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SouthTrust Corporation (SOTR) Message Board

  • DrDayTrade DrDayTrade Nov 27, 1997 12:45 AM Flag

    SouthTrust's Risk

    <h1>Southtrust's Beta has risen in the past year significantly, and thus its risk factor has followed. With a Beta of over 1.2; this means that as the general markets ten percent southtrust is likely to decrease twelve percent. However, this can
    work to our advantage when market prices are increasing. As market prices increase ten percent, Southtrust is likely to increase by twelve percent. Therefore one should purchase southtrust based upon their general opinion of present and future market conditions. Hope this technical info is useful. </h1>

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    • It might well be a foreign bank coming in with an obscenely good offer.

    • SouthTrust is the 4th largest bank in Florida and that in itself makes it a target for a near future takeover. Look for action in the 3rd or 4th quarter if the market holds up.

    • Do you think there will be more downward movement from here?

    • Southtrust is a $70 stock in a take over situation based on competitive price to book value multiples of other SE Banks that have been taken over. Additionally, the premiums (multiples) seem to be rising. The Corestates deal which was outrageous was for almost 5 times book. SOTR's book is approximately $20.

      Additionally, earnings are expected to grow approximately 13% during 1998.

      If it does drop $5, it's a definite buy. You may also want to investigate insider buying. There have been recent purchases previous to this drop by some directors of SOTR which indicates to me that they are still bullish in the stock.

    • Along with the rest of the market SOTR has been clobbered. I still beleive it is over priced at these levels. 19 times earnings appears high for this market. Do you think we will see SOTR five dollars cheaper?

    • You say Alabama in not a growing state. It is growing, but it is not a rapid growth state. Thus paying a high multiple for a strictly Alabama bank would not be smart. But if you know SOTR, then you know that while they are headquartered in Alabama, it's their presence and growth in GA, FLA, NC, SC, & TN and asset quality that makes them a good prospect for aquisition.

      Wallace hasn't given any signals for this, but he isn't getting any younger and I would put forth that there is no clear successor when he does retire. So if the right price were put before him my bet is he would sell.

    • Where do you get your stats. on the Alabama rate of growth?

    • I do not believe SOTR is a takeover target just yet. There are several factors to consider: 1. low debt ratio, 2.
      headquartered in Alabama almost a non-growing state. 3. Wallace Malone's drive to be the biggest and the best. SouthTrust won't be sold
      until Wallace is ready to retire and he shows no evidence of that at this time. However, he is acquiring in Florida at a fast pace
      which leads one to believe that he is structuring for an eventual sale. Also, with the extreme book value multiples that most of
      the larger banks have sold for, it would be very hard for another bank to buy SOTR given its low debt ratio. The premium would
      be too high.

    • I have heard that Wachovia is looking closely at Southtrust and Suntrust, know anything to substantiate this?

    • I strongly suspect that the beta analysis for Southtrust is merely an academic pursuit, since its present identity is likely to be short lived. This bank has to be in the crosshairs of several larger acquisitive banks. (But, I have been wrong before. *L*)

      • 1 Reply to larrywalker
      • Larry,

        I'm glad you caught my oversimplification of stock betas. Its been a few years since I took graduate level finance in the MBA program. Now what does Beta mean? A lot of disservice has been done to Beta in the popular press because of trying to simplify
        the concept. A beta of 1.5 does not mean that is the market goes up by 10 points, the stock will go up by 15 points. It doesn't even mean that if the market has a return (over some period, say a month) of 2%, the stock will have a return of 3%. To understand Beta, look at the equation of the line we just fitted:

        stock return = alpha + beta * index return

        Therefore, by computing the derivative, we can write:
        Change in stock return = beta * change in index return

        So, truly and technically speaking, if the market return is 2% above its mean, the stock return would be 3% above its mean, if the stock beta is 1.5.

        One shot at interpreting beta is the following. On a day the (S&P-type) market index goes up by 1%, a stock with beta of 1.5 will go up by 1.5% + epsilon. Thus it won't go up by exactly 1.5%, but by something different.

        So in a diversified portfolio, the beta of stock X is a good summary of its risk properties with respect to the "systematic risk", which is fluctuations in the market index. A stock with high beta responds strongly to variations in the market, and a stock with low beta is relatively insensitive to variations in the market.

        E.g. if you had a portfolio of beta 1.2, and decided to add a stock with beta 1.5, then you know that you are slightly increasing the riskiness (and average return) of your portfolio. This conclusion is reached by merely comparing two numbers (1.2 and 1.5). That parsimony of computation is the major contribution of the notion of "beta". Conversely if you got cold feet about the variability of your beta = 1.2 portfolio, you could augment it with a few companies with beta less than 1.

        If you had wished to figure such conclusions without the notion of beta, you would have had to deal with large covariance matrices and nontrivial computations.

        Beta is the sensitivity of a stock's returns to the returns on some market index (e.g., S&P 500). Beta values can be roughly characterized as follows:

        �b less than 0
        Negative beta is possible but not likely. People thought gold stocks should have negative betas but that hasn't been true. �b equal to 0 Cash under your mattress, assuming no inflation �beta between

        0 and 1
        Low-volatility investments (e.g., utility stocks) �b equal to 1
        Matching the index (e.g., for the S&P 500, an index fund) �b greater than 1
        Anything more volatile than the index (e.g., small cap. funds) �b much greater than 1 (tending toward infinity)
        Impossible, because the stock would be expected to go to zero on any market decline. 2-3 is probably as high as you will get.

        Hope thi s helps clear up the beta debate.