Author Topic: Bank Stocks  (Read 47118 times)

chasesfish

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Re: Bank Stocks
« Reply #250 on: October 29, 2019, 12:13:44 PM »
@Buffalo Chip is spot on!

- I believe corporate debt doesn't pay enough of a premium and stick with cash/treasuries

- I'm a big fan of international/emerging markets right now.  The Emerging Market Index trades at 12x earnings while VTSAX sits around 20x.  The constant rise of the dollar should make VTSAX trade higher, but that's a heck of a spread. 

One person I talk to a lot about this is up to 50% international equity as an early retiree.

Buffaloski Boris

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Re: Bank Stocks
« Reply #251 on: October 29, 2019, 01:31:19 PM »
@Buffalo Chip is spot on!

- I believe corporate debt doesn't pay enough of a premium and stick with cash/treasuries

- I'm a big fan of international/emerging markets right now.  The Emerging Market Index trades at 12x earnings while VTSAX sits around 20x.  The constant rise of the dollar should make VTSAX trade higher, but that's a heck of a spread. 

One person I talk to a lot about this is up to 50% international equity as an early retiree.

Thanks!  Your friend and I are on the same page. Or would be if my $&%! 401k had more expansive options. My play account is much more inline with where I would like my investments to be.

Katmandew

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Bank Stocks
« Reply #252 on: October 29, 2019, 07:38:17 PM »
Thank you both for the sage advice.  I think we have over saved what we will actually ever need.  The fly-in-the-ointment is that half of our 'stache is in a small (but profitable - 11% T.R. over 10 years) community bank.  As long as things don't get to wild-n-wooly, we should enjoy a fairly fat FIRE.  Ideally, I would not have anywhere near 50% in the stock of one company, but it is not very easy to in this particular situation to diversify out of it.

Thank you again.

Buffaloski Boris

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Re: Bank Stocks
« Reply #253 on: October 30, 2019, 10:20:38 AM »
Thank you both for the sage advice.  I think we have over saved what we will actually ever need.  The fly-in-the-ointment is that half of our 'stache is in a small (but profitable - 11% T.R. over 10 years) community bank.  As long as things don't get to wild-n-wooly, we should enjoy a fairly fat FIRE.  Ideally, I would not have anywhere near 50% in the stock of one company, but it is not very easy to in this particular situation to diversify out of it.

Thank you again.

50%?! Wow.

I’m not a financial advisor and I don’t play one on tv. That’s the sort of thing that would keep me awake at night. You might not be in a position to reduce your exposure, but that’s a proverbial elephant in the living room.

bwall

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Re: Bank Stocks
« Reply #254 on: October 30, 2019, 10:42:21 AM »
- I'm a big fan of international/emerging markets right now.  The Emerging Market Index trades at 12x earnings while VTSAX sits around 20x.  The constant rise of the dollar should make VTSAX trade higher, but that's a heck of a spread. 

Emerging markets seem really risky to me right now.

Emerging markets tend to get really hammered in a recession and pole-axed in anything worse. Their export market (generally USA) dries up and the currency drops, a 1-2 punch that is very hard to counteract. Their governments generally have no method to support the economy, so they just wait it out.

In other words, there's a reason they trade at 12x earnings, i.e. value trap, IMHO.

ChpBstrd

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Re: Bank Stocks
« Reply #255 on: October 30, 2019, 10:48:22 AM »
Thank you both for the sage advice.  I think we have over saved what we will actually ever need.  The fly-in-the-ointment is that half of our 'stache is in a small (but profitable - 11% T.R. over 10 years) community bank.  As long as things don't get to wild-n-wooly, we should enjoy a fairly fat FIRE.  Ideally, I would not have anywhere near 50% in the stock of one company, but it is not very easy to in this particular situation to diversify out of it.

Thank you again.

50%?! Wow.

I’m not a financial advisor and I don’t play one on tv. That’s the sort of thing that would keep me awake at night. You might not be in a position to reduce your exposure, but that’s a proverbial elephant in the living room.

Here’s how you diversify out of it:

Set up a separate account and buy put options betting on the decline of your company. If the stock goes down, your separate account will go up. There will be a floor on your losses. Otherwise you lose 2-4% of the principal value per year as payment for the insurance, which is probably less than the discount you got on the stock.

Katmandew

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Re: Bank Stocks
« Reply #256 on: October 30, 2019, 09:11:09 PM »
ChpBstrd:  I didn't mention that we are privately held.  I am guessing this would prevent me from buying puts?  I do appreciate your thoughts.

chasesfish

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Re: Bank Stocks
« Reply #257 on: October 31, 2019, 04:41:38 AM »
ChpBstrd:  I didn't mention that we are privately held.  I am guessing this would prevent me from buying puts?  I do appreciate your thoughts.

I'm curious how long the process is to sell off some shares - or do the optics look bad as an employee and the company is waiting to sell to someone else?

ChpBstrd

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Re: Bank Stocks
« Reply #258 on: October 31, 2019, 07:00:24 AM »
ChpBstrd:  I didn't mention that we are privately held.  I am guessing this would prevent me from buying puts?  I do appreciate your thoughts.

