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BB&T Corporation Message Board

  • subclub55 subclub55 Mar 22, 2004 9:45 AM Flag

    Book Value

    Typically when a bank is bought the analysts refer to the book value to determine if the price was right. Most often the price paid is between 2 and 3 times book value. Since BBT's book value is $11.66, why would a bank pay more than 3 times book to buy BBT. BBT paid 2.7 times book for FVB, and that was considered high.

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    • Hi Truck!

      Well first of all, never pay any attention to anything you read on one of these boards. Really!

      Second, I don't always reinvest in BBT and in fact announced a while back that I was putting my BBT sales dollars into other investments. That's why I've had a disclosed "sell" biases on this board for a while now.

      What I said before was that I made money playing BBT's trading range of $32-$38 or so. I still think those parameters are OK, but I think it will be a while before $38 comes back on the screen. You gotta use a cheap broker to make this work remember.

      Hope that's what you were looking for. It could be right - who knows??



    • I am a long time owner of BBT. I believe you are also. You have stated many times that you buy a little and sell a little, make a little profit and reinvest it in BBT. How low do you think this stock is going to go with all the negative news that has come out lately? I plan to buy some more when I think we are near a low, because I feel certain that we are going to see some new highs in the not too distant future. If you have a good educated guess, please share it with us. Thanks. W.PUT

    • Fan: Thanks for your thoughts on this merger talk. What you say pretty well agrees with my thinking. JAA is probably not going to me the man that sells out a 132 year old instution.


    • Though very unlikely near term, I've always felt the highest probability scenario for an a BB&T takeover would be a large foreign bank, wanting to expand/create a US presence in the southeast.
      . They would want JAA a couple of years to make the transition
      . most of existing players would stay in place to run the various businesses (meeting JAA goal of keeping people who had built the company)
      . foreign bank would pay a better entry premium rewarding S/H.
      . Jaa could/may have already decided he won't be the CEO that sells this 132 year old company (the board would make any decision on an offer anyway and an unfriendly deal will never happen)
      Just idle speculation on a sunny afternoon, no facts contained herein.


    • Does anybody else think that the lawyers and accountants have made these things like book value accounting so complicated with boilerplate that nobody even knows what the figure is?

      Goodwill is not a puff of smoke. It respresents the purchase price of assets that was in excess of carrying cost. It must be written down when its value is recognized as have declined after annual review not amortized annually.

      The book value for BBT at the end of 2003 was 19 plus as some have reported here.

      It's my understanding, in effect, good will does not go away in an acquisition but shows up on the acquirer's balance sheet when it pays in excess of carrying value of assets minus liabilities. The important calculation to make is market/book of the acquirer and market/book of the target. Further, ROE of both figures into the calculation so that ROE is divided by market/book to see what is being given up versus what is acquired. As an example, if BBT is selling at 1.82 x BV with a ROE of 12%, they are giving up 6.6% to acquire a bank at 2.5 x BV with a ROE of 10% or 4%. Not too bad if they can add synergy to improve the return.

      Bank stocks in general have not outperformed the market since the middle of 2002 because interest income remains low. Recent acquisitions have been on the high side (BAC is notorious for overpaying).

    • I like the comparison --
      to Saddam's sons heartbeat -- Flat line.

    • A easy to understand explanation there ole boy. That is just what BBT did-pay for alot for intangibles in their acquisitions and why their 5 yr chart is like Saddam's sons heatbeat. FLATLINE

    • Thanks oldbankerdude and stock for the information. It makes a lot of sense. I calculated the One buyout at 2.9 tangible book value and Fleet at 3.2. If BBT was to be bought out would you assume the price to be $33.80 to $37.30 which is 2.9-3.2 times the tangible book value.

    • In response to your question as to how an acquired companies intangibles are accounted for on the acquirers books:

      1. On a merger all old intangibles of the acuired company are generally eliminated and set to zero. However in effect this adds them to a new intangible for the acquring company since there are fewer tangible assets being acquired.

      2. One thing that many people miss when they say - this or that bank ought to get 3.00 book is the fact that there really are two book values:
      a. Total Book Value - which is simply total capital divided by shares outstanding. This is traditionally what many peolpe think of when they discuss multiples but it is becoming more and more irrelevant under new accounting rules. In the past when acquisitions were accounted for generally using the Pooling of Interest method there were no intangibles and this was a good measure of tangible capital as well. In those cases where an acquired company did have intangibles, it was usually so small that the acquiring company did not factor it into the multiple to be paid.
      b. Tangible Book Value - this is calculated by taking total capital minus intangibles and dividing by outstanding shares. This is really the way acquiring companies measure multiples to be paid today and the result can be quite different then traditional multiples

      For a company like BB&T which now has large amounts of intangibles on the books any acquirer is going to use Tangible Book Value not Total Book Value. So if you think you are going to get 3.00 times (total)book value you can just forget it, it aint going to happen. More realistically look at prior history of Offer Price/Tangible Book Value multiples to see what one could expect.

    • Not sure anyone answered your question, so I'll take a shot. Basically, Tangible Net Worth subtracts from GAAP net worth all of the goodwill shown on the asset side of the balance sheet when you acquire another company (bank) for more than it's GAAP net worth. If the net worth of bank A is $100 and Bank B pays $150 for it, then the "goodwill" is $50. That is an intangible since you can't touch it (OK, this is a simplistic answer!) Another way to think about it is to assume that Bank B directly moves all of Bank A's asset over to Bank B's balance sheet, but all that is still short of what they paid for it (down in the NW section now), so the only way to balance the balance sheet is to create an asset called "Intangibles" or one of it's variations and put what's left over in that. There are other intangibles certainly, but that BBT's biggest contributer.

      What I don't know is how are intangibles on the books of an acquired bank treated for accounting purposes by the acquiring bank? As an example, let's say that $30 of Bank A (above) are intangibles. Does that mean that Bank B's goodwill just increased by $30 more?

      Help an old man learn something here. please.



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