“Manhattan’s Secret 8.2% Savings Account”

By Travis Johnson, Stock Gumshoe, February 28, 2011

Today’s tease hits home for most savers — the return you get for your money in the bank stinks, and most savings accounts and similarly “safe” savings vehicles yield don’t have interest yields that are even high enough to keep up with inflation.

So the promise of a “savings account” that yields 8.2% is obviously very attractive — here’s how Ian Wyatt spins this tale in the new ad for his High Yield Wealth newsletter:

“Four Miles from the crooks on Wall Street, one unheard-of specialized New York bank is breaking all the rules and paying its members an astounding 8.2% annually…

“And you’ll be shocked to see which banks and mutual funds are on the list of account holders – and who’s keeping this bank secret from regular investors…”

And the letter goes on, including a few more specific clues to get the Gumshoe going:

“Most bank accounts yield a laughable 1.25% – at most.

“But one small, unheard-of specialty bank is offering an 8.2% savings account to its members – full stop.

“You haven’t heard about this bank anywhere else because they don’t advertise their rates on any website. They don’t have a single branch outside of their Manhattan offices.

They’re completely no frills.

“No free pens or calendars. No mints in a bowl by the teller. No fancy safe-doors, bulletproof glass, ATMs, security guards, red-velvet ropes or polished marble floors.

“Nothing but a small office in the “old-money section” of Midtown Manhattan on Park Avenue, near the Waldorf, and an 8.2% annual yield.

“It might sound old fashioned, but this bank has one simple, straightforward: borrow low and lend high.”

So … it still sounds like a bank, right? And the little images they throw in there of calendars and ATMs make you picture traditional banks, for sure, and probably presume that level of safety. And to tell you the truth, that’s probably enough to toss into the ol’ Thinkolator and adjust the dial up to “chew” to root out our answer … but Wyatt is good enough to provide a few other clues along the way, so let’s do him the honor of lookin’ at ’em.

“… they currently have a 152% profit margin.

“That means, for every $10 they lend out, they get over $25 back.”

That doesn’t sound like Park Avenue near the Waldorf, that sounds like it’s a little farther South … maybe Little Italy, or across the river in Jersey. And it sounds like cement boots, to be honest. Still, there’s probably a story in there somewhere.

And they say that …

“… the minimum amount of money to get started with this savings account is currently “UNDER $20”

Which means, in Gumshoe-speak, that the share price is less than twenty bucks. No, I hate to burst your bubble, but it ain’t a real savings account. It’s surprising, in fact, that the copywriters didn’t employ their right pinky and call it a savings account like they typically do with such misleading verbiage.

And Wyatt also pulls out the hackneyed list of institutional investors who own the shares — names like Fidelity, Vanguard, Legg Mason, Oppenheimer, T. Rowe Price. As if there is a single halfway-decent stock of any reasonable size in this country that’s not overwhelmingly owned by the big mutual funds and institutional investors. And a lot of ’em that aren’t halfway decent.

And of course, Wyatt says that these big investors are “keeping it a secret from you!”

Some more details? I’m so glad you asked:

“But the bank that pays 8.2% to its savings account holders didn’t take a dime of bailout funds. They didn’t have to raise additional capital either.

“They also don’t pay out any million dollar bonuses. Their entire board of five people, including the CEO, and two co-founders made $1.2 million combined in 2010 – or less than $250,000 each on average.

“Even more amazing, this bank actually paid out HIGHER savings account yields in 2008 and 2009 than they did in 2005, 2006 and 2007….

“This bank is so well funded, in part, because it’s a very specific type of bank that’s NOT ALLOWED to take on more debt than it has assets to cover. That means they can only lend out the money that they have. No more. No shady accounting tricks. No credit default swaps or risky sub-prime mortgages. This bank simply lends its capital to low risk, growth stage small businesses. And then they pay the returns to their members.

“And right now, this bank is so well managed that they currently only have 60% of their funds lent out. That’s a 40% safety buffer for their members.”

So then we get into the meat of the ad, with a little bit of actual reality seeping in about what kind of bank this is. Lots of talk about lending to small businesses who are ignored by Wall Street, and about becoming partial owners of companies and board members when they lend money, and about profiting from the downturn … and that they “have to pay out over 90% of their profits to their members BY LAW.”