Yea, that pretty much torpedos my idea.

Katmandew

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Bank Stocks
« Reply #259 on: October 31, 2019, 07:06:21 PM »
The truth is, I can probably easily find a buyer for my stock but our organization is very close nit and the other owners have been very good and generous to me - and they are my dear friends.  My goal would be to sell my shares to one of them but unfortunately, none are buying at this time.   The bank has historically been above average profitable, and we are sub-S so the stock kicks out a healthy dividend.  With the dividend, we can enjoy (by our standards) a relatively "fat FIRE."  If the bank were to somehow totally tank, we could still FIRE on our other assets, albeit with less travel than we currently anticipate.  But absent some black swan or systemic failure, I can see no realistic event that would cause the bank to fail - we run at 3X the regulatory requirements for capital.

All that said, I would happily sell the stock to an insider for less than book (would like to get at least 90%, but i bought it less than 50%).  As conservative as I am, I'd rather own a little bit of 5,000 or so companies vs. a big slice in one.  My guess is, I will hold the stock until others want to retire and when there is no internal market for their shares, then we will take one of the offers we get to sell out to regional or larger area bank.  That will be a sad day for our community, but I will probably get well over 1X book for my shares at that time.  In the mean time, i keep the other half of my portfolio rather conservative to hedge against my increased risk in the one-stock asset.

I do appreciate this thread and the its posters.

Grafter

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Re: Bank Stocks
« Reply #260 on: October 31, 2019, 08:25:32 PM »
Katmandew - That is quite the pickle, if you want to diversify (as there is really no good way to do so other than selling).  But you do appear to have a good handle on where everything is (current profitability, potential buyers, etc). 

Though, with private stock, there are a number of issues, that you have identified, especially if you are employed by it.  As you may be restricted in who you can sell to (either by agreement as well as Sub S restrictions).  As well as it may send a message that you don't want to send.  I know that you mention that the people that you could sell to, aren't buying at the moment.  Have you attempted to talk to them about wanting to diversify (and reduce your concentrated position; as that generally goes over better than just saying I want to sell out)?  As I'm not sure who the current ownership group is (if it is a family group, all employees, just executives, or something else), or if there is an esop.  I'm familiar with a few such banks in my state, and usually there is a "president's desk list" or interested buyers (if it isn't just a family group).

Though with the industry as it is, if there hasn't been any already, the bank will probably get some offers to purchase it (at some multiple of TBV), as it seems like they just keep consolidating for economies of scale (which is understandable, as due to the technological and regulatory costs).  And if there is only a few owners, and they are getting towards retirement age (in their 60s), most likely the stock is a significant amount of their net worth and they are most likely thinking about how to diversify or liquidate it themselves.  And even if not, there should be some consideration of it (potentially as succession planning).

chasesfish

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Re: Bank Stocks
« Reply #261 on: November 01, 2019, 05:33:00 AM »
@Katmandew - Fascinating.  I'm a little bit risk adverse on a concentrated position in a small bank, but I was a commercial banker in Metro Atlanta from 2007 through 2013 and every community bank HQd in a county one removed from the city went belly up.

That being said, I doubt that happens again.  I think you have a nice plan together.  I'm wondering if the Bank is that heavy on capital and paying a dividend if they would ever do a tender offer to buy back some shares.

BicycleB

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Re: Bank Stocks
« Reply #262 on: November 01, 2019, 02:11:00 PM »
The truth is, I can probably easily find a buyer for my stock but our organization is very close nit and the other owners have been very good and generous to me - and they are my dear friends.  My goal would be to sell my shares to one of them but unfortunately, none are buying at this time.   The bank has historically been above average profitable, and we are sub-S so the stock kicks out a healthy dividend.  With the dividend, we can enjoy (by our standards) a relatively "fat FIRE."  If the bank were to somehow totally tank, we could still FIRE on our other assets, albeit with less travel than we currently anticipate.  But absent some black swan or systemic failure, I can see no realistic event that would cause the bank to fail - we run at 3X the regulatory requirements for capital.

All that said, I would happily sell the stock to an insider for less than book (would like to get at least 90%, but i bought it less than 50%).  As conservative as I am, I'd rather own a little bit of 5,000 or so companies vs. a big slice in one.  My guess is, I will hold the stock until others want to retire and when there is no internal market for their shares, then we will take one of the offers we get to sell out to regional or larger area bank.  That will be a sad day for our community, but I will probably get well over 1X book for my shares at that time.  In the mean time, i keep the other half of my portfolio rather conservative to hedge against my increased risk in the one-stock asset.

I do appreciate this thread and the its posters.

Katmandew, I think your plan makes sense. It's probably what I would do in your shoes too. The relationships are better that way, you got where you are by being who you are, and you'll probably (probably) come out ahead this way anyhow.

Fwiw, of course you wouldn't want to short your own compmay, but are there sector proxies that would make sense to short? I'm just thinking that specific risk re that company can't be eliminated, but sector risk might be hedgable somehow. I don't know exactly how, and @chasesfish would be much better at that anyway.

