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TCF Financial Corporation Message Board

  • sophist_man sophist_man Oct 9, 2007 9:11 PM Flag

    Mortgages, Leverage, and ROE

    During the recent boom, real estate speculators bought houses they didn�t need in hopes of price appreciation. On the same equity they could make five times the ROE by leveraging 5:1 with 20% down and 80% borrowed from TCF. Riskier still, 10:1 leverage with 10% down. During the boom times TCF started playing the mortgage leverage game as well. On 6/30/2007 they had only $848 Million tangible equity but $14,825 Million tangible assets, over 17:1 leverage! Half of these assets are mortgage loans and home equity lines of credit. Think about it! TCF leveraged in order to lend to leveraged borrowers. Risk multiplying upon risk.

    Now the speculators have discovered leverage cuts both ways. NAR is reporting prices down 10% but out in the field it looks like 20-30% down from the peak and falling quickly. Real estate speculators that put 10% down in the peak years now owe more than the collateral property is worth. They are starting to walk away from their loans. With TCF�s high leverage ratio a small percentage hit to the value of their mortgage portfolio will entirely wipe out equity. At that point the FDIC would take over and close out the business.

    Other mortgage lenders have been trying to come clean, marking their loan portfolio to market. It�s been about $20 Billion in wrote-offs so far, but as the market keeps falling their portfolio values keeps dropping. Thornburg Mortgage recently announced an $863 Million loss but today had to up that to $1099 Million. Meanwhile, not a peep from TCF. Do you really think their loans are holding value while everyone else�s are plummeting? Later this month you�ll get the first taste of TCF�s losses and those mark-to-market hits will keep coming every quarter. As equity drops their leverage will skyrocket, forcing TCF to start liquidating. Then we�ll see what the assets are really worth.

    It won�t be long. Watch and learn.

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    • From the last 10q....hardly sounds like the disaster you paint it to be..

      TCF recorded provision expense of $30 million in the first quarter of 2008, compared with $4.7 million for the same 2007 period. The increase in the provision for credit losses for the first quarter of 2008 is primarily due to higher consumer home equity net charge-offs and the resulting portfolio reserve rate increases and higher reserves for certain commercial loans, primarily in Michigan, and a $2.1 million recovery in the first quarter of 2007 of a previously charged-off leveraged lease. TCF’s credit performance continues to be impacted by the negative effect of the depressed housing market and the slowing economy. Net loan and lease charge-offs were $13.5 million, or .44% of average loans and leases (annualized) in the first quarter of 2008, compared with $13.8 million, or .46% (annualized) for the fourth quarter of 2007 and $2.7 million, or .10% (annualized) for the first quarter of 2007. Consumer home equity net charge-offs for the first quarter of 2008 were $9 million, an increase of $2.3 million from the fourth quarter of 2007 and $5.8 million from the first quarter of 2007. The higher consumer home equity net charge-offs were primarily due to the residential real estate market conditions in Minnesota and Michigan. The provision for credit losses is calculated as part of the determination of the allowance for loan and lease losses. The determination of the allowance for loan and lease losses and the related provision for credit losses is a critical accounting estimate which involves a number of factors such as historical trends in net charge-offs, delinquencies in the loan and lease portfolio, value of collateral, general economic conditions and management’s assessment of credit risk in the current loan and lease portfolio. Also see “Consolidated Financial Condition Analysis — Allowance for Loan and Lease Losses.”

    • We are now entering a recession and banks normally fall to book value during a recession. In the case of this specific bank, they have many assets on the balance sheet that have not been marked to market. The tangible book value and ultimate price of the stock is just a few dollars.

      Folks here warned me not to short at $25!

    • I am an ex real property, independent fee appraiser. I know real estate, vey well (ya state certified, a prestigious designation from the appraisl institute)But one thing I know better than the above is that,for sure is this thing has not moved since I invested in 05. A 3.6 ayp?

    • I say this company gets bought either this year or next $33-34 take out.

 
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