Two analysts from Credit Suisse, Siegenthaler and Bajpai recently published a research report of Bbt projected earnings. Their projections are: 2011 year eps - $.93, 2012 eps - $1.98 and 2013 eps - $3.50.
I've looked at some of the details making up their projections and it appears to me that Credit Suisse did not properly take a number of items into account:
1. Net chargeoffs are projected at $2.3 billion for 2011 down only $.4 million from 2010. Nonaccrual loans are projected at $2.3 billion at 12/31/10 and $2.1 billion at 12/31/11. These numbers imo are greatly overstated. Bad commercial real estate and lot loans are quickly drying up. In the 3rd qtr. 2010, they made up 18% of total loans but 68% of chargeoffs. Think we'll see a similar chargeoff in the 4th qtr but thinks should taper off significantly in 2011.
Interesting to note that credit suisse projects chargeoffs in 2013 at $569 million or 50 bsp but keeps the reserve for loan losses at a whopping $2.347 billion which equates to 4 years plus of writeoffs.
2. Foreclosed property expense - In 2010 total which includes about $200 million for maintenance of oreos and $550 million for valuation adjustment. Credit Suisse projection implies that the total in 2011 will only drop by $180 million. This is ridiculous as reos are already marked at 45 or 48% and additional marks of $400 million in 2011 are way off base. (oreo mark would increase to 72%).
3. Net interest income declines $86 million in 2011 vs. 2010.
4. Other noninterest income worsens by $200 million in 2011 vs. 2010.
Credit Suisse projection is a drag on share price. I'll post some additional comments once I complete my own projections.
Credit suisse gets a big F from me and needs to greatly improve their analytical thinking on this subject.
CRE has not yet had its day...the huge pool of CMBS foreclosures is increasing in velocity, not decreasing...and special servicers are not selling the assets. This means any bank with CRE debt still has huge negative overhang, includign BB&T. They have a lot to lose. It ain't over until the fat lady sings and she's still eatign at Hardee's.
On the income side the analysts are probably right....BB&T's balance sheet is shrinking. Its concentrating on amassing non-paying deposits, rather than making loans, which it hates to do unless it can loan at spreads wide of the market, to retail customers, most of whom are in the 17% unemployed or underemployed segment. This is a classic case of cash hording...
You may give the boys at CSFB an "f" but they arent the ones posting on yahoo, you are...I think they know a little bit more than you.
"CRE has not yet had its day...the huge pool of CMBS foreclosures is increasing in velocity, not decreasing...and special servicers are not selling the assets. This means any bank with CRE debt still has huge negative overhang, includign BB&T. They have a lot to lose. It ain't over until the fat lady sings and she's still eatign at Hardee's."
Once again nobankerpl your comments are so timely. Fitch says in October 2010 cmbs delinquencies, foreclosures, and reos dropped 88 bsp or about 10%.
"CMBS delinquencies dropped 88 basis points to 7.78 percent in Fitch’s report due largely to the resolution of seven loans, the largest of which was the liquidation of the $4.1 billion Extended Stay loan, collateralized by a portfolio of 682 hotel properties. At the same time, only $304 million of hotel-backed loans became newly delinquent during the month of October, according to Fitch."
I believe that it is difficult for anyone to accurately project 2011 loan losses at this time. In my business experience we used a "best case worst case" budget process. Credit Suisse must have a very bad outlook for the US economy. I believe that BB&T will be able to cut loan loss reserves by a fourth in 2011. That's $1 per share. This of course is nonrecurring profit.
Possibly Credit Suisse thinking acknowledges there is risk that we may be on the verge of a global depression, but no one wants to say so publicly.
It is a scary time. There are more bubbles on the planet than price inflation that must be considered, hopefully contracted before they pop from their own excesses.
In the present circumstances, quantitative analysis can only be viewed in light of different global possibilities that can turn the applecart upside down.
Having said that, I continue to believe BB&T is very strong relative to other options, but that is no guarantee that we will not see all banks take a major correction.
Worst scenario ... let us not go there, not today.
What strikes me about the Credit Suisse analysis is the prediction of 3.50 earnings for 2013. Bank earnings usually can be counted on to project a price per share at 10x earnings per share or in this case a price of $35. If that price is reached half way through 2013, we are looking at a 16%/yr increase from today's price plus the dividend while waiting. And that is from people looking at the downside.
Based on stock price, Credit Susie is on the mark. New stress test coming for bbt will tell the tale.BBT is slowing falling victim to its buyouts of other banks which did not perform due diligence of loans since the bank act was gutted in the 90s. bbt foreclosures are both massive and expensive due to this. In addition commercial loan defaults and resale have been costly, the question is how much has bbt failed to mark down since they are allowed to carry these loans on there books at full value till properties are sold. This all adds upt to not what will happen to bbt but when will it happen. bbt dreamworld of expansion will be prolonged slightly by qe2 but the nightmare scenario of Wachovia is just around the corner. jmo glta