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BB&T Corporation Message Board

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  • normlasky normlasky Sep 20, 2011 12:38 PM Flag

    Questions!

    My track record of bbt earning projection has been lousy. The consensus for this qtr. is $.49, nickel higher than last qtr. Over the last several years, bbt earnings have been slightly positive vs. estimate.

    Selling puts and covered calls is a good strategy given bbt business and financial risk. However, I would keep a core portfolio because one of these days bbt will break out even in an environment of weak economic growth.

    Many variables which could result in a positive surprise in earnings this qtr. so as we get closer to earnings, I think I'll cut back on day trading.

    What are the positives?

    First, bbt has $22 billion plus of gse of mortgage backed securities. At 6/30/11, the yield was around 1.7%, so the prices of these securities have increased substantially this qtr. Bbt would be a fool not to cash in on their profits. Take the proceeds and invest in munis or buy back some of their long term debt or even the debt of some of their competitors.
    Profit could be several hundred million dollars.

    Second, last qtr. the provision was 118 bsp. I think it will drop at least 20 bsp ($60 million pretax) this qtr given their credit metrics. Adc write-offs are just about done.

    Third, I sincerely hope that the valuation allowance hit is over with. Come on now. 54% mark on reos at 6/30/11. $145 million bomb last qtr. hurt and I'm tired of it seeing this repeatedly qtr. after qtr. No excuse.

    Fourth, deposits per the Fed data are booming. More investment securities but the yields stink on the gse stuff. Even so, I expect bbt deposits to boom in the third qtr.

    Loans will be ok. Perhaps 1% growth for the quarter which will continue to be penalized by land runoff.

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    • "Third, I sincerely hope that the valuation allowance hit is over with. Come on now. 54% mark on reos at 6/30/11. $145 million bomb last qtr. hurt and I'm tired of it seeing this repeatedly qtr. after qtr. No excuse."

      Can't say you weren't warned about what happens with backend credit loss strategy. That was the traded off - save the shareholders from dilution vs continually blead losses through valuation marks depressing ROA - you don't two bites of the cherry both.

      Agree it should start to ramp down now as long as inflow to NPA/REO slows.

      I'M neutral on BBT now - its probably a reasonable entry if you want this bank. But C/JPM are better at these prices imo.

      Spin

      • 2 Replies to spinvestor2003
      • The FED "twist" program is flattening yield curves making it more diffucult for banks and their margins. I do not see financials (banks, insurance, etc) as attractive with this happening.

      • "Can't say you weren't warned about what happens with backend credit loss strategy. That was the traded off - save the shareholders from dilution vs continually blead losses through valuation marks depressing ROA - you don't two bites of the cherry both."

        Ok, that's what it worked out to. So congratulations. I'm simply not clairvoyant to know that a land with an ltv of say 70% at loan origination would require a write-down of 70 to 80%. Right now, only speculators are buying land. But God only made so much of it and eventually it will come back into fashion.

        Heck, if I were Kelly King I would sell off my $23 billion mbs low yielding portfolio take my $800 million profit and mark down every land oreo to $0 so I would not be forced into a ridiculous liquidation sale. The neanderthal man over at credit suisse might be intrigued.

        I'm also long much c and jpm. Someone concerned with c on cross border risk but they got a $34 billion ALL and I think greek exposure is on both the public and private sector is maybe a couple of billion. I hope.

        Still long snv? Down to $1.1/share. Bbt might get it on the cheap but then again pnc might want it.

    • Did you crunch out the NIM impact from selling the MBS and buying back debt?

      Spin

      • 1 Reply to spinvestor2003
      • "Did you crunch out the NIM impact from selling the MBS and buying back debt?"

        No I haven't. Bbt historically has sold off their mbs portfolio when yields drop a lot. Other banks like usb have not. Trade off of course - taking profits on the front end vs. spreading them over many qtrs.

        Suppose you would say this is a great example of King managing earnings. Perhaps but I like what King has done here. I'm sure you agree with the Davis approach. But that's not what is important right now. Any bank ceo who does not sell off treasuries in a big way in the 3rd qtr is an idiot. That includes Davis who I think has done a great job.

        Since 6/30/11 treasury prices have skyrocketed. The Chicago Board of Trade Treasury Index has increased 7.7% since 6/30/11. Yields on 5, 10 and 30 year treasuries have dropped 90 bsp, 133 bsp, and 148 bsp
        respectively since 6/30/11. The yield on a 5 year treasury at 9/23/11 is 86 bsp while the yield on a 10 year treasury is 183 bsp.

        There is evidence that commercial banks are taking major profits on their investment securities in the 3rd qtr. Per the Fed commercial banks have an investment security portfolio of $2.5 Trillion at 9/11. Their unrealized gain on this portfolio is about $30 billion. Most of this stuff, I believe, is 5 and 10 year maturities with respective durations of about 4.25 and 7.25 years respectively. Do the math. You know the reduction in bsp and the length of durations. The average price increase on 5/10 year stuff is around 6.7%, very close to the cbot increase of 7.7% but the later is biased upward with 30 year treasuries.

        Let's see. A 5% increase of $2.5 Trillion. $100 million plus. Unrealized gains per the Fed report up only $13 billion for the 3rd qtr so far. Sounds like some serious selling. Should be noted though that treasury balances continue to increase modestly driven by the continuation of booming deposits even though cd are dropping like a rock and treasury super big price appreciation.

        Banks need to find a new place to earn money on their investment securities. 86 bsp on a 5 year treasury is unacceptable. Plenty of alternatives - munis, walmart, ibm, trups, 9/23 data suggest that type of movement is underway.

        That would be interesting. Bail on treasuries and mbs while Fed starts their twist operation.

        respectively.

    • norm:
      Did see that Keith Horowitz, Citigroup analyst, is predicting that BB&T will "beat the street" this quarter. Think he might be right (finally). Things are better in my area. Don't know about DC, Atlanta and Florida. Still wonder how much reserves will be used. I usually discount reserves when they are raised and when they are reduced.

 
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