Lately I have been posting in Daal's journal - so I'm creating this thread to dump my thoughts. Here is an updated list of companies that I am watching: Stocks of companies that have been bailed out, yet still look expensive: FRE, FNM, AIG (and maybe WM, depending on how it trades in coming days) Boo hoo I don't want to be downgraded or else I'll have to raise a huge amount of capital: ABK Poor quality banks: WB, NCC, AIB, IRE, SOV Poor quality companies that need access to wholesale funding: MS, CIT, SFI, C, LYG, RBS GM, F, SIRI REITs may find it hard to refinance debt, particularly if bailout is not passed: GGP, PLD, AMB, NCT, CMO, MFA, KFN, AHT, NLY Some more financials that need access to short-term funding: BCS, UBS, GS, Some 'trust banks' that need people to trust money market funds after the Reserve Fund debacle: STT, BK, LM, NTRS Some smaller stuff: CORS, DSL, FED, BKUNA, VNBC I am watching but not as bearish about: RF, KEY, ZION, FITB, ETFC, MBI
Add rating agencies to the list: MCO and MHP You can still buy puts. These rating agencies rated AAA to many junk securities and then downgraded them when it's obvious. Their revenue will absolutely decline as there'll be less demand for securitized products, which translates to less demand for ratings. MCO's revenue has also been declining y/y.
m22au, could you please expand on NCC? What do you see on their books that makes it worth 3 bucks? Thanks.
I know more about the weak fundamentals (pay option ARMs in California) about WM and WB than I do about NCC. On the fundamental side, they put themselves up for sale earlier in the year (not a good sign) and also raised a fair bit of capital (I forget how much). The key thing for me about NCC is that is plummeted in mid-July (from high $4s to $3) and then again on Friday (mid $4s to $2). This is similar behaviour to LEH in March when BSC failed and AIG in July when it reported a huge loss. I'm not saying that NCC will necessarily go the same way as LEH and AIG, however given the extremely weak share price performance on Friday, it bears watching. This is particularly true when you compare WB and NCC to the KRE, and some of the stronger regional banks from that index.
thanks for the heads up Daal. I will keep my eyes on MBI. The stock has done quite well in recent months, so I am not so comfortable in joining you with your bearish view. Whereas with ABK they had the "boo hoo please don't downgrade us or else we are toast" announcement two Thursdays ago, so I am more comfortable shorting that company.
The following "wow" list is of well-known companies to fail (or almost fail) since the start of the year: Northern Rock (NRK.L) CFC kind of (why did BAC pay so much?) BSC TMA IMB / IDMC September specials: FRE and FNM LEH MER kind of (why did BAC pay so much?) AIG WM Bailout weekend: Bradford & Bingley (BB.L) Fortis [share price did OK, because (1) it had fallen a lot in the preceding week and (2) government injections strengthened the balance sheet] Hypo (share price crushed)
There seems to be a huge difference in the quality of shorts on your list. For example LYG has an enormous customer deposit base and has just done a massive takeover with government approval, giving it an anti-competitive level of market share in the domestic UK market. It's like if BAC had 1/3 of the entire US deposit base on its books. The stock may be actually be a buy (not that I'm long, but I can see a case for it). At the very best this is a marginal short with a lower than normal probability of success. I also don't see how it qualifies as a "poor quality company". Neither does Morgan Stanley, especially after converting to a bank and getting access to Fed funding, and potential customer deposits, long-term - as well as having a Japanese suitor willing to fund them. The REITs are also a mixed bag. Short-term funding will always be available for companies whose assets are worth more than their debt, and readily saleable at near to intrinsic value. Some mortgage "REITs" that have over-leveraged are in dire situations and there's a case to short them. But conventional REITs have a pretty low bankruptcy risk, simply because they tend to only borrow up to about 60% of the value of their real estate, and their debt is well-covered by rental income. Even a 50% fall in real estate would not bankrupt them unless rental income also fell by a similar amount. GS is a pretty poor short IMO - they just got implicit solvency backing and cash from Buffett. Is this really one of the 5 or 6 weakest financials?? I would rather be long than short GS. You should never short stocks that have any kind of bullish argument going for it. There are enough stocks out there, especially in this environment, that have NO bull points, a raft of bear points, and whose balance sheets make them insolvent. To place even a single dollar into shorts outside this space is extremely questionable. Shorting companies with entrenched business positions, access to serious funding ability, and large corporate/government backing just doesn't seem to make any sense.
Even though KRE has been incredibly strong since mid July (especially when compared to BKX and XBD), some regional banks are noticeably weak today. I think people are realising that the FDIC is willing to move quickly to force resolutions for the weaker banks. Some candidates for further research: SOV (already on my list) KEY RF FITB FHN CNB CRBC is smaller but thankfully bigger than the likes of CORS / DSL / FED / BKUNA / VNBC