Probably your "conservative allocation" in the rest of the portfolio is the right medicine. Best of luck.

In the mentime, enjoy your life. Probably not doing that is a bigger risk than anything that remains in your portfolio!

bwall

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Re: Bank Stocks
« Reply #263 on: November 01, 2019, 06:00:53 PM »
Fwiw, of course you wouldn't want to short your own compmay, but are there sector proxies that would make sense to short? I'm just thinking that specific risk re that company can't be eliminated, but sector risk might be hedgable somehow. I don't know exactly how, and @chasesfish would be much better at that anyway.

I think the idea of finding sector proxies to hedge against is a great idea. In other words, if your specific community bank is going to get hammered, what other bank is also going to get hammered for the same reason? I would suggest buying puts instead of shorting. Puts expire worthless, shorting can ruin you--even if you're the 94th richest person in the world:
https://www.reuters.com/article/us-merckle-newsmaker-sb/german-billionaire-commits-suicide-after-vw-losses-idUSTRE5055O820090106

Katmandew

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Re: Bank Stocks
« Reply #264 on: November 01, 2019, 09:55:49 PM »
We have had some discussions about using excess capital to buy back shares, but we keep the high capital for a reason - we believe in growing/helping the community and that means we often make loans that other banks will not make.  We also have an ESOP, but we have not purchased shares from outside shareholders for several years in anticipation of a wave of boomers retiring - IOW, we are trying to accumulate cash so that we can "cash out" termed employees. 

I certainly don't want to come across as "scared" to hold the stocks - in fact, I will probably feel a twinge of guilt getting the income distribution checks.
I will give some thought to a sector short (or put), but probably what I will do is take the quarterly dividends and invest them conservatively - right now, that has been into a CD ladder in the bank!  If any of you know a good young banker who wants to work (and make a pretty good living, i should add), please DM me!

Thank you all for the thoughts and ideas.

chasesfish

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Re: Bank Stocks
« Reply #265 on: November 02, 2019, 05:29:15 AM »
Your last comment is the biggest issue community banks are going to face - Too many banks, not enough management talent.

The only asset that moves opposite banks that I can find is long term treasuries.  Instead of a CD ladder, buy some 10yr treasuries when they're above 1.75% and some 30s when they go above 2.2%.  If the economy hits the skids, the treasury will do everything it can to lower short and long term rates.

The comment about capital and community make sense - I've owned Bank of Hawaii for years.  Similar setup, they're a glorified bond with some upside because of how much capital they carry.  Didn't have to cut dividend in the recession.

chasesfish

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Re: Bank Stocks
« Reply #266 on: November 04, 2019, 10:25:53 AM »
Big news today in the banking world.   Iberia and First Horizon are combining.   

More of these need to happen, accretive to the shareholders if they can get this approved quickly. 

Grafter

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Re: Bank Stocks
« Reply #267 on: November 07, 2019, 08:36:26 AM »
Chasefish - I forget, but is there is any particular reason that there is a lack of management talent in the pipeline?  It is some combination of high stress/pressure job, needing to move around (at regional players), management/owners thinking that they would sell out, so that they wouldn't have to deal with succession planning, increased competition from other (and potentially higher paying jobs), etc?

Though in other news, it does seem like most of the big banks have been on a run up this past week (WFC is up about 6% in less than a week, and I know FITB and BAC have had similar gains).

Katmandew - I would be curious about learning more about opportunities for "young bankers."  As I know there are a lot of paths to leadership, but I'm sort of curious on your thoughts on a career in banking and how to approach it.  And if you are in IA, I know a few people that would be interested (are in banking, but potentially would be willing to jump ship to a better opportunity).  Though it is also sort of amazing how profitable some community banks are, as I'm aware of multiple ones in IA that do have some outside investors, and still has pretty consistent ROEs in the mid teens.

ChpBstrd

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Re: Bank Stocks
« Reply #268 on: November 07, 2019, 08:55:08 AM »
Fwiw, of course you wouldn't want to short your own compmay, but are there sector proxies that would make sense to short? I'm just thinking that specific risk re that company can't be eliminated, but sector risk might be hedgable somehow. I don't know exactly how, and @chasesfish would be much better at that anyway.

I think the idea of finding sector proxies to hedge against is a great idea. In other words, if your specific community bank is going to get hammered, what other bank is also going to get hammered for the same reason? I would suggest buying puts instead of shorting. Puts expire worthless, shorting can ruin you--even if you're the 94th richest person in the world:
https://www.reuters.com/article/us-merckle-newsmaker-sb/german-billionaire-commits-suicide-after-vw-losses-idUSTRE5055O820090106

Options are available on XLF for durations up to 2.2 years. With volatility (VIX) as low as it is despite all the leading indicators, now is a great time to buy a hedge. The maximum annualized time decay on an ATM Jan 2022 put option at the 30 strike comes out to 5.4% per year per dollar hedged against any decline. If you could tolerate a decline of, say, 10%, you could buy the 27 strike put at an annualized maximum time decay of 4%. Of course, these markets are efficient so the probability-weighted upside can be trusted to exactly match the market’s expected probability-weighted time decay, for a net expected value near zero.

chasesfish

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Re: Bank Stocks
« Reply #269 on: November 07, 2019, 11:55:37 AM »
@Grafter - The sector was out of favor as an employer twice - Hardly anyone went into the industry from the mid 80s to the mid 90s because of rapid consolidation and lots of layoffs.  We went from a bunch of small banks to the infancy of what today's banks look like.   Salaries fell behind and banks didn't really start adding training programs again until the mid 1990s.   The industry is now coming up on that generation gap with the people who started pre-1985 retiring.

