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Dead Banks Walking?

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Short list of troubled institutions.

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An interesting note: It said it "shrank its balance sheet" when, in fact, it was sold to an "off balance sheet subsidiary" that it owns part of. The bonds weren't sold: They were just "relocated." I sure wish I could do that when I make a mistake. Also, the Federal Reserve opened up the discount window to primary/dealers so that they could off-load a bunch of nuclear waste, in my opinion, onto the Fed's balance sheet, which now looks like one big hedge fund in drag. And then the SEC temporarily changed short selling rules for the Group of 19 (the GSE's and primary dealers) for a few weeks, resulting in a short squeeze, but their shares still hobble along at recent lows.

On Friday, there was a rumor that the Korean Development Bank would buy Lehman, but again that turned out to not be true. And if it wanted to raise debt, it could prove difficult. Its bonds trade around +500 basis points to Treasuries, but my guess is that even if they could get a deal done, they would have to come in the 10% range, which is, again, uneconomic.

So now we have the recipe and an example for 'Dead Men Walking':

  • Common stock too low to issue.
  • Preferred stock yield too high to issue economically.
  • Issuing debt is uneconomic.
  • More write-offs coming in days to come.
  • Business trends are awful.
  • Denial.

Below are some other banks with the Dead Man Walking cycle and analysis applied:

Zions Bancorp (ZION)

  • Equity has traded down from 75 to 25.
  • Tried to issue a $200 million preferred stock offering at 9.5% but only was able to sell $47 million.
  • Their debt trades in the open market approximately 1,000 basis points above Treasuries, IF you can sell them, or 13-14%.
  • They are geograhically in Utah, but spread out to Florida, Nevada and Arizona at the top of housing to take advantage of great opportunities.
  • They say they need $200-300 million capital.
  • They maintained their common dividend.

KeyCorp (KEY)

  • Common Stock has traded down from 40 to 11.
  • Preferred Stock trades at 13%.
  • Debt trades in the market at 10-11% dvd.
  • Cut dividend in half in July, still yields 6.5% even while they lose money.

Fifth Third Bank (FITB)

  • Equity has traded down from 60 to 14.
  • There are no preferred issues outstanding.
  • Debt trades in 10-11% range if you can sell it.
  • Cut dividend by 75%.

Washington Mutual

  • Equity has traded from 40 to 3.
  • No preferred outstanding except convertible preferred.
  • Debt trades in the 20-25% range.
  • Cut the dividend to 1c per share in April.
  • Has admitted they will lose money for the next several years.

National City

  • Equity has traded from 40 to 5.
  • Preferred stock trades at 13-15%.
  • Sold a huge amount of shares at $5 per share in April.
  • Cut dividend to 1c per share in April.
No positions in stocks mentioned.

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