Maryland Bank Capitalization Data: 6/30/09 FDIC Call Report Data

On Thursday, the FDIC released the 6/30/09 Call Reports for the banks that it supervises.Below you'll find capitalization data for for all banks headquartered in Maryland for this period. Note that Bradford Bank failed on Friday, 8/28/09, but I've included their numbers for reference.

The FDIC evaluates capitalization ratios as follows:

However, in light of the fact that many of the recently failed banks could be considered adequately capitalized, these standards are of increasingly questionable utility. Nevertheless, the relevant ratio definitions are provided below:
1. Bank equity capital- Total bank equity capital (includes preferred and common stock, surplus and undivided profits).
2. Equity capital to assets (eqv)- Total equity capital as a percent of total assets.
3. Texas Ratio (TR)- (Non-performing assets+REO)/(Equity-Intangibles-Goodwill+Loan Loss Reserves). Note: Not an FDIC ratio, but the only metric provided that accounts for non-performing assets.
4. Tier one (core) capital- Tier 1 (core) capital includes: common equity plus noncumulative perpetual preferred stock plus minority interests in consolidated subsidiaries less goodwill and other ineligible intangible assets. The amount of eligible intangibles (including mortgage servicing rights) included in core capital is limited in accordance with supervisory capital regulations.
5. Core capital (leverage) ratio (rbc1aaj)- Tier 1 (core) capital as a percent of average total assets minus ineligible intangibles.
6. Total risk-based capital ratio (rbcrwaj)- Total risk based capital as a percent of risk-weighted assets as defined by the appropriate federal regulator for prompt corrective action during that time period.
7. Tier 1 risk-based capital ratio (rbc1rwaj)- Tier 1 (core) capital as a percent of risk-weighted assets as defined by the appropriate federal regulator for prompt corrective action during that time period.

Several loan performance metrics were included, which aren't used by the FDIC to assess capital adequacy, to give a handle on the impact of loan defaults on future income and are defined as follows:
8. Noncurrent assets plus other real estate owned to assets (nperfv)- Noncurrent assets as a percent of total assets. Noncurrent assets are defined as assets that are past due 90 days or more plus assets placed in nonaccrual status plus other real estate owned (excluding direct and indirect investments in real estate).
9.Noncurrent loans to loans (nclnlsr)- Total noncurrent loans and leases, Loans and leases 90 days or more past due plus loans in nonaccrual status, as a percent of gross loans and leases.
10.Net charge-offs to loans (ntlnlsr)-Gross loan and lease financing receivable charge-offs, less gross recoveries, (annualized) as a percent of average total loans and lease financing receivables.

Maryland Bank Capitalization Data: 6/30/09 FDIC Call Report Data

They Must Have Missed Bernanke's Memo

You'd think that Federal Reserve Bank would lay off of layoffs while their Chairman is campaigning for the position of Savior of Everything. Not so much:



Source: North Carolina Dept. of Commerce WARN

Grandpa's Green Shoots

Google has added the ability to search and retrieve certain scanned newspaper articles to its news timeline search feature, although the selection of newspapers is currently rather limited. Below are some of the Green Shoots that your grandparents had to contend with.

1. St. Petersburg, FL: 10/07/1932, The Evening Independent


2. Spokane, WA: 3/12/1931, Spokane Chronicle:


3. St. Petersburg, FL: 01/13/31, The Evening Independent:


4. St. Petersburg, FL: 09/28/1934, The Evening Independent:


5. St. Petersburg, FL: 11/06/31: The Evening Independent

AIG Chicanery of 8/5/09

On Friday, August 7th, AIG reported a return to profitability for Q2 2009 with an EPS of $2.30, following six successive quarters of loss. In a Friday press release, AIG attributed the positive earnings to a combination of the revaluation of assets due to accounting rule changes and agreements with the Federal Bank of NY to exchange debt for preferred shares in business units (ALICO/AIA) that are earmarked for future sale.

Common shares of AIG closed at $27.14 on Friday, for a gain of $4.61 or 20.5%. Personally, I have my suspicions regarding the validity of AIG's claims, but I'm in no position to make an educated assessment, as I have not delved deeply into their financial statements and have no intention of doing so. I don't trade AIG and until recently I excluded major TARP recipients from my trading radar, as a matter of course. If investors want to take AIG at its word, it's their prerogative.