Which means you’re probably already guessing what kind of bank this is, right? You got it, this is a Business Development Company, often referred to as a BDC. They were written into the tax code about 30 years ago as a way to spur lending to small businesses, and they get to be tax-exempt as long as they pass along 90% of their income to shareholders (that’s you — no, it’s not a savings account, it’s ownership of a dividend-paying BDC).

There are a bunch of Business Development Companies out there — and though Wyatt trumpets their success during the financial crisis, several of them got really, really clobbered at that time when the small businesses they lend to had trouble paying back those loans.

So you may have guessed it was a BDC, and you may even like these kinds of investments … indeed, you may well have seen them trumpeted by other newsletter folks and pundits recently — there are a lot of people talking up BDCs right now, since most of them have high yields and they should tend to do well during economic recovery, and they’re not quite as yield curve-dependent as the mortgage REITs or as (arguably) over-loved as the MLPs.

But which one is Wyatt touting? Well, aside from the general pitch for BDCs, which is what most of the tease distills into, we get a few specific clues:

They’re located on Park Avenue in Manhattan.

They yield something like 8.2%.

We get the specific board compensation numbers teased above, and the history of raising yields (though be careful about that, a higher yield can mean either a higher payout … or a lower share price).

And they have 60% of their funds lent out.

And they’ve lent their funds to “over 150 different companies … in nearly every single state of the union.”

So which BDC are we looking at?

Well, when we toss all those delightful clues into the mighty, mighty Thinkolator … we get the Gumshoe solution to our puzzler: Ares Capital (ARCC)

Ares, by virtue of having merged with/purchased/rescued the sector pioneer Allied Capital last year, is now the biggest of the BDCs (though American Capital, ACAS, is close to the same size), and they do have a very large and diversified portfolio of loans (and the associated equity and warrants, in some cases). They do have these “relationships” with over 150 companies — more like 180ish at last count.

ARCC has paid out a $1.40 annual dividend in each of the past two years, which was a cut from the growing dividend they paid out in 2007 and 2008 — the cut came, not coincidentally, back in March of 2009 when the world was coming to an end and all of the BDCs got absolutely clobbered. ARCC was down at about $4 at the time, and clearly folks expected them to collapse, but they reduced the quarterly dividend to 35 cents and kept paying it out, and the share price recovered pretty quickly … it’s now around $18 (so yes, per the teaser, “under $20” to “open your account.”)

BDCs use their equity (money they raise from selling stock) and debt and, sometimes, easy financing from government small business financing programs to lend to small and medium size businesses — in effect, most of them end up acting like private equity funds or venture capital funds, it’s just that they typically deal with midsize companies in boring businesses that aren’t sexy enough for venture capital or are already too indebted for private equity (and too big for local bank loans, too small for Wall Street financing).

Since they only lever up a little bit, they have to lend at pretty high rates or make great investing decisions to pay out high dividends, and the bookkeeping can be a bit hard to follow — and sometimes, depending on who you ask, a bit shady or optimistic (as you might remember, David Einhorn’s highest profile short target before his recent campaign against St. Joes was Allied Capital, part of the reason why that company needed to merge with Ares).

Oh, yes, and they are headquartered on Park Avenue — and they’re externally managed, so the fact that they have relatively low executive compensation, per the teaser, is probably because of their management contract with their partner (also called Ares — Ares Management LLC in this case), which is a bigger investment banking group. I assume they pay some sort of set management fee along the lines of the 2 and 20 (2% of assets, 20% of gains over some benchmark) that most hedge funds charge, but I have not checked.

The BDC is underleveraged right now, so yes, they should have room to grow their portfolio without resorting to more equity raising (they have raised equity many times, which is the main way that BDCs grow since they’re not allowed to reinvest profits in the business — they have to pay them out as dividends). Last I saw the debt/equity ratio was around 50/50, but that was in September.

And no, BDC’s are sort of a kind of bank … but this is not an “account”, you’re an owner and entitled to your share of the profits, but if they lose money or otherwise disappoint, your “savings” are certainly not guaranteed if you buy these shares.

So … if you’re looking for a BDC high-yielder, this is certainly one to consider. There are several others that are smaller, including the other pioneer of the business, American Capital (ACAS), which I don’t think has recovered enough to pay a dividend again yet, and Pennant Park (PNNT), which is not far away over on Madison Ave. and has roughly the same yield, or Gladstone Capital (GLAD) or MCG Capital (MCGC), both of which also yield 7.5% or so … and I’m sure I’m failing to mention some others. If you’ve got a favorite in the group, or are a fan or foe of Ares, let us know with a comment below.


