Pacific Capital Bancorp (NASDAQ:PCBC)

CAPS Rating: 3 out of 5

A bank holding company, which provides a full range of commercial and consumer banking services to households, professionals, and small-and medium-sized businesses.

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7
Player Avatar TSIF (99.96) Submitted: 8/25/2010 3:50:44 PM : Underperform Start Price: $165.00 PCBC Score: +85.11

Pacific Capital Bancorp has been losing serious funds for the last 18 months and has been considered undercapitalized. As a TARP bank, it still owes the government plus interest that it has not been paying. After selling a substantial stake to Ford Capital, they are now working on a fairly "unique way" to raise additional funds. 50 branches in California is too much for a quick takeover, so the government is hoping for another solution.

The "rights subscription" is generating a value the last few days that is well above what anyone considers market value. The value on the runup this week from $1 to now $1.60 could go as high as $2 before Monday. It's totally unclear to me how CAPS will treat this one after the rights offering. Some might suggest a split, but this officially is NOT a split. What bidders this week are bidding on is a right to purchase another 15 shares for $0.20. Clearly they feell Pacific Captial with Ford on duty for "cleanup" is worth more than $0.20 per share. Paying for example $1.50 for a share today, allows you to buy 15 more at 0.20 or another $3.00, after which you'd have 16 shares at $4.50 (0.28 cost bais). Monday at 4PM when the rights kick in, and the share pull is expanded by 15x or another 680 Million shares in circulation, these will quickly be dumped onto the market. Eventually Pacific Corp might do a 15 or 20 for 1 reverse split, but in the short run, the bottom will fall out of this stock. IF it holds about $0.28 per share then those buying at $1.50 will come out ahead, if it drops below $0.28, it's a losing proposition.

Between the time this is takes effect Monday night and the time PCBC reverse splits, this one is not likly to hold $0.40 let alone the $1.50 to $2.00 it might trade in the next few days.

"distribution of non-transferable subscription rights to purchase shares of Pacific Capital’s common stock. Shareholders will receive, at no charge, 15.335 subscription rights for each share of common stock held of record at the record date. Subscription rights may only be exercised in whole numbers (with the total number of subscription rights issuable to a holder rounded down to avoid the issuance of fractional rights). Each whole subscription right will entitle a shareholder to purchase one share of Pacific Capital common stock at a subscription price equal to $0.20 per share. "

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Member Avatar TSIF (99.96) Submitted: 8/26/2010 11:11:21 AM
Recs: 0

Ahhh, the ol' Ex Dividend date VS the DIV Date, Monday the 30th MINUS three trading days means yesterday AH was the deadline to get in on the 15.335 to one. Some traders dumped in open market at 0.55 in preparation for the new share rights next week. It's being bid back up to $0.90 today, so some swing traders are having some fun. I really don't think the runup back to $0.90 is inclusive of what the market will think PCBC is worth when the new shares are tradeable.

Member Avatar anchak (99.84) Submitted: 8/27/2010 11:50:15 AM
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I am so glad that someone still does this kind of due diligence and writes a pitch!

Member Avatar Tastylunch (29.22) Submitted: 8/30/2010 9:03:40 PM
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very nice work TSIF!

Member Avatar TSIF (99.96) Submitted: 9/23/2010 11:46:51 AM
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This is holding up because the rights issue itself has not occurred yet. While the rights date closed on 8/27, the implementation has not occured. Some expect this is pending Ford activating his shares he gained at $0.20 when he first bailed out PCBC. When the new shares are released and tradeable, I still expect this to hit in the $0.40 range. I can't find anyone who can explain why this is being propped up still, unless many holders think they need to hold their original shares to get the rights when it is offered. I don't believe this is true, but I can see no other reason this is being propped up on low volume, unless someone else really beleives in Ford, or that he might take it private soon.

Member Avatar foolishpilotdp (< 20) Submitted: 10/21/2010 1:25:13 PM
Recs: 0

The prospectus filed for the rights offering 3 days ago mentions the possibility of a reverse split to the tune of 1:100 (though it specifically states that it could be a different ratio). TSIF does that affect your view of the stock? Particularly if Ford is able to get the bleeding stopped?

Member Avatar TSIF (99.96) Submitted: 10/21/2010 5:20:22 PM
Recs: 0

foolishpilotdp, a reverse split at some point is an obvious move. At this point, however, the 15 for 1 rights have not gone through the system. Finally, after Ford and the government got their new shares, the process is moving to the common shareholders. Those who held the stock on the rights date, (August 28th), will soon be able by 15 for every share they held. Why the price has not already decayed down to a more reasonable level is a mystery to most investors. The rights will allow the shareholders to buy the stock at $0.20. The flood of new stock on the market can't keep the price from decaying from the current level of $0.76. It is currently estimated that there may be month left before shareholders of record will be able to take action on their rights, get them in their accounts and then sell/hold them. I am pretty certain that most of those with rights will purchase them. Once that is settled and the share count outstanding (with new shares) is finalized the reverse split can occur. I would suggest not getting involved in this stock until after all of that occurs. Also note, that on reverse stock splits, MOST drop in price for a brief time. While this is not always true, if you plan on buying shares before the reverse split, I would buy them in ratio to the split. Sometimes cash is paid for fractional shares, sometimes the fractional shares are "orphaned". So if you bought 350 shares, the ration was 100 for 1, you'd get 3 shares post-split and potentially lose the value of the other 50.

