Small Bank Newsletter

June 08

 

6/17/08

Please use this advice for investing in bank stocks in these crazy times:

1. Never invest in any bank less than 25 years old.
2. Make sure the bank’s asset quality is nearly perfect.
3. Make sure the bank's markets are not in Bubbleland (i.e., California, Florida, Nevada and Arizona). (There are a few exceptions to this. For example, UB has great asset quality and can be bought in size under $40 and all in at $32.)
4. Banks like AROW, COBH and FLIC always do the right thing and have held strong the past few weeks during the worst bloodbath for banks in 75 years. (Even STI, which was once rated as a top-tier bank, went from $57 to $32 last week. We think at $32, it is a buy period, and we are fully in. But the loss in market CAP and the speed in which it happens in this market is why we have been saying: “Unless you have $5 million plus in liquid assets, just stay out of this crazy market.”)
5. Out-of-the-money call options, 6 -12 months out, could be the way to make a fortune over the next year with limited risk. (We are buying STI 40 calls for next year, TCB 12.5 calls for next year, WTNY 22.5, calls for next year, UB 35 calls for next year, FMER 20 calls for next year and SBCF 7.5 and 10 calls for next year.)
To reiterate, these are times when you can become rich or poor very fast. If you buy any bank less than 25 years old or not listed above, you face the latter. However, if you have 5-15 years and want less risk, it’s best to just buy the stocks mentioned above. Finally, after what happened to STI this week (dropping 25 points in a few weeks), anything could be possible in today's market. Options seem to have less risk.

Update 6/17/2008:

The market continues to be more dangerous than ever, with KEY, DSL, CAPB, FITB, STBK and WTNY all blowing this month, plus hundreds of others, PFB sold for $1.35 yikes!
We think this is now finally the opportunity of a lifetime in STBK at $3.25 or less, CAPB $2.50 or less, WTNY at $19.00 or less.
We have covered both DSL and KEY "shorts" (to soon of course), and are sitting on the sidelines with these issues for now.
FITB also just stay away, not sure what will happen.
TCB we have been stopped out of, but would look again at $12.00
STBK and WTNY we are fully in after this week.
We have covered RBCAA and BNS “shorts” not working this week.
SBCF under $8.55, add now and options.
FFFD load up under $23.00, very safe, not in flood areas, solid bank, under $18.00 make it a top holding, doubt it gets there, but in this market who knows.
PRK back in under $55.00 only.
COBH hold till 6/30/2008 if no deal sell over $26.50 only.
WFSL under $17.00 back in fully.
Douglas Hughes
6/17/2008
Special update

 

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