Union Bank Reels buys Pacific Capital In $1.5B
a quick glance in google finance for pcbc:
TBV 920.72 -> buyout for 1.5B or ~1.6 TBV
applying the same logic to CRBC we'll have a price stock of around $30
The DTA issue is out of my league. I would want to hear from a tax professional with some bank experience about how much of that DTA could be taken by a larger acquirer.
Then I would want to hear from someone in the banking business how they would value such a credit. My guess is they want it at a discount to its value, because it is not an asset that gives off income each year for many years. You use it and then it is gone. So if you can make $1 cash from it, you might want to pay 50 to 70 cents for it.
I agree it must have some value. I'm just not the guy to value it.
In reality I don't know how the market will decide to value the DTA, this is just my personal opinion.
but the DTAs will cover earnings for the next 2/3 years, so no corporate tax for that period, and they have excess provision, which might mean no provision expense. Their earnings pretax preprovision have been quite solid for the last 3 years at ~$130M, i figure we might see $30 pps by 2013
if I was only looking at the balance sheet then $22 would be the takeout value.
A year ago when I took a look at CRBC, the business was not cheap on a TCE basis (I think you wrote a lot about that). But they had a CEO that was aggressively working on the problem loan book, she had clear plan and the execution showed it.
And they had ~300M in DTA off the balance sheet, just waiting until positive earnings showed up. That's $7 per share coming to TCE that doesn't show up in any stock screener. You can discuss that it might or might not have any value to an acquirer but it will come to the balance sheet and it will significantly increase TCE.
That's why the PCBC acquisition was interesting, it sort of gives you a clue in how much pps might increase. At 1.6 TCE that's $11, at 2.2 TCE it's $15. I can live with either.
What's your take on evaluating the DTA once it's released to the balance sheet?
starcraft, if we go with your figure of $28.6 per share for CRBC, this would represent an *enterprise value*. I assume a buyer of CRBC today who offered that price would then assume the TARP/Trust Preferred debt/equity and reduce the purchase price paid for common equity by that amount? That does materially affect the final price paid for our shares.
The 2nd acquisition was by East West Bank of Prime Bank.
Notice that the the number was 1.68XBV at the announcment date, after which the stock of EW Bank surged and by the completion date it was 1.97XBV.
That was also true of the Comerica acquisition which was about 1.6X at announcement and close to 2X at completion and subsequently expanded to 6X or 7X after several years since Comerica stock rocketed from the 20's to over 100 and then fell back to earth.
The 3rd bank was privately held and financed builders with high interest secondary loans to complete projects. It was bought by a finance company in a private transaction, also for about 1.6XBV.
Here are the details of the first acquisition by Comerica of Metrobank in 1995. The XBV isn't stated but I recall it was about 1.6X. My family were the 3rd biggest holder.
I've been on the selling end of 3 banks, the last one about 20 years ago. The price has always been in the 1.6 TBV which was almost always equal to the common equity, and always without preferred stock, DTA's and obviously TARP. We sent in a team of auditors for 2 to 3 weeks for a thorough review of all the loans on the books, with revaluations made to "adjust" the BV. I'm sure PCBC was subjected to the same type of review. Adjustments had to be made since 2.2 BV is, or was, unheard of in my day. I suspect the 2.2 BV they reported to pay, was really only about 1.6 BV after determining the tax and loan book adjustments.
starcraft, I think your guess re the valuation several posts back was pretty close to the mark.
Thanks for your comments Peristentone
I hope no buyout happens, I'd rather wait for CRBC to release the DTA to the balance sheet, the TCE will then increase by around $7 per stock
the CEO mentions it in the letter to the shareholders
The buyout of PCBC was really good news as it helps to establish a basis valuation for CRBC. No matter what metric we use, 1.6 TCE (including DTA) or 2.2 TCE (excluding DTA), the stock still has lots of upside
starcraft, you would be better to use tangible common equity instead of tangible book. That way you normalize comparison between two banks by taking out the goodwill, intangibles, and most importantly the preferred shares. What multiple of TCE did Pacific Capital get, and what price would that suggest for CRBC?
there are no preferred shares for Pacific Capital so TCE = TBV, i did add the deferred tax assets which were still not in the balance sheet
read more about the acquisition here:
Preferred shares 0
DTA 248 (not sure about this)
TCE 920.72 -> buyout for 1.5B or ~1.6 TCE
Preferred shares -285.11
TCE 719.75 * 1.6 = 1151.6 / 40.26 (shares outstanding) = 28.6 PPS
(let's exclude excess provision and positive earnings)
what is your estimate?