So short answer, investors certainly feel like Ford "knew value" and he got paid in new cheap shares for his "play". The bleeding should be pretty much stopped by virtue of the new cash in the company from all the new shares. I can't find a good explaination why the shares are the $0.80 when more shares are due to be issued at $0.20, but I'd wait until they new shares hit the system.

Good luck!

Member Avatar foolishpilotdp (< 20) Submitted: 11/1/2010 6:07:58 PM
Recs: 0

TSIF...thanks for the response. I'm curious...if the stock price is most likely going to erode to $.20 per share somewhere around the time the new shares hit the market, what is the advantage of the rights? If a buyer is able to pick up shares on the open market for $.20 why would he have wanted to be a legacy shareholder in order to get the rights? Do the rights holders have any advantage? If I had held shares for a long time and my cost basis was back in the 20's or 30's I'm pretty upset anyway. I guess I would have been inclined to take my lumps, use the tax write off, wait the time to keep it from being a wash and then jump back in at $.20 if I felt good about the possibilities under Ford. I'm sure my naivety is showing.

Member Avatar TSIF (99.96) Submitted: 11/2/2010 10:26:03 AM
Recs: 0

Hi Follishpilotdp, the markets in general are not easy to follow, toss in something like this and there are many people who have a lot of experience trading who get "lost".

When Ford jumped in to save the day PCBC absolutely needed funding or they risked being shutdown or put under a forced government takeover. Risk requires incentive. Ford got a huge share of the company for his risk. To continue raising money to meet needs PCBC had two options. Sell more shares outright or issue rights at well below current market value. Issuing rights does reward the current shareholders who can balance out the dilution with the cheaper shares. Letting "new investors" have the cheaper shares seems less "fair". IN reality most of the investors getting rights were "new investors" who just simply bought before the rights date. The share price jumped from about $80 to $150 just before rights closed. Per my math in the first post, someone buying at $1.50 per share to get 15 rights per share had an average of $0.26 per share.

I don't expect it to drop to $0.20, with the infusion of cash from Ford and the current investors, (at the time of the rights) buying more shares, hopefully the bleeding is done. I estimated about 0.35 to 0.40, meaning someone who had rights at $0.26 average still made decent money.

Many people sold their original shares after the ex date at $0.80 or so and are simply waiting for 15x more shares at $0.20. I have no idea why the price stayed this high. Selling above $0.80 was a gift after the rights date. You'd buy the rights at $0.20 if you felt the price would stabilize above that. Anyone buying all the rights they are "entitled" to, however would most likely "skew" any ratio/diversification thumb rules they had in their portfolio. I estimate most people would sell some of their new shares. Some people were speculators and will sell all. It will take time for the market to absorb this. Anyone whose been holding since the 20's and 30's shouldn't be doing their own investing. Selling a loser is sometimes hard to do, but in this sector it should have been easier to let go!

Someone who had rights should buy up all they are entitled to, (unless the share price drops below $0.20 before the rights expiration!). . You can sell the ones you have now at a capital gains loss before you buy your rights and then go from there. You get new shares at $0.20 to hold and try to make up your original losses or sell some if the stock price holds up where the gain is attractive. Yes, you could just wait for it to settle down and buy again on the open market, but I'm pretty confident that $0.20 rights will be a profit, but then again, what do I know.... the market is a mystery!

For new buyers interested in PCBC, you could time in now at where you think bottom is, or wait for the reverse split. Generally an equity drops slightly after a massive reverse split, but there may be enough people watching/waiting on this one that this one might not follow the norm.

Good luck.

Member Avatar OliAnMo (84.17) Submitted: 11/8/2010 3:05:00 PM
Recs: 0

As we are still waiting for the earnings report that was due around the 4th of November, there is some speculation that there will be a positive earnings report released after the rights expire on Nov 18.

I think this is a turnaround story to watch, but I wouldn't put "short-term" money in it. I have put longterm money in it however, as I feel Ford will be able to turn this one around in time. I believe that Fords strategy is to 1. take over, 2. raise more capital throught the rights offering 3. wrangle it into the black 4. reverse split while showing profit to get stock attractive to institutions and get out of penny stock territory 5. eventually get back to paying a dividend as a regular bank stock. 6. Cash out like he has done with other banks. He put $500 M into it, I don't think he's not going to let it go to waste.
All this will take time and it won't happen over 1 or 2 quarters.
If this is something for you, then go a head, buy where you thing the bottom is. I think bottom will probably hit when all rights are turned into shares and hit the individual shareholders' accounts, OR when the RS happens. All of this will also depend on whether the earnings report is positive or negative. It is refreshing to have a coherent thread about PCBC here - on the yahoo board it has pretty much just been fodder for daytraders /pumpers/dumpers for quite some time.

Member Avatar TSIF (99.96) Submitted: 11/8/2010 6:38:50 PM
Recs: 0

Thanks for the feedback. Unfortunately this thread will close soon as I closed my pick around $0.40 a few days ago. Sometime CAPS leaves the "most recommended" up or downthumb viewable after the originator closes their pick if no new pitches have received recommendations. In the case PCBC is not pickable below $0.50, so my pitch may be viewable a little while.

At this point $0.36 seems to be holding, and might be a good bottom.

I would agree with your assessment, other than I'm not a proponent of the theory that if you believe something is a good long term investment then buy it and it will come around. The game, long term or short term is buy low and sell high. I think the rights hit is fading, hence my close call, but I wouldn't put any real money in this one until it settles down. A reverse split almost always causes a stock to drop initially. Of course surprise positive earnings could make this an exception. Still, I would expect the sequence to take more take 3-4 quarters for any sense of stability. Good luck!!

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