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41 Comments on "“Manhattan’s Secret 8.2% Savings Account”"

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EOR
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EOR
February 28, 2011 4:06 pm

My personal favorites are TICC and AINV.

p may
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p may
February 28, 2011 5:01 pm

If you are considering a BDC, look back at Anthracite Capital. I lost a ton of money when they went belly up. They were managed by Black Rock Capital. I will not trust any more BDC companies

fireball
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fireball
February 28, 2011 6:01 pm
hi gs i noticed you said mlps are over loved. well i admit i very much like how they have performed for me. do you think they are pretty much fully valued? gs when you say something like dmlp looks good or wish i had bought line i tend to act on it. anyway i guess my portfolio looks a bit like n etf of mlps. but i bought them quite awhile back so what do ya say gs, time to cash out and move to something else? i do own prospect capital. it is up ok. seems like the… Read more »
patk
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patk
February 28, 2011 7:36 pm

For the down and dirty on BDC's, check out Nicholas Marshi on Seeking Alpha, also his website.

eddie036
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eddie036
February 28, 2011 10:14 pm

Am I missing something? From Yahoo Financial
Div & Yield: 1.40 (7.90%

Venture Shadow
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Venture Shadow
March 1, 2011 1:53 pm

SILU. They focus on lending for resource development businesses. They are in essence a new business, having switched to this from real estate lending. They are based in Canada. “The goal is to commence dividend payments in 2011 and management will provide further guidance over time.”

Brian
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Brian
March 23, 2011 9:35 pm

Thank you for shedding light on this.

EsM
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EsM
March 26, 2011 11:59 am

Thank you. As usual very accurate and valuable analysis.

John W
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John W
April 3, 2011 7:35 pm

I own TICC and TCAP, and both have been good investments, paying similar to ARCC.

Lexpert
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Lexpert
October 23, 2011 2:45 am

Tarzan is right on point about Wyatt’s likley wire fraud for inducing subscriptions to his newsletter by making false statements about “savings account” in a “bank” which is not a BDC.

Tarzan
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Tarzan
April 4, 2011 10:11 pm
The burning question here, as far as I'm concerned, is, Why isn't Ian Wyatt in jail — or at least in trouble? Calling this a savings account without any qualification, without even putting it into quotation marks, is, as the Gumshoe points out several times (without using these words), blatant, flagrant misrepresentation for the purpose of obtaining money under false pretenses — and isn't that illegal? If this was a snail-mail ad, wouldn't it constitute mail fraud? If, as I gather, it's strictly an email, shouldn't it constitute interstate wire fraud, also a federal crime? Perhaps the Internet is so… Read more »
mr. chicago
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mr. chicago
April 8, 2011 3:55 pm

These are all very good comments. Thank you!!

smokinunderware
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smokinunderware
May 23, 2011 6:31 pm

The woody was able to change the weather in 63 and took out the thresher 1000 ft down. In 76 woody generated 4500 km standing waves. Weather as A Force Modifier (Warfighter 2025). Alles comt from DARPA (always did and always will, the man with the gun rules). Ask W or David R.

smokinunderware
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smokinunderware
May 23, 2011 6:35 pm

The Fool is Cute but just a shakespearan peddler of bad info. Most of stocks recommended are just like those which took a hit on May 05, 2010. I recommend WHEN MONEY DIES, the story of what will happen to America. The Gulf of Tears awaits the stupid(patriotic). The GUMSHOE IS THE PHILIP MARLOW (THE MALTESE FALCON) of the FUTURE. RIGHT ON $$DICK.

smokinunderware
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smokinunderware
May 23, 2011 6:39 pm

Treasury Bonds,hmmmmmmmmm. Ask the Chinese????? No more REEs for the USA now. Appl has hit the shi**. Nice bank in Germany which has lasted over 400 years. Just like their beer (certified ass kicking good since 1512).

