I worry–sometimes way too much about things that never come to pass–in this case the regional and community bankers. I have mentioned this numerous times – in spite of decent earnings from most of the bankers there are ‘surprises’ waiting out there. I guess the New York Community Bank (NYCB) situation was one of them–but there are more of them to come. This is one of those situations that one can’t find out where the issues are, but know they are out there. Anyway I decided to exit my last little bits of banker securities–then I can wait and see if something develops that hammers banker issues lower creating true bargains.
So I sold the last tranche of my Bridgewater Bancshares 5.875% preferred (BWBBP) at $ 19.10 – about a 20% gain which includes a dividend or two. I also sold small positions in Customers Bancorp–the 6% fixed to floating rate preferred issue (CUBI-F) and the 5.375% baby bond (CUBB). The Customers Bancorp holdings were sold at essentially a breakeven–I collected the coupon along the way–no capital gains.
So once again today we have little economic news to drive markets, although I always like to see 1st time unemployment claims. We also have Wholesale Inventories released–not likely to move markets. The 10 year treasury is still trading in the 4.14% area where it will likely remain until next week when we get market moving data–the consumer price index (CPI) and the producer price index (PPI). Whether rates get shoved above 4.2% or below 3.8% no one knows–maybe rates stay in this range out until May which would suit me fine.
$25/share preferreds and baby bonds continue with little movement—up a little and down a little. We have grown accustomed to daily capital gains–those days are gone until we see Fed Funds rate cuts and then only if long term rates follow short rates lower.
Looks like a quiet equity day with futures +/- .1%. Let’s get to going and see if markets move more than I think they will.
Amazing almost all small and midsize banks were up today. Still seems like too much enthusiasm in the market.
We keep seeing new market highs, when do we get a 3% or 5% pullback?
I have moved out of some small banks, but my largest single large bank investment is U.S. Bancorp VAR PFD Callable USB/PRA (902973866) and I am very nervous about USB. But they might even call this with the high coupon? Seems they’d want to refi it. Anyone look into this one and form an opinion? I might cut half, take the gain and get that in the bank and look for a valid replacement yield – variable. Any ideas?
Tizod, if you think USB-A will be called, why sell? It’s at $840 now, and the par is $1000. A call will give you a huge cap gain.
I also have USB-A, but it is not quite as small as the likes of NYCB, OZK, although it is not in the league of C, BAC, JPM, WFC, etc
What are the reasons behind your nervousness about USB?
> But they might even call this with the high coupon?
I very much doubt that. It’s currently paying, what, something like 6.4% on its liquidation preference? And that dividend seems more likely to go down than up looking forward.
(I bought some last year around $720 and am holding)
Isn’t USB-A’s next coupon payment going to be around 6.59%? SOFR on 1/12/24 was about 5.31 +.26 + 1.02 = 6.59%. Last trade was 832.66 so it’s trading at a current yield of approx 7.90, right%? Compare that to USB’s $25 liquidation current floater USB-H. H would have been calculated on the same day but will only be +.60 or 6.17% current coupon. Last trade = 20.86 so H’s current yield is approx 7.39%, right? Now compare to their current coupon 5.50% perpetual, USB-P with last trade at 24.32.. That puts USB-P’s current yield at 5.65%.. That means to me that you’re getting paid an additional 225 basis points of current yield to hold the F/F 1k issue, A, vs locking in the current yield available right now on plain vanilla USB IG preferred… So my question is, how much do you think its future floating rate is going to drop? IMHO, you’re getting paid plenty plenty to compensate for what I think would be the maximum amount of decline that could happen in interest rates this year….. A and H will not appreciate the way P should if rates come down, but imho, the built in cushion in current yield available will also cushion any depreciation potential on the floaters even if current income comes down in coming quarters…..
Of course, if you’re concerned about USB as a bank, then none of this matters and it’s time for me to quote Emily Litella and say, “never mind.” https://www.youtube.com/watch?v=OjYoNL4g5Vg&ab_channel=DarylHuff
I own USB-A as well at 754.30 average
2WR,
I largely agree. (The yield I mentioned was wrong, I was going off of memory and only cared about being in the right ballpark.)
It seems the $1,000 public preferreds tend to trade at a discount to comparable shares; WFC-L and BAC-L are cheaper than they “should” be too.
folks
Thanks, I agree with all. My issue is if USB gets walloped soon due to CRE etc. and then it crashes before a call. Would they call? 2WR I think you played it out right. Guess I can wait this out. No one harped on risks of USB viability or overall crash. Banks do scare me right now, and got outta smaller ones. I have alot in USB-A (too much) so I wanted to throw it out there. Thanks all.