The industry again fell out of favor in the last decade.  The Ivy MBAs went to silicon valley instead of wall street while the average college graduate in sales went into IT sales vs. banking.  Lots of regulatory training and compliance is involved in the job, which doesn't exist in the tech sector.  Some of the best people decided to move to client side advisory work, making the service to businesses more and more of a commodity.

The lack of talent at very high level was one of the reasons I left the industry once I had enough money. 

chasesfish

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Re: Bank Stocks
« Reply #270 on: November 07, 2019, 11:56:23 AM »
I second the option comment.  KRE might be a better ETF to buy a long dated put on as protection.

Katmandew

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Re: Bank Stocks
« Reply #271 on: November 07, 2019, 08:38:12 PM »
@Grafter I am not in Iowa, but I am in a neighboring state. I stumbled into an a really good opportunity (and my successor will have equal or better opportunities).  I was a young lawyer sitting in my office one day probably wishing I had a bank as a client.  I took a phone call from a head hunter.  The guy wouldn't give up, kept calling me, and finally I agreed to take an all-expense paid trip (okay, i drove, they put me up in a B&B, bought me lunch and maybe paid me mileage, lol) to visit this community bank.
     Once there the managers did a good job of explaining the benefits of being a banker, and sold me on the opportunities of potential ownership (owning capital instead of working for it!).  I started working, did a reasonably good job, inquired about buying stock, bought stock (at a tremendous discount to book), then leveraged that to buy a bunch more stock.  And in there somewhere we converted to a Sub-S bank, which when coupled with an ESOP, is an absolutely incredible combo for building wealth. 
     And my wife (who is the brains of our operation) also had a good job and tanked a bunch into her 401k.  While we lived below our means, we certainly didn't live like paupers.  We live in a LCOL area but have taken amazing vacations over the years.  One day I woke up and asked myself, what the hell are you working for?  You can't take it with you and life is short at best and always uncertain - and as far as I know, there is no do-over.  I am retiring next year at 54, and only stayed this long because I care about my co-workers and customers.  It is a b!tch to attract young people to rural America - they all want the city, and I kind of get that.  But I worked for 24 years and made a helluva living and had fun for the most part doing it.  I just wish I could find a young version of me to take over and keep it going!  Message me if you know anyone willing to consider a rural way of life who has a bit of drive.

chasesfish

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Re: Bank Stocks
« Reply #272 on: November 08, 2019, 03:10:37 AM »
@Katmandew - What a great story!  Funny enough I just opened a stock position in a $75mil market cap bank that a few people I know where I first started my career had.  The discounts aren't what they were, but still neat to buy something for 8% below TBV when the underlying business has a 10-11% ROE.

Did you find the compensation okay for the job or did it build over time?  One thing I was shocked with relative to banking (at least 10 years ago) was just how much lower salaries were in rural areas vs. larger cities.  I wonder if/when some of the smaller market community banks wised up.  The few friends I still have in the business aren't exactly killing it in salaries, seem to get capped out in the low six figures.

RobertFromTX

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Re: Bank Stocks
« Reply #273 on: November 10, 2019, 10:56:07 AM »
Kinda new here, but I had a similar story to Katmandew. I'm a 35yo mustachian.

Years ago I had the chance to join a growing community bank that was privately held. Also located in a rural area with a talent drought. The opportunity came with stock options and an ESOP/401k. I bought shares outright in my IRA and outright when I joined.  The ESOP obtains a quarterly FMV which helps establish a hypothetical value. But because there's a larger number of shareholders, there's a market (albeit illiquid). The valuation is mostly based on a multiple of tangible book value. Now that the dividend has escalated after growth, it's made for a very nice investment. It is > 50% of my net worth and I'm totally okay with that. I reinvest the dividends in VTSAX/VBTLX.

Katmandew

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Re: Bank Stocks
« Reply #274 on: November 10, 2019, 06:23:36 PM »
@chasesfish - Very little doubt in my mind that I could have pulled down a better base salary at a larger bank.  However, I would have been "pigeon holed" and not give as many opportunities to branch into all of the areas that I did.  Also, while I cannot prove the counter-factual, I believe I grew my wealth quicker because of the stock I acquired both in and out of my ESOP/401K

@Robert - Is your bank also Sub-S?  An ESOP paired with Sub-S stock is almost too good to be true. . . I type that with a bit of trepidation as one day an assistant to an assistant to President Warren will read this and say "hey, I found a new loophole to close." Lol.   My net-worth is also >50% in our closely held stock, and we also have quarterly appraisals.  I am so far ahead in the dividends and appreciation at this point that our stock would really have to fall before I would be out anything.  There is probably a greater chance that we sell to a larger bank down the road and I end up getting 1+/Book than any chance the bank goes to zero.

