Seems we should be discussing banks all the time these days

[Guest dealraker]

The deleveraging?

 

Bank of America?  Wells?  Citi?  Etc?  What are you guys thinking.  I've been laying out spreadsheets and running down provisions to something above but not rediculously above historical levels--- trying to come up with what these entities may earn if they don't have to raise more capital.  What's anyone else thinking?

[beerbaron]

My favorite place to fish Banks is Texas banks. Texas had a very nasty real estate crisys in 86-91 where the NOL went up to 7%. As a result they had much stricter lending practices then most of the country. Texas is also closely linked to commodity, which get less impacted by the continuing recession then other markets.

 

My favorite bank there is SBSI, which I was able to acquire around 18$... ridiculously cheap no matter how much deleveraging is expected. In my view it's a high quality asset at a Graham price. If you look at their investor presentations you can see the depth of their management, all of the senior executive have more then 25 years experience for SBSI. They are focused on organic growth which I like much better then acquisitions. Their 5Y Investment Performance is in the top 1% and has always been in the top 30% for as long as I can find this data in their presentations. Their interest spreads have narrowed in the last 2 quarters because they switched the maturities of their MBS, management says the spread should return to more normal levels in Q3. Ah and also, SBSI went trough the 80s real estate crisys without cutting the dividend which tells you a lot about the way these people's lending practices.

 

BeerBaron

 

Texas Real Estate Rules Overview

 

1.

Beginning with the cold hard figures, your entire debt, including the home equity loan cannot exceed 80% of the fair market value for your house. What does this mean? If you bought a home for $100,000 and you’ve paid $75,000 toward the mortgage with $25,000 left to go you could possibly borrow up to $55,000. If you’ve not paid more than 20% of the mortgage, you’re not eligible for a loan. A home at $100,000 with a mortgage of $75,000 still to pay eclipses the 80% fair market value, so mortgaging your home at this time is not permitted.

 

 

2.

Before acquiring a second home mortgage loan, the first one must be paid in full.

 

3.

Only one loan per year, thank you very much. Even if you pay it off well in advance, you cannot get another loan within the same calendar year by mortgaging your home.

 

4.

If you own property and pay taxes on it as “open space” or “agriculture” you cannot borrow against this property.

 

5.

Only licensed folks can make a home equity loan with two exceptions: a company that sells and provides financing or a relative within the second degree which means anyone who shares at least one quarter of your genes, like an aunt, uncle, grandparent, child, mother, father, etc.

 

6.

Lenders cannot exceed 3% of the principle loan when charging fees outside of interest.

 

7.

A lender cannot insist that additional assets be mortgaged along with the home.

 

8.

There are only three locations where a mortgage may be closed: the company’s office, an attorney’s office, or at the office of a title company.

 

9.

After applying for a mortgage loan, the borrower has twelve days until closing. During this time a notice of borrower’s rights will arrive.

 

10.

An itemized list of the following must be in the hands of the borrower at least one day before closing: Actual fees, points, interests, costs, additional charges.

 

11.

Once the loan is signed, the borrower is allowed three more days to ponder his decision. If he changes his mind and cancels the loan within the three day period, no penalties or charges may be inflicted on the borrower.

 

12.

If a borrower defaults on his loan the lender cannot execute a private foreclosure. All home mortgage foreclosures must be court ordered. Although the borrower may lose his home, the lender cannot sue for money.

[PlanMaestro]

How is your general impression of commercial real estate in Texas, specifically in the Houston area? I am analyzing a distressed bank there. My understanding is that prices rebounded sooner and stronger than other parts of the country.