In between PBNC TRU and USB you are probably OK. Yes they might get rocked in a crisis but they are most likely not going anywhere. So you can sleep well at night with them…or have them on your buy lists……
Well, there was a pretty thorough (but unpersuasive IMO) USB short thesis published last April.
http://www.holdcoam.com/wp-content/uploads/Presentation.pdf
I’m comfortable with the risks–and of course the numbers used in the slide deck above are now many months out of date–but as the old saying goes, maybe “sell to the sleeping point” if you’re nervous.
How do you define ‘small’ Tim?
I’m having a hard time believing the Fed would merge Signature Bank into NYCB just to let NYCB fail a year later. But this guest on the Odd Lots podcast makes the case that NYCB has more skeletons in the closet based on its exposure to rent-stabilized apartment buildings in NYC–this beyond office exposure.
https://www.bloomberg.com/news/articles/2024-02-08/ny-community-bancorp-s-nycb-problems-in-nyc-s-rent-stabilized-housing-market?embedded-checkout=true
Its not just NYCB which has loan exposure to crumbling rent controlled properties, but the FDIC itself which is still holding billions of dollars of loans on rent controlled property from the Signature bank failure. Part of the deal it made with NYCB specifically excluded this (some say toxic) debt and so it remains with FDIC. They’ve only sold a small portion of it since then and it was for 53 cents on the dollar.
Why the FDIC has chosen to hold onto these loans is a real question mark since their mandate would seem to be to sell them off as quickly as possible. If NYCB fails I’m not sure FDIC could absorb another tranche of rent controlled debt, but that may be where this train is headed.
Just to be clear rent controlled is approx 16K apartments. That is the old school way of doing things and is probably a Seinfeld episode. Where your mom lives there and you can take it over if you live with her for two years before her death and super cheap.
Rent stabilization is the bigger culprit where the raises do not cover the costs in some fashion over time for the landlords. Approx 1 million apartments.
Most rent controlled apartments are probably longed paid off and I cannot imagine too many loans are out there on them. Rent stabilization on the other hand.. if the owner defaults and the loan has a reasonable LTV the bank could sell it and the new owner could reset where things are and probably be more profitable.
As for crumbling… that is a word I cannot really comment on. Why would a bank loan money for a building worth X and borrow out X plus more? NYCB knows the NY market and how things work.
Crumbling refers to the condition of these rent “stabilized” buildings, which are falling apart, dilapidated, have deferred maintenance…choose your poison as to the condition of these buildings. All of which is an anthema to the debt laden owners as well as prospective buyers of the properties…even if the FDIC were inclined to sell them, which apparently they aren’t.
-btw I read the Feds just arrested 70 current and former members of the NYC Housing Authority for bribery and kickbacks on 100s of public housing contracts. More on that and the condition of NYC housing stock in general in this article. Caveat Emptor…
https://www.msn.com/en-us/money/other/what-the-massive-nycha-corruption-sting-really-reveals/ar-BB1hZItH
The going rate for loan purchases from FDIC…….. is 20-25 cents…in the best of times!
What’s wild is that the FDIC turned down a higher offer of ~80 cents on the dollar for the portion of Signature Banks rent-regulated loan portfolio it was selling in favor of a lower bid from the less experienced (and some say shady) nonprofit Community Development Corporation. As a famous bard once wrote…”there’s something rotten in Denmark”.
I don’t have any small banks. Mine are all in the top 30 I think. I’m still in them. If they all went to zero I wouldn’t be happy but it wouldn’t kill me. Overall my exposure is only like 10% to preferreds and some are closed-end preferreds. There’s a very good article on Barrons.com about NYCB. I’m down 3.5% on the NYCB-A and my others have 20%-30% gains depending on what time it is.
But I am having flashbacks. During the 2008 debacle I was buying preferreds and flipping them the same or next day for 10% or better gains. I stopped and decided that was crazy. I was like day-trading preferreds. I sold out and put the money into SH and that worked out all too well. I’m kind of feeling that way again but I haven’t moved yet.
But I feel a disturbance in the force…….
When fear abounds and folks are selling opportunities exist. It’s gambling time. Both risks and awards increase. I’ve sold some in the last few weeks but couldn’t resist gambling and holding some. Plenty of negative articles again today.
There are a few I feel comfortable with knowing certain things. If the market causes a fall I might be interested. Example TCBK holds no uninsured deposits. If it gets back to the 28.00 range it would be a good hold for a future buyout. ASB decided to sell some securities last quarter and took a loss. Being proactive, going forward they “may” benefit.