All things equal, I'd rather be in 5,000 companies and not one, but in the mean time, I feel like I am well compensated for the risk.

RobertFromTX

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Re: Bank Stocks
« Reply #275 on: November 10, 2019, 09:53:38 PM »
We are not an S-Corp because we have more than 75 (I think that's the limit?) shareholders. The Trump tax cuts really boosted our post-tax earnings though.

I also have to agree that the opportunity was far greater than what I would have found at a big bank. You wear many hats and have to know every aspect of banking.

Our ESOP purchased a large block of shares with credit years ago. So every ESOP contribution is really like purchasing bank stock at a ~43% discount. The contributions go toward paying off the stock loan and shares are released from collateral.  And if you compare the annual dividend to what I actually paid for the stock, we're at about a 10% dividend yield.  So yes, diversifying would probably be the smart decision, but the opportunity to own private bank stock is just too good to pass up.

chasesfish

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Re: Bank Stocks
« Reply #276 on: November 11, 2019, 06:01:43 AM »
Its nice to hear both of your stories.

I was at an inflection point in my career (and extenuating circumstances and other life goals led me to FIRE instead) - I worked two levels down from executive management at a big regional bank, but it was in their largest market and I negotiated well in my last move, so was paid so much that going to a small community bank was a paycut.   If I had wanted to continue to pursue my career though, it would have been the right move for all the experience points you talk about so I could then move to be executive management in a larger community/smaller regional bank.

Katmandew

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Re: Bank Stocks
« Reply #277 on: November 11, 2019, 01:40:08 PM »
@chasesfish - I guess our respective career paths both worked out fine, cause we're both here at MMM and FIRE'd, or damn close to it!  I do agree with you that one of the biggest hurdles of facing rural community banks is management succession.  Its a damn shame too.  That, and the regulators seem hell bent on consolidation as well.

@Robert - I am going to send you a message.  If you don't mind sharing a bit about leveraging the ESOP, I'd like to get more info. 

habanero

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RobertFromTX

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Re: Bank Stocks
« Reply #279 on: January 30, 2020, 08:25:13 PM »
I do find it odd at times that I anticipate the call report release on my former employer. I keep a spreadsheet to track their progress, and then in a few weeks I'll receive the quarterly shareholder newsletter.

chasesfish

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Re: Bank Stocks
« Reply #280 on: January 30, 2020, 09:09:21 PM »
Yes, I read the disaster of a release and call transcript from my former employer.

For an update on this trade/investment - I'm about out of all of my long term treasury bonds, will re-buy when the 30 year gets into the 2.35% - 2.45% range.

If bank stocks give up another 10%, I might be a buyer again.  I'm hard pressed to like anything more than I like JPM and BAC right now.

Buffaloski Boris

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Re: Bank Stocks
« Reply #281 on: January 31, 2020, 05:50:38 PM »
Yes, I read the disaster of a release and call transcript from my former employer.

For an update on this trade/investment - I'm about out of all of my long term treasury bonds, will re-buy when the 30 year gets into the 2.35% - 2.45% range.

If bank stocks give up another 10%, I might be a buyer again.  I'm hard pressed to like anything more than I like JPM and BAC right now.

I’m liking UK equities these days. Low valuation due to Brexit.

chasesfish

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Re: Bank Stocks
« Reply #282 on: February 01, 2020, 08:34:15 AM »
Yes, I read the disaster of a release and call transcript from my former employer.

For an update on this trade/investment - I'm about out of all of my long term treasury bonds, will re-buy when the 30 year gets into the 2.35% - 2.45% range.

If bank stocks give up another 10%, I might be a buyer again.  I'm hard pressed to like anything more than I like JPM and BAC right now.

I’m liking UK equities these days. Low valuation due to Brexit.

The entire ex-US market looks incredibly inexpensive.  I've been slowly adding to international and emerging markets.

My biggest challenge in this segment is active vs. passive.  The markets aren't as efficient and I split the money between active and passive....the active fund is kicking the passive funds, but I've been trained not to pay those fees.

Buffaloski Boris

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Re: Bank Stocks
« Reply #283 on: February 01, 2020, 09:18:02 AM »
Yes, I read the disaster of a release and call transcript from my former employer.

For an update on this trade/investment - I'm about out of all of my long term treasury bonds, will re-buy when the 30 year gets into the 2.35% - 2.45% range.

If bank stocks give up another 10%, I might be a buyer again.  I'm hard pressed to like anything more than I like JPM and BAC right now.

I’m liking UK equities these days. Low valuation due to Brexit.

The entire ex-US market looks incredibly inexpensive.  I've been slowly adding to international and emerging markets.

My biggest challenge in this segment is active vs. passive.  The markets aren't as efficient and I split the money between active and passive....the active fund is kicking the passive funds, but I've been trained not to pay those fees.

