Thursday, August 28, 2008

BankUnited Financial (BKUNA) - Friday Night Special?

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In my vision of the coming waves of bank failures over the coming 18+ months, we will have a lot to keep track of, so let's just focus on the bigger names - since we can't be bothered with the mom and pop failures. [FDIC "Troubled Bank" List] BankUnited Financial (BKUNA) is apparently the largest bank in Florida and from multiple reports yesterday it looks like this could be one of the FDIC's Friday night specials - you know, close business Friday night - be taken over by the FDIC and open Monday as 'Federal BankUnited Financial'. It's just a matter of what Friday night. This is a good sized bank with $14 billion in assets.
  • BankUnited FinancialBKUNA shares slumped more than 16% Wednesday after at least one analyst downgraded the troubled bank on concerns about liquidity and capital adequacy.
  • David Bishop, an analyst at Stifel Nicolaus, cut his rating to sell from hold on the Coral Gables, Fla.-based company. The downgrade comes just two days after BankUnited disclosed in its quarterly filing with the Securities and Exchange Commission that it is under regulatory agreement with the Office of Thrift Supervision.
  • Regulators are telling the bank, which holds $14 billion in assets, to raise at least $400 million in capital or submit an alternative capital plan.
  • BankUnited has seen its shares tumble more than 90% since its 52-week-high of $19.69 last September, as the housing crisis took a toll on the once hot Florida real estate market. BankUnited has large exposure to troubling residential mortgages, such as option adjustable-rate mortgages, in which borrowers are given a choice in the payment they make. The firm's 85 branches are located throughout the Sunshine State.
  • Bishop notes that BankUnited's nonperforming assets have reached a startling 7.73% of total assets (that's a problem)
The reason we want to keep an eye on the big ones is to watch how quickly the FDIC runs out of money and then they too can be "bailed out". If they don't raise rates on the remaining banks quick enough, you know where they will turn to, right? You should know the answer my now - the place we're all going now - the printing presses. But of course this will just be a temporary issue until the banks pay them back. I just have to ask you - when this last happened in the 1990s it was at the TAIL end of the financial crisis (S&L) - there were thousands of banks lost. What does it say to you that we have so underfunded the FDIC that they are already making preparations for the same tactic and we're only on bank 9? All arms of the government are part of the subprime culture - save for a rainy day? Not when you keep pushing off the rainy day forever with easy money.

I continue to mock this "strong dollar" move on grounds of "the rest of the world is so far behind us so all the bad news is already baked in the U.S. and on a comparative basis it isn't so bad here after all".
  • Federal Deposit Insurance Corp. Chairman Sheila Bair said Tuesday her agency might have to borrow money from the Treasury Department to see it through an expected wave of bank failures. Ms. Bair said the borrowing could be needed to cover short-term cash-flow pressures caused by reimbursing depositors immediately after the failure of a bank. The borrowed money would be repaid once the assets of that failed bank are sold. (uhh, Ms. Bair - we're broke - where are we going to get this money from?? "Hello China. This is Hank... yep that Hank. Yes... again. Umm, look I have the printing presses working 24/7 but...yes... I know ... I DID order more printing presses and they are up and running... but... we still need your help. Yes, beggers can't be choosers... yes... it's just for a while until we liquidate these banks assets and then we can pay you back. Yes I promise. What? I sound like a desperate crack addict at this point? No, I don't - I resemble that... but PLEASE I BEG YOU FOR WHAT YOU HAVE AND I NEED!!! Ok? Ok! Thanks! You're the best! Call you back in a few weeks!! Err, I mean, I am sure this is the last time we'll need to talk on this subject! And we'll take care of our house from here and this will never happen again! Or until at least January 2009 when I am outta here and someone else can deal with this mess! Good day Sir!")
  • The last time the FDIC borrowed funds from Treasury came at the tail end of the savings-and-loan crisis in the early 1990s after thousands of banks were shuttered. That the agency is considering the option again, after the collapse of just nine banks this year, illustrates the concern among Washington regulators about the weakness of the U.S. banking system in the wake of the credit crisis.
  • She said she did not expect the FDIC to take the more dramatic step of tapping a separate $30 billion credit line with Treasury, which has never been used. (who wants to take odds that this UNPRECDENTED step won't be used? I mean everything we've seen the last year has been labeled with words "first time ever" and "never seen" and "historic" and "unprecedented")
  • The fund's balance fell in the second quarter to $45.2 billion. That is just 1.01% of all insured deposits, low by historical standards.
  • The biggest dent came from the July 11 failure of IndyMac Bank, which the agency now says is expected to cost $8.9 billion. Previously it had said losses would be between $4 billion to $8 billion. (budget for 1 cost and come in at a much higher cost? Say 1 thing to the public's face when you know it not to be true in private? In the government? Never! Heresay!)
Conclusion: Go long the US dollar, because clearly the United States of Subprime's future is much brighter than those saps overseas. Also go long futures contracts on U.S. phone calls originating in a certain zip code in Washington D.C. to Middle East and Chinese domeciles. I don't know how, but I'm sure the quant hedge funds can find a way.

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