I just limit myself when sizing positions. If I think it is a very stable and reliable choice I allow myself to buy 600-1800 shares. If I feel it belongs in my high risk bucket the amount I buy rarely goes over 500. Being diversified means a few positions can blow up over the years and the overall portfolio takes a small dent but nothing serious.
But with that said I would not want a portfolio of all high yielding turkeys. I have some really conservative stuff mixed in. This allows me to take some risk and just hold on until the panic passes. I mean if you bought BWBBP around 15 per share that would yield almost 10% on what you paid. Isn’t that something you want to keep long term? I would even if it is just 400 shares. That small slice of money is really working hard for you.
Fc, a differing thought. When you mention the $15 share yielding you 10%, that is really the old “yield on cost” philosophy. Although I have already personally jettisoned BWBBP many weeks ago, I will continue it with the example. See to me its not working “10% hard for you”, its now working “7.87% hard for you”, because its mark to market price is $18.75. This is the price its yielding on now.
Otherwise people tend to have their cake and eat it too concerning cost basis and current portfolio value. If ones preferreds jump say 20% in value, one cant accept the 20% increase in portfolio value all while still using an older dated lower purchase price for ones portfolio yield.
Now keep in mind this doesnt mean I am suggesting buy, hold, or sell in anyway. As other individual situational factors come into play there.
I had a feeling someone would state exactly what you just did as I typed that out and I agree with your line of thinking. Yield on cost is just a fun happy thought. With that said if you ignore it’s current price and do not bother look at it often the money is indeed making approx 10% per year.
Maybe different mentalities go into this. You definitely buy and sell a whole lot more then I do. That is a fact. Since you are such an active trader you look at things like you stated. I on the other hand would be happy to just keep getting 10% until they call it in a perfect world. The stock price goes up.. it goes down.. just pay me until you decide to call it.
After all you have to hold “something” to generate income. I do not sit there and constantly watch the current market price to my current yield on that market price. If I was more active sure.. but I guess I am not.
FC, it gives me something to do. I like to multi task like today. Trading on phone while listening to American Top 40 from Dec. 1980 in my ear buds while completing my 90 minute 5 mile walk. Didn’t golf today so this is the punishment for sitting today out. Makes the walk go faster.
As far as what you do that is perfectly fine and I certainly am not going to disrespect buy and hold. I am just more worked up on yield on cost from an idiot on SA that tried to use it to promote his money grab service by strictly using that fake yield to ensnare village idiots thinking that was current yield. Cost basis is another one that gets my goad. Someone will say X is say $10 but their cost basis is $8. That doesn’t mean anything without context. If it was bought 20 years ago that was a horrible purchase, lol. Off the useless soapbox now, ha.
The term I like to use is replacement yield. YOC is a fun look back, but the question is what is the comparative yield of something if you replace it, including the amount of gain/loss you need to take to trade it today, versus the new investment plus it’s current yield. I think all of us vetern traders do this, but Grid is right when people push current yield or YOC without the context. If someone publishes replacement yield, well we know where they are at.
Tizod, good point. This is basically where I do my grinding away at. Purchase price becomes irrelevant to me after purchase. I look at the current price and yield or issue in relation to a sister or step sister issue. If another sister yields more the original gets sold. Some caveats will be in play though, an example such as price in relation to par. I would much rather buy an IG ute preferred at say $20 with a 6% yield, than one yielding 6.25% and priced already at “par” $25.
Grid, people here have to remember what you said a couple days ago. You said you and your bf have reached escape volicity on your accounts and you have a pension. So you said your number one priority is to protect this. I assume and think you said most is in CD’s treasuries, etc with probably a bit in utes. I think what you do with your trades is like your sports betting. You have a certain pot you play with and as it grows you sweep the winnings out of pot into the secure holdings.
I can do a little like that, mainly been with bonds and utes. But my holdings are not enough to cover what income is needed. Therefore like some here I have had to balance between the income and taking a risk of capital loss on any unrealized gains.
This is not what I want to do babysitting my investments taking the risks and constantly doing trades.
I admire what you have accomplished and hopefully a few more of us can get through the minefields to do the same.
For now I am a prisoner of the game.
Charles, BF? Whatchoo talken about Willis? I gotta GF…Never ever have had a BF…not that there is anything wrong with that of course. (Plagiarism with the above lines courtesy of Diff’rent Strokes and Seinfeld). ….Anywhose…
Yes, Im 50% short duration sub 5 years, debt, CDs, TIPs, IBonds, and treasuries.
About 10% mid duration debt ~10 years or so. And the rest is basically ute perpetuals with FGN, and now CTA-B thrown back in the mix again for now.
But…Up until Fed announcement a couple years ago, I was basically 100% perpetuals. Then when Fed pivoted so did I. I didnt wait around for the carnage and made some hay off it last year.