smokinunderware
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smokinunderware
May 23, 2011 6:54 pm

tsk tsk tsk DO THE WORDS OF JL RING TRUE. DO NOT TAKE TIPS. BLACK ROCK – SPARE ME. TOO BIG TO FAIL, MY SWOLLEN PYLES. DR DOOM SAID IN THE CASE OF AIG TO DO NOTHING BUT NO ONE LISTENED TO HIM. DOOM BLOOM AND GLOOM. NOW LET US TALK ABOUT THE DRs FAVORITE TOPIC (HYPERINFLATION). WHEN MONEY DIES IS SUPERB AND MANDATORY READING FOR THE SHAREHOLDERS OF I3 (INTELLIGENT INFLECTIONPOINT INVESTING).

smokinunderware
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smokinunderware
May 23, 2011 7:09 pm
yoh tarzan, how are cheet- tah and Jane. Weismuller my smokin roids. DEFENSE IS THE KEY TO MAKING BIG DOLLARS. ASK DICK THE BAMBI KILLER. I WAS MORE IMPRESSED WITH GODZILLA AND BAMBI. BP IS GONNA DRILL AGAIN, THE QUEEN NEEDS CASH TO PAY FOR THE NEW WIFE. HOMELY LIKE CHARLES. TAR ZAN WHO NEEDS BE RATIONAL ALL THE TIME. BEJAMIN NAUSBAUM LIKED TO BE STUPID ON SOME DAYS. I LIKE THIS SITE, IT IS COOL AS LIQUID NITROGEN. ALPHA IS SEHR GUT. EXCUSE ME , I'VE LOST MY IDENTITY. OR MAYBE IT IS THAT MULTI-TASKING MULTI-LPAR MULTI-GDPS BEAST IN… Read more »
smokinunderware
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smokinunderware
May 23, 2011 7:15 pm
DR B u related to dr phil. i rewrote the google search algo and applied advanced filter factor predicate calculation with seven layers of optimization to do well with the net. as for the novice, what does the complete indicate??????? For forgiveness, please send money to the George Herbert Walker Busch School of Family Values and nothing less than $1 million dollars. The CVN gonna cost more bucks now. Can show you nice picture of hilly and billy when THEY INHALED. JFK on CID??? Verrrrrrrrrrrrrrrrrrrrrrrrrry Interesting times. I DO NOT WISH TO SUBMIT OR TRANSFORM BUT I AM JUST PASSING… Read more »
Traderdad37
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Traderdad37
June 7, 2011 7:02 pm

Their 50% is still better than most investors' 30%.

Damon
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Damon
June 14, 2011 11:35 am

for a BDC check out agnc

joss
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joss
June 30, 2011 1:25 pm

It is spelled Canada!

Gravity Switch
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July 15, 2011 9:12 am

Man, the promos for this one are just continuing to get more aggressive — now Wyatt has taken a cue from the Stansberry folks and started to advertise heavily on satellite radio, so I'm hearing about his "secretmanhattanbank.com" website over and over again. Still the same stock, still the same pitch, still definitely not a "bank" in the way we're accustomed to thinking about these things.

TimoDOZ
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TimoDOZ
July 16, 2011 8:11 am

Canadain Banks stilll banks. Not yielding 5.5% anymore. A 30% move higher in the Loonie in 3 years. So much for the "Kanada" basher! My portfolio of Canadian utes would be up +35% if I had not kept adding in the last year. A 27% gain and a 12% distribution erate with currency leverage against the cost basis' so tough to take. Got MCQPF?

tjaks
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tjaks
July 18, 2011 3:49 pm

Bingo–or perhaps he suffers from what his name denotes — "smoke- in- underwear."

Jack
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Jack
July 23, 2011 3:02 pm

Smokeinunderwear needs to go back to Brooklyn or the lower East Side.

Nailbender
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Nailbender
July 29, 2011 3:18 pm

Thanks for the posts–saved me from subscribingTanks for the post's

Jaye Harding
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Jaye Harding
November 10, 2011 9:39 am

Thanks for the breakdown, and I’d like to hear more about posible investment vehicles such as this one.

JackieBelle
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JackieBelle
December 28, 2011 4:45 pm

Thank you for the good you do in exposing all the ridiculous hype going around disguised as stock advice, etc. I really appreciate it as I’m sure many others do.

Jim So Dak
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March 19, 2014 6:33 pm

Believe you left off the best BDC, Prospect Capital (PSEC), dividend of $1.32 and
a yield of (12.30%).

