"Banks need to start thinking outside the box and trash conventional thinking about gov't bonds. Absolutely no reason to hold mbs gse stuff paying 86 bsp on 5 year maturities. Interest rate risk is huge."
Norm, I agree, and I am sure the banks do not like the risk adjusted returns...which is precisely by design. What the federal reserve desires is to induce the lenders to accept 4% risk on 30 year mortgages, while at the same time underwriting the collateral to valuations that are inflated. The banks have refused to do that (and I am not taking a position that this is a good or bad decision...). So what is the "out of the box' strategy that will give them the yield they need and satisfy the borrowers' demands for loans on terms they can meet?
"Looks like they can take out ~5B of the fixed rate trups and fixed rate debt to 2013 pretty easy for a saving of ~280MM/year or 70M/Q.
They have already announced they're take out $3.3 billion in trups in 2013. I think they pay interest of around $75 million per quarte just on the trups. Got a lot of long term debt - $23 billion and need to take it out when the opportunity is right. Until then, I would be putting some of the proceeds from their gse mbs stuff into say usb/pnc long term debt at the right time.
Banks need to start thinking outside the box and trash conventional thinking about gov't bonds. Absolutely no reason to hold mbs gse stuff paying 86 bsp on 5 year maturities. Interest rate risk is huge.
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.
"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.
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.
AYS - if you wrote those calls you can now buy them back and lock in about 2 qtrs of dividend equivalent. If BBT gets a couple of point rally into earnings you can wash, rinse, repeat.....
AYS - if I were you I would have been focused on selling the Jan 24 call for $1.20+ (two years of divvys, a nice profit if called or regular divvys if not called) and forget about funnie, fannie, nobank.
I am sure taunting them is fun, but it does not increase the size of your account.
But hey, that is just me nd how I roll.