Bad analysis by a writer who can't get a job as an analyst. Regions stated BV is $28/shr because of the merger with Union Planters. If Regions writes off all the goodwill and intangibles of $12 billion, it is a $17/shr non cash charge. Tangible BV is thus $11. Every good analyst looks at tangible BV not stated BV. The stock is selling for 88% of tangible BV. Tangible book value is cash liquidation value for a bank. Regions's Southern franchise is worth a premium to BV because it is hard to duplicate. It is dominent in most of its markets and has $145 Billion of deposits.
The question then becomes will it survive. The FDIC has already announced it as a survivor with a rescue of a smaller bank. They do not allow a rescuing bank to be in question. Further, RF can get TARP financing and has announced it will do so. It is 5% money and not very dilutive. The warrants would be for $300 million vs their market cap of $7 billion, less than 5% dilution for a $2 billion "loan".
As far as provision for loan losses, banks always accrue less as bad loans go into default. The default is usually an offset to the loan loss provision. Provisions should be lowest at the worst of times and highest at entry into questionable times. Exactly what RF is doing.
As far as the Bloomberg writer, he seems to not undertsand the difference between goodwill and market value. To make a statement that the goodwill is greater then market value is just absurd. I guess some short got to him to write this article with the promise of a future job.
Don't be suckered in--stick it out--RF will be $30 in the next 2 years.
I think I will sell my position at $11.60 today as it is now above book value. As they report losses in the coming 3 quarters, BV will fall. If loan losses are $2 billion, BV will decline by $2.50 to $8/sh so the current price is 1.5 times writeoff BV. There is a lot of choppy water between then and now.
A huge stamp of approval that RF is now ready to make a huge rebound. Talk of aquisitions etc.. now a sure buy. This is truly a weeding out process and those that make the cut will blast off over the next year or so and those that don't - well get ready to work for someone else if you are lucky.
Having said that RF will survive is a broad statement--there are risks. They just received $3.5B of TARP funding added to their excess Tier 1 capital which makes $5.2B of excess capital. The loan portfolio is over $115 million. If 10% defaulted and they recovered 60% of the loan, they would have enough reserves to survive. Is that reasonable?
I was thinking their total loans were actually a little less than $100 billion. Also, if you add up every single loan, both secured and unsecured, as of 6/30/08 that is over 30 days past due, including non-accruals, it totals around $3.3 billion. In addition, their Tier 1 capital as of 6/30/08 was $8,860,122,000. So add the $3.5B tarp to that number. RF's stock, along with a lot of other banks, will probably perform poorly for some period of time. But all the idiot haters on this board that have prayed for RF to go bankrupt are going to be severely disappointed that RF will either remain an acquiring independent or merge from a position of strength with a larger bank or do an MOE with someone like BBT, STI, etc. Wish Ritter would consider a Southeast focused MOE.....but he never listens to me......probably just as well in light of my suspect investment acumen.
Hi guys....I just can't resist this one.
"as far as the Bloomberg writer, he seems to not undertsand the difference between goodwill and market value. To make a statement that the goodwill is greater then market value is just absurd. I guess some short got to him to write this article with the promise of a future job."
Are you nuts?????Apparently Regions does not understand Market Value either...or maybe they do but just don't see the need to actually report it. Basically if you take goodwill out of the picture...THERE IS NO EQUITY. ALSO, keep in mind they have not disclosed their market to market value. Meaning that they still have yet to write down the deprecation in their portfolio. What is funny is this guy is using the very same method that Regions uses to train their Commercial loan officers to look at a balance sheet. Goodwill is nothing but blue sky. If you really want to see something horrible...look at their cash flow statements.
There is no equity, there is no cash flow, they actually do not have understanding on what their assets are worth, they have the second highest paid CEO in the state of Alabama.....and Fortune 500 rates them as 425 on performance. This explains why they are trying to sell the factoring division when they have had an increase in profit for 10 years and the lowest charge off percentage in the bank.
Thank you for that. I changed my outlook on RF a few months ago . I thought they had less exposure to FL and the profits would get them thru this.
Now I am looking at liguidity with banks. I discount ALL goodwill to ZERO when I look at a BS.
RF has issues. The biggest worry I have is the commercial side. This is the OTHER shoe for RF. They may still make it but I am looking to buy this in 2009 AFTER 4QRT and the goodwill and loan write offs show up. Expect this to trade 6-8.00 a share. Will NOT see $30.00 for maybe 5-6 years.
LOTS of deals out there...why RF?
Better to buy an INDIX too.
You do not understand balance sheet accounting. Stated BV is $28, goodwaill is $17 and net BV is $11. These are facts. The bank examiners insist that all markdowns be taken on potentially bad loans. There are formulas that must be followed.
Could you clarify your statement? This is what you said. "Basically if you take goodwill out of the picture...THERE IS NO EQUITY"
Now when I look at the Sept 30, 2008 balance sheet I see that Goodwill is $11.5 billion. Then I see that Equity is $19.7 billion. If I subtract out the goodwill, I get $8.2 billion in equity. Do you get a different number?
excellent.. excellent post... good to see you again rabbit.. been watching the board for quite a while and love your analysis of what is happening.
when i look at this bank, i cannot help but to think that things are not as rosey as they want it to appear. the other day, i noticed that when the dealer dept was shut down the quote in the paper was that Regions was "jettising (sp) the lines of business that do not have anything to do with the local branches."
that tells me they are in over their heads and denying what is happening around them, putting the best spin on things and to get ready for more layoffs throughout the footprint. by the way, i have not noticed that anyone has mentioned the deposit runoff in the last few months...
This is not a very well run bank with the current management in place,, an Amsouth management.. if any one says any different it is an Amsouth homer!!!!!!!