Macca
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Macca
February 28, 2011 4:53 pm

Mark, there was definitely a ThinkOLator in this post. Check it again and I am sure you will find it.

realitybytez
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realitybytez
February 28, 2011 4:59 pm

"Well, when we toss all those delightful clues into the mighty, mighty Thinkolator … we get the Gumshoe solution to our puzzler: Ares Capital (ARCC)"

Gail
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Gail
March 2, 2011 1:58 pm

Of course Travis used the Think0Later! I meant to write a while back to tell him what a chuckle I get that he remembered to tarp it to keep the snow off. I could really identify with that, although I have nothing THAT valuable in my yard.

Judi
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Judi
April 1, 2011 9:41 pm

The 12th paragraph down from the lst blue clues. He actually said too=ss it in the might, mighty Thinkalator.

Gravity Switch
Admin
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February 28, 2011 10:36 pm

Only that the price has moved a bit in the week or few since the ad was written, these ads are almost always a little bit stale (have to run everything through the lawyers, Impresume), and the yield changes as the price fluctuates.

jim
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jim
March 1, 2011 8:32 pm

bdc's or similar, that've been good to me: cim; hts; recource capital; nly. you have to ride close herd on this kind of vehicle. their profit depends on interest rate differentials, thus when rates rise, they sink fast due to leverage and shrinking arbitrage spreads. but they can really line your pockets as long as you stay very watchful and exit at early hint of rate rises.

smokinunderware
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smokinunderware
May 23, 2011 7:03 pm
KANADA IS LOST. BAD GOVERNMENT. TOO MANY SEAGRAMS. STRANGE LAKE LOOKS PROMISING BUT THE 100-PROCESS RECIPE MUST BE CHANGED. ALL THAT CAUSTIC AND H2S04 IS VERY BAD. FRACKIN THE ARCTIC IS NOT GOOD. THESE IS SO MUCH OIL AND GAS NEAR PRUDOE BAY IT IS AS RIDICULOUS AS SARAH PALIN AND HER DAUGHTER. WHOOPS, I'M SORRY SARAH BUT NOT AS SORRY AS THE AMERICAN PUBLIC. REAL ESTATE IN KANADA IS GROSSLY OVERPRICED, ESPECIALLY IN TO. NOT A NICE PLACE TO SETTLE DOWN WHEN THE TOPOLS OR DF51S TAKE OUT NIAGARA FALLS. WHEN THE FALLS FALL, KISS ALL POWER TO DETROIT,… Read more »
As I See It
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As I See It
April 7, 2011 9:56 am

you need to get laid

Traderdad37
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Traderdad37
June 7, 2011 7:03 pm

"Why isn't Ian Wyatt in jail — or at least in trouble?"

And for what crime would he be in jail?

smokinunderware
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0
smokinunderware
May 23, 2011 6:28 pm
Laid, vas is das???? Geld nicht Slaffen? Ich habbe ein auto mit Keld Vasser propulsion. Cold fusion is real and does work. Electric Car in 1932. 1 hour conversion,cheap cheap cheap. Did Terminator get Laid. He should get an award for living with a Gangsta Grandpop heiress boozer. What do U get we U mix a son of Hitler Youth with a relative of adolph hitler. Jackie Oooooooooo, Fast Willy Clinton, and Adolph (a great painter, not a house painter) are all related. Is there a market for a device that will generate 1 million watts from 1 watt input.
smokinunderware
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0
smokinunderware
May 23, 2011 6:45 pm
As the MAN once said, It is the sitting that makes money. I must rephrase that one now in the light of discovery "It is the shitting that makes money". (x kg/per crap) (y craps/day) (yield/crap) (spot market price light crude) = nice bit of coin. But let us pray now (look at the downside), if I formed a corporation with ticker SHIT and became president of this corporation, what would they call me. SHITHEAD or your ASSWHOLIMESS. Frend, Romans, Countrymen , give me your *. Could make a killing it the white harse, the sinate and cuntgress. Sorry badd… Read more »
william victory
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william victory
August 18, 2011 12:37 pm

jim, newbie ,what do you mean in this excerpt?
I need to put something together for the betterment of the world of hunger . I have an idea to feed and its got to get going sooner than LATER . ANY /ALL ADVICE MUCH APPRECIATED SIR!!THANKS VERY MUCH FOR YOUR INPUT ! WILLIAM

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