No, the markets definitely aren’t as efficient. To my way of thinking if it’s a first world country, the markets are probably efficient enough. The UK markets seem efficient and have good standards of corporate governance. So for me an index is good enough.

As for EM- there be dragons!  I wouldn’t do a passive fund on a bet. Too many shenanigans. The active fund managers can more than earn their keep here.

I’ve grown tired of playing the heretic when it comes to VTSAX.* So I haven’t been talking about it much. I‘m just dialing up the overseas with a relatively small slice of domestic for diversification. Consenting adults and all.

*(I just listened to an interview the other day with JL Collins. One of the very interesting parts of the interview was that it sounds like his thinking is maybe moving away solely US. Oddly enough, I agree with the vast bulk of what he says. Just not the VTSAX part.)

chasesfish

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Re: Bank Stocks
« Reply #284 on: February 01, 2020, 02:00:02 PM »
I'm not a fan of the 100% VTSAX advocates either, but I'm past thinking they are wrong...

There's so many things to invest in, its fine to say "this isn't for me".

I've said that about technology investing forever, which VTSAX is heavily weighted in.  Now that we know the winners, I don't like the valuation.  I've missed out on making a lot of money with them, but "its not for me"

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Re: Bank Stocks
« Reply #285 on: February 01, 2020, 04:55:56 PM »
Yes, I read the disaster of a release and call transcript from my former employer.

For an update on this trade/investment - I'm about out of all of my long term treasury bonds, will re-buy when the 30 year gets into the 2.35% - 2.45% range.

If bank stocks give up another 10%, I might be a buyer again.  I'm hard pressed to like anything more than I like JPM and BAC right now.

I’m liking UK equities these days. Low valuation due to Brexit.

Compelling valuations, but their Brexit recession is ahead and banks like Lloyd’s and RBS have just suffered a disadvantage compared to the continental banks. Or maybe not. Talk me out of it.

chasesfish

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Re: Bank Stocks
« Reply #286 on: February 01, 2020, 05:14:35 PM »
I wish I understood UK banking regulations more.   If this gets them away from holding eurozone sovereign debt, then it could be positive.   I always chalked the eurobanks up to  "don't understand it well enough to measure the risk....and therefore what required return I'm looking for"

Buffaloski Boris

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Re: Bank Stocks
« Reply #287 on: February 01, 2020, 08:08:01 PM »
Yes, I read the disaster of a release and call transcript from my former employer.

For an update on this trade/investment - I'm about out of all of my long term treasury bonds, will re-buy when the 30 year gets into the 2.35% - 2.45% range.

If bank stocks give up another 10%, I might be a buyer again.  I'm hard pressed to like anything more than I like JPM and BAC right now.

I’m liking UK equities these days. Low valuation due to Brexit.

Compelling valuations, but their Brexit recession is ahead and banks like Lloyd’s and RBS have just suffered a disadvantage compared to the continental banks. Or maybe not. Talk me out of it.

I don’t happen to buy the “Brexit recession” narrative. In the end, greed usually wins. The EU will cut a reasonable deal with the UK because if they don’t, the US will be more than happy to take their place. Further, what I think the EU is concerned about having a highly industrial, lower tax, lower regulation haven on their border. No trade deal makes that scenario more likely.

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Re: Bank Stocks
« Reply #288 on: February 02, 2020, 11:39:15 AM »
I’m considering doing something that is most un-Mustachian. Buying an actively managed financial sector ETF. With fairly reasonable overall fees.

(Cue dramatic music and gasping).

Why: I want to get some more financial sector coverage; it’s one of the few sectors in the US market that I think is reasonably priced. I don’t have the time to go in depth to research stocks for a relatively small chunk of my portfolio. And I can always supplement with individual stocks I fancy. One I’m kicking around is DFNL.

vand

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Re: Bank Stocks
« Reply #289 on: February 02, 2020, 12:11:23 PM »
It's not just UK banks that are cheap, right now, the whole European banking sector is very discounted:

http://bigcharts.marketwatch.com/kaavio.Webhost/charts/big.chart?nosettings=1&symb=SX7P&uf=0&type=128&size=3&sid=124873&style=320&freq=2&entitlementtoken=0c33378313484ba9b46b8e24ded87dd6&time=13&rand=998551647&compidx=aaaaa%3a0&ma=2&maval=55.255&lf=2&lf2=33554432&lf3=0&height=665&width=720&mocktick=1

I've personally got HSBA, BARC and RBS. I can't guarantee that they won't get cheaper still, but imo they have good recovery potential, and in the meantime I'll collect the 7% divi just for holding them.

Buffaloski Boris

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Re: Bank Stocks
« Reply #290 on: February 02, 2020, 01:24:34 PM »
It's not just UK banks that are cheap, right now, the whole European banking sector is very discounted:

http://bigcharts.marketwatch.com/kaavio.Webhost/charts/big.chart?nosettings=1&symb=SX7P&uf=0&type=128&size=3&sid=124873&style=320&freq=2&entitlementtoken=0c33378313484ba9b46b8e24ded87dd6&time=13&rand=998551647&compidx=aaaaa%3a0&ma=2&maval=55.255&lf=2&lf2=33554432&lf3=0&height=665&width=720&mocktick=1

I've personally got HSBA, BARC and RBS. I can't guarantee that they won't get cheaper still, but imo they have good recovery potential, and in the meantime I'll collect the 7% divi just for holding them.