What I do have a serious problem with is the events of Wednesday, August 5. On Wednesday, AIG opened at $13.64 and rocketed to a close of $22, constituting a one day gain of 62%. The stock's volume was 134M shares compared to 7.9M on the previous day representing a 17x increase, as indicated in the following chart (red emphasis is mine):

On Monday, 8/3, it was reported that Robert Benmosche was elected as the new CEO, but the stock showed little response. On Wednesday, 8/5, there was no news regarding AIG, nor were there any SEC filings. In fact, the most informative story on 8/5 was by the WSJ, titled: Why Is AIG Stock Up 63% Today? , in which the WSJ provided all sorts of implausible excuses for the runup. At least the WSJ acknowledged the runup, most business media ignored AIG stocks's second largest daily move in the last 25 years.

While the prospect of a one day gain of 62% sounds lucrative, it's not. Relatively speaking, it's chump change compared to the returns provided by the derivatives markets (relative return rates are above each bar):

Thus, if at 9:15AM on 8/5/09 you were holding 100 AIG HW August 25 calls, your position would be worth $600. Seven hours later, that same position could have been closed for $25,400 for a return of 4,133% and with the judicious use of trailing stops the return could have been closer to day's high of $3.00. This is the equivalent of dunking on Shaquille O'Neal, checkmating Gary Kasparov, and sleeping with God's wife, all in the same day. In other words, it can't happen. Yet, judging by the heavy options volume on 8/5, it very much did. I'm curious as to who made those OTM long call trades early on 8/5 and why we haven't heard from those who took the other side.

At the risk of appearing hyperventilatory, I believe that Occam's razor is readily applicable: AIG's 62% price runup on 8/5 can be attributed to the dissemination and systematic exploitation of insider information. The 1596% increase in volume clearly indicates that this can only involve large, institutional investors and that they are sufficiently secure in the SEC's impotence and the public's ignorance to make such a brazen move. Some might ask: Where are the cops? There aren't any and this is precisely the point that I'm trying to make. If you are trading in these markets, be aware of how far the House is willing to go press its advantage it and plan accordingly.

Constellation Energy Group's New Math

Constellation Energy (CEG) reported its Q2 earnings on 7/30 in an 8-K statement that is provided below. They reported adjusted quarterly earnings of $1.08/share, which is 40% lower than its 2008 adjusted Q2 earnings of $1.82/share. Under normal circumstances, a 40% profit reduction would be cause for alarm, but in light of the prior year, it bolsters the company's claims that they are on the road to recovery.

Unless, of course, you insist on using accounting. If you're incapable of "outside the box" thinking and require the use of GAAP, then CEG's Q2 earnings were $0.04/share and constituted a 95% reduction in year-over-year profit.

On page 4 of the 8-K, Shattuck and the Enronettes justify this distorting earnings by 27 times ($1.08 vs $0.04) as follows:

We present adjusted EPS because we believe that it is appropriate for investors to consider results excluding these items in addition to our results in accordance with GAAP. We believe such a measure provides a picture of our results that is more comparable among periods, since it excludes the impact of items such as impairment losses, workforce reduction costs or gains and losses on the sale of assets, which may recur occasionally, but tend to be irregular as to timing, thereby distorting comparisons between periods. However, investors should note that this non-GAAP measure involves judgment by management (in particular, judgment as to what is classified as a special item to be excluded from adjusted earnings). This non-GAAP measure is also used to evaluate management’s performance and for compensation purposes.

(Emphasis is mine.)
In other words, the non-GAAP earnings omit non-recurring charges in order to provide a picture of "normal" operations. In Constellation's case, the exception is the rule and a quarter without extraordinary charges would be an anomaly. Clearly, these figures are used being used to justify senior management's looting of the treasury and to deceive unwary investors. .

On the other hand, perhaps I'm being narrow-minded with respect to Constellation's accounting practices. Since I have a current $128 Constellation electric bill in front of me, I can't think of a better opportunity to practice some of Shattuck's "outside the box" methodology. Thus, I see no reason not to submit $4.74, which is a 27 time reduction that represents, in the judgement of Shortbus management, a truer picture of my power consumption.

No positions in CEG.

CEG_8k_2Q09