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BB&T Corporation Message Board

  • queefoo queefoo Oct 26, 2011 11:13 AM Flag

    Curent Valuation Considerations

    Stock is trading with a 2.8% div yield, which is 70bps above the 10 year UST. So for the risk associated with owning a bank, you get an additional 70bps in yield over the risk free treasury. However, I believe the 10 year is not risk free, and its yield is artifically low. If not for Fed intervention, the 10-year would probably be 4+% if not more. To me, this makes the BB&T yield very risky. If (more like when) the 10 year moves up in yield, BB&T will either have to dramatically increase its dividend on a per share basis, in order to keep its yield "on top" of the 10 year, or its price will adjust down to drive the dividend yield up.

    I dont know what the outlook for the dividned is, but I think 10 year yield will remain artifically low for awhile, this along with any material increase in the dividend, would help push the stock price up. However, long term, I think when the yield curve moves up, BB&T's stock will suffer huge losses unless the dividend can be dramtically raised in the next 12-24 months.

    Short term thru 2012, I think the stock could see high $20s or $30 (Obama needs this very equation for the entire economy to have any hope of getting re-elected), but thereafter could trade back to the teens, unless the div per share is doubled. Unfortunatley i dont see how that will happen, loan growth is stagnant and even though they enjoy a 0% marginal cost of funds, they can only get a 4% NIM when credit spreads are very very wide right now.

    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.

    I think we are in the eye of a hurricane right now and maybe we can see a little blue sky for awhile, but I would be prepared to trade out.

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    • I don't know..it would be well received for sure if they could. But basically doubling the current dividend? I don't see it happening. I think they will take a tiered approached to dividend expansion, being ultra conservative. The problem is, when interest rates spike and they need the extra dividend to buttress the stock price, already anemic loan growth will vanish. The long term view here is grim. Shareholders looking for a return to the good old days of stabilized $45/share with a nice dividend yield are going to have to wait for years. The only way I can that equation unfolding is if the dollar simply becomes soooo cheap that all US assets look cheap and foreigners start bidding up the price of all stocks. But then dollar price of gold will be $3500, a gallon of gas will be $6.00, and milk will be $6.00/gallon.

    • Nobank can they pay the extra money to increase the div? Neither you or Norm has stated this can or will happen. To me it is important. Without serious div growth I think this stock and all bank stocks could be hit hard if interest rates (government debt yields) go up.

    • Put me on ignore.

    • If you are so smart then why are you posting on yahoo and not picking stocks for thousands of investors and making big $$$$?

      Your ad nauseum posts about Loan Losses were interesting once, comical a second time, and now it is just annoying. You must fancy yourself an amateur credit officer.

      Quefoo is right, dividend expansion is critical to keep ahead of the inevitable spike in interest rates. They need to pay an additional half billion next year in common and then maintain that growth thru 2013.

      The key factors for 2012 and 2013: (a) dividend, (b) dividend growth, (c) payout ratio relative to peers; (d) changes in the yield curve that impact the relative attractiveness of BB&T's dividend relative to the risk free rate.

    • "EPS not all that important right now as so much of it is manufactured and since the market knows that, it is the price multiple movement that's important not EPS. If the market senses EPS is a bunch of hot air, the multiples will simply come down."

      I believe that virtually all companies manage their quarterly earnings. Accounting involves a lot of gray area. In the case of bbt, the bank is generating better earnings from much improved credit metrics. $800 million plus or 40% plus of their nonaccrual loans are coming from portfolios in run-off mode. I predict that the nonaccruals generated from these portfolios in run-off mode will drop to $100 million by the end of 2012. Bbt is already fulled reserved at 9/30/11 for these bad loans. This is precisely why the provision for bad debt has been dropping - down to 100 bsp last quarter and will ultimately settle in the 60 to 80 bsp range.

      Most of the analysts don't understand this. There is not a better example of a worse understanding of bbt financial model for 2012 and beyond than credit suisse projection found on the Charles Schwab website. Yet that is what the market predominately uses to value the bank.

      The amount of ignorance and stupidity in the market is huge. But that is what makes a market.

    • "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.

      • 1 Reply to normlasky
      • 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.

 
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