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Using the Forecaster Model In 2006, geography was destiny - and the metrics were misleading. It was a winning strategy to 'avoid' California and Oregon and 'buy' Texas and Oklahoma. The stocks that the analyst liked did not out-'total return' the stocks the analysts did not like. The low yielders failed to out-return the high yielders. Nor was buying the high P/E stocks or high Price/Book stocks a winning strategy. In a sector where the dividend payout ratio varies from 21% to 80%, it is not a surprise that the dividend discount model fails to be predictive. This sector sells at a fairly consistent P/E ratios despite wide variations in CAGRs. That is not logical. And the CAGRs also fail to be predictive of the stocks with high price to book ratios. That is not logical. I am not giving up hope that this sector can be forecasted. But my readers should be pessimestic about the predictions in the forecaster spreadsheet until it shows more signs of some success. This is the link to the 2006 stats for this sector, showing the projections based on 2006 begining of the year stats - along with the 2006 returns in the 'forecasting' spreadsheet which is the last of five spreadsheet posted - or roughly in the middle of the long page. CNB Hits 52-week Low on Downgrade AP 12-13 Shares of Colonial Bancgroup hit a 52-week low Thursday morning after a Morgan Keegan analyst downgraded the commercial bank to "Market Perform" from "Outperform," citing a deteriorating Florida real estate market. The Florida real estate has experienced a "startling" collapse in the last month, analyst Robert Patten said in a note to clients. "While we still consider Colonial as a conservative underwriter, it is in no way immune to what is an ongoing accelerated deterioration in the Florida real estate market," Patten said. After a talk with Colonial's management, Patten lowered his earnings estimates for Q4-07 to $0.39/share from $0.45/ share, and to $1.69/share from $1.75/share for 2007. Analysts polled by Thomson Financial expect earnings of $0.45/share for Q4-07 and $1.75 per share for 2007. Because of tight commercial paper funding, Colonial's management said it will move $1.5 billion in mortgage warehouse assets to its balance sheet, Patten said. "While this should result in lower fee income, we expect spread revenue to offset any impact to the bottom line," he said. Though the commercial real estate sector is strong, real estate construction borrowers are having a tough time, he said. Patten expects Colonial to triple its provisioning expenses to $15 million in Q4-07 due to high chargeoffs and nonperforming loans. Anoher Problem for CNB Various On 11-20 CNB released an update on its relationship with residential mortgage REIT Impact. CNB has a warehouse lending relationship originated from Impac Funding Corporation’s acquisition of Colonial's former customer, Pinnacle Financial Corporation. The lending arrangement provides for the financing of “A” paper that is agency-eligible and has been pre-sold to end investors. Current outstandings to Impac are below $25 million. CNB reported that the facility is performing as agreed and Impac is not in default with Colonial. Impact [IMH] said on 11-21 that Colonial Bank lends to Impac Funding, and the current commitment is about $27 million. Impac is not in default with Colonial Bank. On 12-20 IMH reported for Q3-07 a net loss of $1.2 billion, or $15.66/share, while its shares closed at $0.47/share on 12-26 [the date I am writing this. FYI: IHM started 2007 at $8.76/share, started 2006 at $9.41/share, and started 2005 at $22.67/share.] The net loss was primarily the result of a $789.4 million provision for loan losses as a result of deteriorating market conditions, higher delinquencies and higher severities. Bank Shares May Fall More AP 12-07 Shares of small- and midcap banks are likely to fall another 10% in the next six months, according to a report released Friday by Freedman, Billings, Ramsey analyst James Abbott. Abbott anticipates shares falling further because a "recession is likely" and deterioration of commercial credit will likely accelerate in the coming months. Delinquencies and charge-offs -- loans written off as not being repaid -- among commercial loans started rising in the first three quarters, and is likely to hasten as the economy slows, Abbott wrote in the note. Stock prices for smallcap banks -- banks with a market capitalization of less than $1 billion -- have already fallen, on average, 24% in 2007. Midcap banks -- banks with a market capitalization between $1 billion and $5 billion -- have declined 17%, Abbott said. There are a few banks that are likely to avoid the declines because of their niche markets, Abbott said. Banks such as UCBH Holdings, because of its geographic diversity, and First Community Bancorp, because of its above-average takeout possibility, could continue to outpace the sector, Abbott said. Abbott said the recent boost in overall bank stocks has largely been driven by investors covering short positions. Short selling is a technique some investors use to profit from falling stock prices, but if the the stock prices rise, they must purchase shares to limit losses. Bank stocks may continue to rise through December, before slipping, Abbott said. Only when delinquencies and charge-offs start to slow and housing inventories begin to level will small- and midcap bank stock prices stop declining, he said. Ratings & Dividend Changes On 12-11 Keefe Bruyette Downgraded BOH from Outperform to Market Perform, Downgraded CFR from Outperform to Market Perform and Downgraded EWBC from Outperform to Market Perform. On 12-13 Morgan Keegan Downgraded CNB from Outperform to Market Perform. On 12-14 Banc of America Initiated coverage of CNB at Sell. On 12-17 JP Morgan Initiated coverage of CNB at Neutral, initiated UBM at Neutral and initiated RF at Neutral. On 12-17 Citigroup Downgraded FHM from Buy to Hold. On 12-17 BMO Capital Markets Downgraded UB from Market Perform to Underperform. On 12-20 Keefe Bruyette Upgraded HBHC from Market Perform to Outperform. On 12-20 UMPQ declared a dividend of $0.19/share payable on January 15, 2008 to shareholders of record as of December 31, 2007. On 11-14 FNB declared a dividend of $0.24/share payable on December 15, 2007, to shareholders of record as of the close of business on December 1, 2007. On 11-13 HBHC declared a dividend of $0.24/share payable Dec. 17 to shareholders of record as of Dec. 5. On 11-28 WTNY declared a dividend of $.29/share payable on January 2, 2008 to shareholders of record as of December 14, 2007. On 11-14 FNB declared a dividend of $0.24 payable on December 15, 2007, to shareholders of record as of the close of business on December 1, 2007. On 11-13 HBHC declared a dividend of $0.24 payable December 17, 2007, to shareholders of record as of December 5, 2007. Home Page Factoids Previous Update |