davidt1… I don’t much like stocks, in general, right now. And I certainly don’t like CFC very much. But, in full disclosure, even if stocks fell 30% I probably wouldn’t pay much attention (although my interest might get piqued a little bit) as my business is private equity. I prefer to take control positions (co-investing with others) in small, illiquid, private ventures. The risk-adjusted returns on publicly-traded stocks, in aggregate, are not very attractive to me, particularly when you consider that the “control” element is largely absent.
capeman… I confess that I really don’t understand what BAC is doing with this CFC preferred investment. (Or maybe I do understand but I just think they’re nuts.) If they think the company’s going down the tubes and, as a result, are hedging their position, then why bother with the investment at all? There are a lot easier ways to make 7.5% in the lending markets – this deal was a lot of brain damage. Hell, they could make $2 billion worth of high-quality jumbo SFR loans these days and get that yield (or more). No, I think they structured this investment in the manner they did because I think they truly believe that CFC is going to survive this and its stock is going higher (again, I think they’re wrong, but that’s neither here nor there). It’s the only view that makes any sense. If you review the history of preferred shareholders in failed depositories, one thing stands out: they generally lose 100% of their investment. Unless an institution is re-capped, generally everyone – holders of common, preferred, and debt – get completely wiped out and even a few depositors don’t get made whole via the FDIC (due to deposits exceeding the FDIC’s deposit insurance limits). (FYI, where depository “liquidations” are concerned, I can count on one hand the number that have left anything for common or preferred shareholders.) BAC knows this – they’re not that stupid. They must know that if CFC hands the keys to the regulators, their investment is likely to be worthless as preferred or post-conversion common shareholders. Consequently I have to believe that BAC actually thinks CFC’s equity is going to be worth something greater in the future than it is today. Otherwise, again, why bother? I think it’s a bad bet. But, hey, that’s what makes a market. And, anyhow, it could be worse… it could be MY money.