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jstran (77.07)

Looking at financials

Recs

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April 10, 2008 – Comments (3) | RELATED TICKERS: AFN , RAS

Welcome to my Blog and we'll see how it goes.

 I've lately been looking at financials that I think that the market has overly punished with everyone else.  Two I like are AFN and RAS.  Both have been hit huge, had great quarterly conference calls.  In AFN case, earnings were .52 and dividend confirmed at .25.  Not bad for a 2.88 stock.  Once the new GAAP rules go into effect for them in Q1, the book values will sky rocket.  Both of these I think are high reward in comparison of the risk.

 First Marblehead.  Ouch.  But I think if it can survive the next month, get a new guaranteer, and sometime finally get a securitization or something, it can be a great pick at these $3.50 level.  I just don't see congress and the FED allowing student loans to go away and congress started to act this week.  I'll hold the pick and I think it could come back. 

 Now might be the time to start looking again at the survivors of the financial sector as they could come roaring back as the dust settles.  Yields for the survivors that are able to maintain the dividends are fantastic.  But be careful.

3 Comments – Post Your Own

#1) On April 10, 2008 at 12:44 PM, Imperial1964 (96.65) wrote:

So long as banks are still valuing their debt securities based on the blatently inaccurate ratings of the bond insurers, rather than the creditworthiness of the borrowers or market prices, more writedowns are to come.

For example, Goldman Sachs just sold some debt left from the Chrysler LBO for 64-66 cents on the dollar.  JP Morgan, Citigroup, Morgan Stanley and Bear Stearns still hold Chrysler debt.

The banks still have big loans in housing, to both homebuilders and homebuyers, at inflated asset values.

Every week you hear of another bank having to raise capital.  Didn't WaMu already raise a bunch of capital in December???

Wilbur Ross just said he believes "...the next phase of the cycle will be the failure of depositary institutions,"  and he's preparing to buy assets as banks fire-sale to raise cash.

I'm not saying you can't find bargains; you  might.  But I don't think there is nearly enough reward for the risk, unless you're a Wilbur Ross or something.  But the financial sector coming roaring back anytime soon is just a dream.

Interest rate spreads are low, historically, though up a bit from recent spreads.  Securitization is dead.  LBOs are gone for now.  Defaults are rising.  Where are their earnings going to come from now?

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#2) On April 10, 2008 at 2:25 PM, jstran (77.07) wrote:

Thank you for reading and your comments! In regards to wilbur Ross, Ben Stein thinks that financial REITs like these are a great place to look. "Sophisticated investors are now likely eyeing products such as structured investment vehicles (SIVs) and collateralized debt obligations (CDOs), Mr. Stein said. “They are so oversold and there is so much money to be made from them,” he said. http://www.reportonbusiness.com/servlet/story/RTGAM.20080402.wreits0402/BNStory/SpecialEvents2/home The AFN conference call makes it quite clear they are in very good shape. When all of the questions revolve around what to do with all the cash on hand, that's a good thing. Both dividends were under earnings, and no one is projecting them to be cut - another quarter or two of continued dividends, and the shorts will be long gone. Once book value shows double or more the current price, shorts will be gone.   At these prices, Large upside potential. RAS announcements are here: 

 http://www.raitft.com/invrel/index.asp?link=news

Seeking Alpha article that talks about FAS 159 for REITs and how it affects book value.  

http://seekingalpha.com/article/68235-muddled-mortgage-reit-book-value-creates-buying-opportunity 

I'm not saying everything is rosy, but when share prices are priced for severe dividend cuts and/or going out of business, prices will rise when that is shown not to be the case.

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#3) On April 10, 2008 at 5:04 PM, TMFSinchiruna (98.15) wrote:

You sound awfully confident that the dust will soon be settling... I think we've barely seen the magnitude of this global deleveraging event.  The only bet I'd be making on financials here would be a short position.  :)   Still much more downside in the sector as book values get re-calculated downward.  The investors that keep propping up these equities in each successive bear rally are doing so because they see cheap price to book valuations or attractive dividends.  Neither of those 2 things are stable going forward.  I expect virtually every bank and major financial institution to be trading at or below tangible book value before this thing is done playing out.

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