims that have been written down to zero.
Yes, we could see the price approach book if they start reversing accruals or getting recoveries on claims that were previously written down to zero. Unless an agreement is made otherwise, a post deal BBX could initiate a dividend on the common stock once the back interest has been paid on the trust pref issue. They would also be an excellent candidate to be taken private by Levan if the stock trades at too large of a discount to book.
The market has BBX priced for further markdowns and it would certainly come as a shock if we start to see reversals of loan loss reserves (as we're starting to see at many banks) instead.
I agree with your assessment with one addition. If BBX starts to realize recoveries on some of the loans, this could push the price into the low or mid teens. However, this may be a longer than 12 month wait. Either way, it is a closely held company with overhanging legal issues, so it will likely always trade at a discount to book.
BBX will go up if the deal goes through - maybe to $5 (25% of book). The price is depressed primarily by the uncertainty that has been created about the deal. The post deal price however won't be close to the book value of $20. As BBX reports earnings in the first few quarters after the deal goes through we should get a better idea as to whether the markdowns that have already been taken on the loans that BBX has retained are too conservative, too aggressive or about right.
The current market price of BBX reflects beliefs that not only is the deal likely to be killed, but if it goes through BBX will be forced to take huge writedowns on the loans being retained. Maybe a couple of quarters after the deal IMO it should become apparent that the existing markdowns are fairly reasonable. After all, the company has been under intense regulatory scrutiny to ensure that their markdowns are already sufficient. BBT doesn't want the marked loans because they don't want the investor and regulatory scrutiny that goes with them - not because they aren't already marked down enough.
BBX will still trade at a discount even after they've done the deal and proved that the markdowns are sufficient, but it will be much less of a discount. I'd give it a 1 year target of $10 assuming that they can close the discount to 50% by completing the deal and showing the existing markdowns are reasonable.
What do others think about this? The idea is not necessarily insane. The key question is does BBT *want* the bad loans at *any* price? If the answer is yes, then I could see them negotiating a deal to buy BBX and the preferreds together. The appreciation on the bad loans helps compensate for the preferred payoff.
If however BBT simply wants a branch network and has no use for the loans at any price, then I don't see a basis for BBT buying BBX.
Another bank that I follow, sold off $300 million of problem loans to a outside group of investors. The bank had to right them down and take aprox $100 million dollar loss on the package of loans. If BBX were to do the same it might not benefit the common shareholder (Levan) but it would certainly benefit the Trust preferred holder (Hildene).
OKSB - Southwest Bancorp was the bank that sold the loans back in December.