As a former corporate financial person, let me tell you how most companies work.
Figures are calculated each month, reviewed and earnings/losses determined by closing out each month, including adjustments (reserves) for any new problems. Same happens for month two, and going into the last month for the quarter, a trial P&L is run and combined with the prior two months actual, to come up with an early read for the quarter.
M/J had all these numbers and much more to come up with a determination on true value for NFI, sophisticated enough to make some real conservative estimates as to worth.
After reserving for all expected losses, M/J agreed to pay $150 million for 37% of NFI, then trading at around $8.00 with a book of $12/14 at a discounted cost of $6.50 per common share.
Sounds like one hell of a deal to me; M/J had NFI over a barrel and paid the minimum for ownership in the company.
I don't know what NFI is worth but I think M/J does,$6.50 after reserving for potential losses on a worst case scenario.
seems like the stock is being taken down below even the conservative value calculated on a very close look at 2nd. qtr. numbers.
Say NFI had to reserve for another 100 million in potential 2nd. qtr. losses; at 38 million shares, we are talking about some $2.60/$3.00 a share, taking book down to something like $10, with the stock at around $4.30.
Frankly, if the market is correct, M/J analysts must have missed something, or this stock is way undervalued.
You make a lot of sense . A stock will trade at what the buyers perception is of its worth. That may not correspond with what it's actual worth is. With that said this stock could be way oversold right now . But what is the publics perception right now ? It is not good for sub prime or a lot of lenders right now so their stock prices are way down low.
i think this is a buy now but I am watching right now , I may miss the boat if it goes up or i may get a better deal at 3.99 we will see. I have some distrust right now of all the numbers because foreclosures are coming in fast and more pre forclosures too are growing . I look at NEWC and it scares me so I am very cautious with this company before I buy.
Everyone who is long this stock has already been on this ride before. NFI gets shorted/manipulated/scared down to less than 2x last years earnings and then the shorts have to cover on any sign of a pulse. At this point, bk is all that could drive it lower than we've already been this year. NFI is a day traders' dream and in spurts a nightmare for longs, but in the end should survive and end up as a great growth/income stock.
First time I bought in at low $5 in March and buy more at $3.5 a week later, then sold out at $7 missing the $10 (bought FMT at $7.5 and sold at $11)
Recently started a new postion in high $5 then avg. down in high $4. I bought more today and hope to double down in the high $3 before Q2 releases.
Now that MM and Jefferies joins the club, I have more confident in this company to weather the storm and get to the teens.
If someone is willing to buy 40% of the company or spent $150mm, they have to make sure that the book is clean. Otherwise, someone is going to lose their careers.
Good luck to all
Execellent insights for those that have no experiences in FO.
"Frankly, if the market is correct, M/J analysts must have missed something, or this stock is way undervalued."
as a current, I would bet that M/J analysts spent months reviewing NFI's book by perform stress test of worse case scenario before they told their boss to close the deal. Their career is on the line if they miss this one with months of going over the book.
interesting. well written, but mistakenly hopeful. I think you give way too much credit to MassMutual. I doubt they knew at the time of agreement NFI's second quarter results. NFI is extremely secretive. As well, I think MassMutual has covenants in place that protect their investment in ways that are not obvious to the common shareholder. With Countrywide reporting depressed earnings and a bleak future, coupled with NFI's 75% drop in loan volume, there is no way that NFI is going to report anything but a disastrous 2nd quarter. You know it and I know it. I give NFI no better than 50/50 chance at survival. If they survive, they are owned by their creditors. The common shareholder can bend over.
you said: interesting. well written, but mistakenly hopeful. I think you give way too much credit to MassMutual. I doubt they knew at the time of agreement NFI's second quarter results.
Oh I have to disagree. Even in small tranactions the books are open and no major company in their right mind would forego a through look at the books with a microscope in a transaction of this magnitude. Its their legal right.
I missed the material that indicates Mass Mutual's and Jeffco's opinion on the valuation of the company...the only info I've seen is that they are willing to put up a lousy $150 million in return for 10% annual divs, a significant chunk of $157 million in pent-up divs and the rights to 30% of the company at the expense of the shareholders.
What is abundantly clear, as eveidenced by this incredibly injurious and toxic deal, is the fact that NFI management was well aware that the "true value" of NFI was far less than $8.00 per share.
Your observation, I beleive is right on. I hopw not, but I'm sorry to say that it's looking more and more like M/J has missed something.............
Also, I haven't completely ruled out the adeptness of funds working together, churning amongst themselves, while running the price down so as to cover without creating a wide swing in price.
Sure does make one feel helpless!
I do not follow when you say "After reserving for all expected losses". A company cannot make a reserve for losses! They can reserve for a reorganization, a possible claim/lawsuit etc. I do not follow.