I noted this morning that I sold my Enterprise Financial (EFSC) 5% perpetual yesterday afternoon–I got lucky as I sold right at or near the high of the day on a limit order. I recognized about a total of 15% gain which included a couple of dividends.
Why did I sell it? Honestly, while the small bankers have been reporting fairly good earnings, someone is holding the bag on some bad loans. Of course I don’t know who may be holding bad, undisclosed, loans it only makes sense that someone is kicking the can down the road–of course this is just my feeling–maybe I am all wet–but in the end the longer we go without a disclosed ‘disaster’ in the loan book the more skeptical I get. In the end when I begin to worry about these things I am better to simply book a nice profit and move on.
I am sure we have some bankers–or ex-bankers on the site, but we all know that marginal loans can be renegotiated etc–even when there is little to no hope that they will ever be good loans. It is hard to imagine that many commercial real estate loans can be serviced when interest rates move as they moved in the last 2 years. We’ll just have to wait and see if my ‘gut feel’ comes to fruition.
Here’s a link to a Morgan Stanley Research graph showing CRE Debt Maturities by Lender Type from 2016 – 2027. Interestingly it seems government sponsored enterprises are holding an increasing amount of the commercial debt going forward. 🤔
https://assets.zerohedge.com/s3fs-public/styles/inline_image_mobile/public/inline-images/CRE%20debt%20maturities_0.jpg?itok=IlMee-yM
Citadel West has a chart that’s part of ZH write up on a coming apocalypse in CRE.
Well worth the read………….
https://www.zerohedge.com/markets/cantor-fitzgerald-ceo-says-prepare-very-ugly-two-years-cre-turmoil
BWBBP is dropping today; is this the start of a trend ; if so I better sell now;
i’m in at 16.43;
BWBBP always had a large spread. I see approx 8000 shares traded. Someone wanting to off load some thousands of shares in a single day will definitely hammer this down. I cannot imagine the bid is very deep. I would not worry too much myself. People are probably seeing the drop and joining in out of fear. I do not see any news to warrant the sell off except earnings comes out tomorrow right? And if earnings are good/OK… up we go again.
Wow, my AUB-A has really popped. I just added 200 more yesterday morning at $21.17 and it’s already in the $22.70s now.
I forget how many months ago I was going over Tim’s spreadsheet and I saw AUB-A way down in the dumps. Sub 20. It was after a lot of the bank chaos had settled a bit. I was like oh.. ~8.7% yield if I buy at 19.62. What could possibly go wrong? Lol.
So I picked up some shares. There were so many options in the recent past it was hard to make a decision for the higher risk bucket so I just spread the risk around. Small bites of many different positions. Who knew it would perform so well in such a short amount of time? I did not even catch the bottom. BWBBP was another example back then. Just these smaller banks sitting out there caught in the storm of the weaker ones.
I only have 700 shares myself. Never was a big bank guy. Sitting in a lodge resting at Heavenly Ski Resort. A bit out of shape. Tempted to sell from here, ha.
Grid, As the years ticked on that extra elevation turned me into a slug, especially off the 11K+ peaks.
Appreciate your disclosures which are well reasoned with your risk tolerance and goals, Tim. My only bank pfd is the STT-D now which I expect them to call on the div date and if not am fine with it, was more of a cash parking thing for a little extra yield. The Bridgewater pfd idea was good and worked for me. I try to disclose what I am doing as do most as we help navigate managing our own funds.
I remember 2008-9 when post ‘stabilization’ (i.e. massive rounds of QE and 0 rates) the biggest concern was commercial r/e refi’s. So to a degree, low rates and plenty of money fixed that concern. Here we are again. Doubt the FED will come in this time given inflation redo concerns, so I agree wariness is warranted. Who knows though, anymore!! omg! Best always, Tim. Bea
Anyone have an opinion on FRMEP 7.5% preferred issue? I own it at current levels and can’t decide whether to sell it or not. Thanks.
I own FRMEP . I had been overweight it as I added when the shit hit the fan on all banks last year and I just recently lightened up and am back to a full position.
This preferred is an old Level One Bancorp issue that FRMEP acquired via that acquisition. My suspicion is given FRMEP has no other preferred out there, and given the 7.5% rate, that they will call this as soon as they can in Aug 25
Randy,
I was interested in FRMEP on and off for a while now. I had lowball bids on it and only managed to get 33 shares over that time. I never convinced myself to start buying aggressively to actually gather up enough shares to make a true position out of it. The whole concept behind it was back when it was Level One Bancorp and the thinking of them getting bought out would create a stronger bank. But along came the whole bank melt down/higher rates and all of a sudden there was so many ideas available for purchase and I never followed through. Now that the preferred has recovered in price I also am not sure what to do with my tiny position.
I guess if I was you I would ask myself how big is the position, what would you do with the cash if you sold that could generate what I assume is 7-8% or so on your cost, and can you tolerate the risk of owning the bank. If it was just a few hundred shares I would stick with it myself.
If a lot of these big office/commercial properties that are defaulting, like Blackstone in NYC, are packaged up as stand alone CMBS… why should we be so concerned about many of them when the banks do not own the CMBS? They are the ones who packaged them up and sold them right? Now a bank might have a wealth mgmt arm that owns some but that is not the bank’s money right?
I realize my understanding is quite simplistic but is a lot of the current doom and gloom news giving us a warped sense of who really is left holding the bag?
With that said hold to maturity and for sale notes/bonds/etc.. held by banks can be troublesome but that is a totally different ball game then the commercial property melt down. Also current loans on the books can possibly go bad but are we mixing up all the issues together and who will take the loss?
fc–when I can’t answer questions like you ask it makes me nervous. Banks and insurance company financials have become more and more difficult for me to analyze the older I get—a plain old industrial firm (i.e. P&G) I can slice and dice balance sheets and income statements with the best of them.
fc:
It is not a “commercial property” melt down – it is a potential melt down in the office sector (and maybe a bit in the apartment sector). But melt down is way too strong a phrase.
When it comes to maturing loans, you will likely see many banks “extending and pretending” over the next two years, with the hopes that the Fed will once again save the day with lower interest rates across the spectrum.
We’ll see how it turns out. There has been a huge bounce back in the stock prices of nearly all the office REITs from their lows in March 2023, so right now the markets are saying this won’t be nearly as bad as the doom and gloomers are predicting.