OK. If you had to pick one of the 3, which would you pick and why?

chasesfish

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Re: Bank Stocks
« Reply #291 on: February 02, 2020, 05:25:22 PM »
I’m considering doing something that is most un-Mustachian. Buying an actively managed financial sector ETF. With fairly reasonable overall fees.

(Cue dramatic music and gasping).

Why: I want to get some more financial sector coverage; it’s one of the few sectors in the US market that I think is reasonably priced. I don’t have the time to go in depth to research stocks for a relatively small chunk of my portfolio. And I can always supplement with individual stocks I fancy. One I’m kicking around is DFNL.

I've pretty much settled in on the value of paying for active management:

Inefficient markets = Active Management
Efficient markets = passive management.

I'm personally setting up a call with a private equity fund that's doing activist investing in small cap banks.  So many of these need to sell to maximize shareholder value but have entrenched boards.  Passive management just lets them continue to flounder, they need encouragement. 

I'll look into DFNL, although I'm still weighted pretty heavily in financials

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Re: Bank Stocks
« Reply #292 on: February 02, 2020, 08:04:38 PM »
chasefish - there area few people in the space, and I can see why.  I just found out today that the federal reserve updated ownership rules, so investors can own up to 24.9%, up from 9.9%, of a box without having to be a bhc, starting April first.  So I can see more pressure coming to hear on bank boards from activists. 

Other than that, Have you gotten back into anything, since the 10 year treasury is back around 1.5%?

chasesfish

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Re: Bank Stocks
« Reply #293 on: February 03, 2020, 12:23:53 AM »
chasefish - there area few people in the space, and I can see why.  I just found out today that the federal reserve updated ownership rules, so investors can own up to 24.9%, up from 9.9%, of a box without having to be a bhc, starting April first.  So I can see more pressure coming to hear on bank boards from activists. 

Other than that, Have you gotten back into anything, since the 10 year treasury is back around 1.5%?

Do you have a source on that?  I'd love to read more before I get more information from the fund.

I am sitting kind of still at 70% Equities / 30% Bonds/Cash, just mainly cash and BND now that I've sold the treasuries.  I'd probably need another 10% off the big banks to add more.  If that happens I'll likely just add more BAC and JPM unless I can dig deeper into the regionals.  I'd need 15-20% off to get the kind of cash flow/multiples in the total market that'd make me comfortable going above 70%.   So many things drive bank stock prices down:  Economy slowing?  Banks bad.  Rates down:  Banks bad.  Virus outbreak?  Banks bad.  The only protection is to buy them cheap, high single digit/low double digit multiples cheap like we had in the August dip.  They just aren't back there yet.

(I'm watching emerging markets with this virus, they *might* get cheap enough, but I'd rather be patient and suffer a lower return than be too eager and get clobbered)

The only other thing I've done is I've built a 10k position in one microcap bank and a 30k position in another (ESXB) which currently has an activist in it.  I don't like my downside in ESXB if they don't sell though, it trades a little high on price to book giving me some second thoughts.  I've drafted a letter I'm going to mail to investor relations with some questions after went through their 10k.  I'm making a speculative bet based on how the activist has performed and seeing what happens.


vand

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Re: Bank Stocks
« Reply #294 on: February 03, 2020, 02:32:33 AM »
It's not just UK banks that are cheap, right now, the whole European banking sector is very discounted:

http://bigcharts.marketwatch.com/kaavio.Webhost/charts/big.chart?nosettings=1&symb=SX7P&uf=0&type=128&size=3&sid=124873&style=320&freq=2&entitlementtoken=0c33378313484ba9b46b8e24ded87dd6&time=13&rand=998551647&compidx=aaaaa%3a0&ma=2&maval=55.255&lf=2&lf2=33554432&lf3=0&height=665&width=720&mocktick=1

I've personally got HSBA, BARC and RBS. I can't guarantee that they won't get cheaper still, but imo they have good recovery potential, and in the meantime I'll collect the 7% divi just for holding them.

OK. If you had to pick one of the 3, which would you pick and why?

Probably HSBA, as I think it's the best business and most of their earnings are from Asia. They sailed through the financial crisis relatively unscathed while the other banks went into meltdown.

The "Big 4" are HSBA, RBS, Barc & Lloyds.

RBS required a bailout and has only just returned to paying out dividends, so not much history. My logic for owning them was that as they only restarted divi payments they are unlikely to overstretch themselves at the outset, so buying at this stage could see some good capital growth a few years along when it is more trusted. Their "Natwest" brand is very strong on the high street.

Barc are trading on x0.5 net assets, and I think they have a strong high street brand too.

