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BB&T Corporation Message Board

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  • normlasky normlasky Oct 26, 2011 12:11 PM Flag

    Curent Valuation Considerations

    "There is no good long term solution here. A rising interest rate environment is not good for BB&T: They will have to start paying their depositors more or lose deposit share thus driving up their cost of capital; existing loans will not be able to be refinanced, thus replaying the nightmare we are in right now; and new origination will cease unless credit spreads come in and then their NIM will then go down. "

    Disagree. Much of their loan portfolio is tied to prime rate. If prime increases to say 5%, their net interest income would increase by around $150 million per year per their 2nd qtr. 2011 q statement.

    FFCH today announced a bulk sale of about 50% of their non-performing assets. Most of these assets were adc land. The estimated mark they took on these assets was about 70%. The mark actually realized on this bulk sale transaction is 59% so they will record a large gain in the 4th qtr. 2011.

    The good news for bbt is that their current reo inventory is marked around 60% so assuming ffch reos are similar to bbt it seems to me that last qtr. 2011 foreclosed property expense should be down drastically in the 4th qtr. Don't think any hero badges should be handed out in this area. Shareholders have been pounded every qtr. for the last 2 years plus with the quarterly mark $100 million or more charged to non-interest expense. The neanderthal man at credit suisse is still forecasting $650 million of foreclosure expense in 2012 for bbt. Their forecast is on the Schwab website. Garbage. Some of the historical info shown in their forecast though is helpful.

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    • Will the information you outline provide for additional cash distributions to bring the dividend to +/-$1.00 per share in 2012, or is the "marking" simply accounting gimmicks by the bank. I am less concerned about earnings per share at this point than I am with actual cash distributions to shareholders. Yield is tough to come by right now.

      I don't agree with your analysis of net interest income. Rising interest rates will force BB&T to pay more to attract and retain depositors. Also, loans tied to benchmarks like Prime or LIBOR may optically appear good for the bank in a rising rate environment, because they make more money, but that assumes the debtor keeps paying on his obligations, which is in no way certain in this fragile economy. Plus, without a robust economic recovery, rising rates will limit new origination and maybe even put a lot of performing loans into the workout bucket.

      • 1 Reply to queefoo
      • "Also, loans tied to benchmarks like Prime or LIBOR may optically appear good for the bank in a rising rate environment, because they make more money, but that assumes the debtor keeps paying on his obligations, which is in no way certain in this fragile economy. Plus, without a robust economic recovery, rising rates will limit new origination and maybe even put a lot of performing loans into the workout bucket."

        Does not sound like you're very confident about banking. Perhaps, you ought to forget about yield and get out if you think the bank bad loans will increase in a raising interest rate environment.

        Bbt made $.52 for the 3rd qtr with about $300 million of charges which should largely drop out in 2012. I believe their eps in the 3rd qtr. 2011 without most of these charges would have been around $.85 or $3.40 per year. Kelly King at the Barclay's conference said he thought the bank could generate a 15% roe on book or around $3.75 per year. Assume bbt earns $3.00 in 2012. Their minimum dividend payout ratio is 30%. That equates to $.90 per year. Their maximum dividend payout ratio is 50%. That equates to $1.50 per year.

 
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37.02-0.62(-1.65%)Jul 31 4:01 PMEDT

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