So even though my investing style is and should be unique to my needs and mental sanity, I will have no problem going more longer if/when situation presents itself. Nobody can consistently predict near term movements of the long end of yield curve, certainly not me. But up until ‘22 it didnt exactly take a genius to easily stay long. But now, going forward, I really dont have a clue. Ya short end has petered out and likely to recede, but many dont understand that may not impact long end at all. It actually under right circumstances make long end yields rise. So for now I am just middle of the road driving. Half in safe shorter term duration assets and the other half largely bought at 20 year lows.
I would like to hop more back in the game with you, but clipping 5% safe allows one to be patient. And sitting in 5% poses a lot less “opportunity cost” than it did 5 years ago. Where if you sit on sideline you got sub 1%. Personally even though I would benefit from long end dropping, I will just be pleased if Fed keeps the Funds rate over 5%. I can sit and wait for a disaster “Pig and Alpha” are dreaming of…And maybe hop in the mix and join. It sure worked great during Covid 2020 rout .
But I totally agree everyone’s situation is different. The major key is one should align their goals and risk tolerances to meet their investing and psychological needs.
There’s always another “event” and plenty else to do in the interim. 😎
Charles, I was thinking while I am on treadmill now walking at the gym. There is another component to this that doesnt get mentioned much here. And that is retirement income needed to maintain ones lifestyle they want to live. And that can be as far ranging as ones personal investing style is. Yes, I could just put all my money in coffee can and it wouldnt change my lifestyle one bit, as my pension more than covers my lifestyle. But I am going to need some to help her though!
Individual lifetsyles here are probably all over the map more than investing styles are. My life is simple and routine. I golf 3-4 days a week, bet on sports, work out, eat out 3 days a week and drink a little out on the side. Throw in maybe three 5-6 day vacations a year, which we always get damn good deals before we buy. I would rather do one a year, but GF is the problem there. And my house “foot print” is small and I have no desire to buy a McMansion either. And that is good otherwise may have to go back to work. And I am not doing that for a house of empty rooms. I also have basically zero health insurance cost until Medicare, being my GF’s company covers my gold plated premiums and I am on no meds. That is a big savings some may not be so fortunate to have. I found out I could go get my teeth cleaned every day and the insurance would pay for it. But that doesnt sound like much fun to me!
LoL Grid lots of different names for it, GF, BF , one and only, ball and oops that’s shovinist. No after almost 34 years she’s my BF and my honey bunny 🐇
I enjoy All you share with us.
Thanks Grid
Wait a minute here, Grid…. Do you mean to tell me you can think, write and use a treadmill all at the same time????? You’re a true multi-tasker – ha… That’s better than trading illiquids from the 16th green…. I can hardly think and write at the same time personally… BTW, am I the only one who thinks a treadmill does half the work for you vs actually walking? I do treadmill in the winter occasionally but usually do laps in my living room these days rather than outdoor walking and treadmill’s easier, even when set at an incline.. Don’t worry, though, it’s a big living room with a brick floor – I’m not wearing a circular path in carpet.. . about 60 laps per mile……
Smart move.
Sold 75% of my position in KEY 6.875% 3/17/29 and 7.75% 7/15/29 for gains.
Nothing worse than watching gains disappear.
I’d rather that it goes up without me than down with me.
There are currently 4844 banks in the US. Here are the number of failures per year going back to pre-GFC:
2023 – 5
2022 – 0
2021 – 0
2020 – 4
2019 – 4
2018 – 0
2017 – 8
2016 – 5
2015 – 8
2014 – 18
2013 – 24
2012 – 51
2011 – 92
2010 – 157
2009 – 140
2008 – 25
2007 – 3
2006 – 0
Highly questionable as to whether the US really needs nearly 5000 banks. Consolidation is coming to your neighborhood.
Klaus Schwab wholeheartedly agrees with you.
Elimination of smaller banks is definitely the game plan here. It makes a centralized digital currency easier to manage.
Right now I think Tim made the right move getting out of the small banks.
Well, in 1984 there were over 14,000 banks. I’d say the consolidation has already occurred.
Investing in these banks is like hiking a 14ker.
Sometimes, it’s difficult to breathe! 😉
If you are up in price above what the coupon pays per year….. Then in this market clipping that and raising cash can’t hurt you. And if you really like the credit, you’ll probably get another chance to revisit at lower price.
If NYCB folds there will be price erosion in most all pfds
Makes sense to me. Good risk management is avoiding donuts.
Banks can have a “black box” element. And when 💩 hits the fan, black box is nerve wracking.
I try to only hold (and increase) stressed positions that I know intimately. Only way I can get a half decent sleep.