Lloyds is, imo, the weakest of the four. They have always been slightly behind the others in terms of service and competitiveness they offer to customers which is why I don't own them (although ironically I do my own personal banking with them). Unlike the other 3, they do not have a significant investment banking business.
« Last Edit: February 03, 2020, 02:52:59 AM by vand »

Buffaloski Boris

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Re: Bank Stocks
« Reply #295 on: February 03, 2020, 01:48:21 PM »
It's not just UK banks that are cheap, right now, the whole European banking sector is very discounted:

http://bigcharts.marketwatch.com/kaavio.Webhost/charts/big.chart?nosettings=1&symb=SX7P&uf=0&type=128&size=3&sid=124873&style=320&freq=2&entitlementtoken=0c33378313484ba9b46b8e24ded87dd6&time=13&rand=998551647&compidx=aaaaa%3a0&ma=2&maval=55.255&lf=2&lf2=33554432&lf3=0&height=665&width=720&mocktick=1

I've personally got HSBA, BARC and RBS. I can't guarantee that they won't get cheaper still, but imo they have good recovery potential, and in the meantime I'll collect the 7% divi just for holding them.

OK. If you had to pick one of the 3, which would you pick and why?

Probably HSBA, as I think it's the best business and most of their earnings are from Asia. They sailed through the financial crisis relatively unscathed while the other banks went into meltdown.

The "Big 4" are HSBA, RBS, Barc & Lloyds.

RBS required a bailout and has only just returned to paying out dividends, so not much history. My logic for owning them was that as they only restarted divi payments they are unlikely to overstretch themselves at the outset, so buying at this stage could see some good capital growth a few years along when it is more trusted. Their "Natwest" brand is very strong on the high street.

Barc are trading on x0.5 net assets, and I think they have a strong high street brand too.

Lloyds is, imo, the weakest of the four. They have always been slightly behind the others in terms of service and competitiveness they offer to customers which is why I don't own them (although ironically I do my own personal banking with them). Unlike the other 3, they do not have a significant investment banking business.
Interesting pick. HSBC has an interesting rep in the US. I’ll have to look into that one some more. Thanks for the insight.

vand

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Re: Bank Stocks
« Reply #296 on: February 04, 2020, 02:50:19 AM »
Interesting article on the state of competition in UK banking. Seems that the competitve advantage comes with size: https://www.ft.com/content/77ef93ec-e100-11e9-9743-db5a370481bc

Buffaloski Boris

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Re: Bank Stocks
« Reply #297 on: February 04, 2020, 04:22:28 AM »
Interesting article on the state of competition in UK banking. Seems that the competitve advantage comes with size: https://www.ft.com/content/77ef93ec-e100-11e9-9743-db5a370481bc

Cool article. If you look at the charts, it appears that the big banks thrived as a result of the GFC. No real surprise to me; crisis and regulation tends to favor the regulated. But it was neat to see it in a chart format.

chasesfish

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Re: Bank Stocks
« Reply #298 on: February 04, 2020, 09:02:48 AM »
Its the two edged sword of bank regulation...

Do the government regulators prefer more information or more competition?  They say #2 but typically setup rules to feed them more information and control.  The larger the bank, the easier it is to provide this stuff.

Banks fail due to lack of capital...yet the Financial Choice act went nowhere in congress.  It said if a bank retains far more than the minimum amount in required capital, it can forego many of the expensive compliance costs of Dodd Frank. 

It failed, consolidation is upon us, and the US will end up with large, lower capitalized banks to provide shareholder return.

I lived this stuff for ten years in US banking - I worked for BB&T, we were well capitalized, didn't have to raise stock in the GFC and didn't lose money in any quarter.   ard TARP crammed down and paid it back the first day they could.   Hire good people, make better customer selection than the competitors.  It worked well.  The reward?  All the same compliance costs as bad actors.  It doesn't change overnight, just slowly creeps in until the place is unrecognizable.

I

Buffaloski Boris

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Re: Bank Stocks
« Reply #299 on: February 04, 2020, 11:54:58 AM »
Its the two edged sword of bank regulation...

Do the government regulators prefer more information or more competition?  They say #2 but typically setup rules to feed them more information and control.  The larger the bank, the easier it is to provide this stuff.

Banks fail due to lack of capital...yet the Financial Choice act went nowhere in congress.  It said if a bank retains far more than the minimum amount in required capital, it can forego many of the expensive compliance costs of Dodd Frank. 

It failed, consolidation is upon us, and the US will end up with large, lower capitalized banks to provide shareholder return.

I lived this stuff for ten years in US banking - I worked for BB&T, we were well capitalized, didn't have to raise stock in the GFC and didn't lose money in any quarter.   ard TARP crammed down and paid it back the first day they could.   Hire good people, make better customer selection than the competitors.  It worked well.  The reward?  All the same compliance costs as bad actors.  It doesn't change overnight, just slowly creeps in until the place is unrecognizable.


Makes it interesting as an investor. Let’s look at it without rose colored glasses: there are a whole lot more banks out there than the market really needs. The trend is toward big banks and some niche banks. The rest are surviving based on regulatory fiat. More or less. So I guess the sweet spot is picking stocks for banks that are likely to be consolidated, or those who are really big, well run but not too well run, and not too hated by the Powers That Be. Oh and not so likely to go out of business when Amazon or WalMart are able to enter the fray.