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“The Next Major Bank Stock Set to CRASH” Dan Amoss

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“On Monday the 24th at Noon I’ll reveal the next major Bank Stock set to CRASH.”

That’s the big-letters headline from Dan Amoss in a new teaser ad for his Strategic Short Report – and since this one is getting a lot of attention from my readers, and the Strategic Short Report has been a top-ranked newsletter on the reviews site for quite a while, I thought we ought to give it a gander. Here’s some more of the hyperbole to get you into a nice profit-hungry lather …

“On Monday, August 24th, at noon, Dan Amoss will expose the biggest banking lie of the past 64 years.

“Given the past 21 months of market action — that’s no small claim.

“If recent mainstream headlines make you believe that banks have weathered the storm…

“You better think again.

“Dan’s caught another major bank he thinks is lying about being able to pay their massive $1.5 billion dividend scheduled for 2009.

“He believes this bank’s using every shady accounting trick possible to hide losses from their shareholders. “

Now, this is not really the way I’d like to return from a two-week vacation — I’d much rather be telling you about some top-secret biotech company that’s going to give you 1,000% returns by next Tuesday [even if, of course, it won't] … but we’ll have to settle for this.

And hey, we can even beat Dan’s subscribers to the plate, since he apparently won’t be revealing this to them until his next newsletter comes out on August 24.

It will probably not be shocking to most of you, given the name of the newsletter and the tone of the headline, but Amoss usually focuses on betting against stocks for his Strategic Short Report — and today is no different. He’s teasing us that he’s picked out a put strategy (that’s an options trade) that will give you a profit of 50% or more … and that he thinks privately, but of course would never promise, that his idea should triple your money. We can look at the mechanics of that in a moment, but first we have to figure out what the stock is … clues, please!

“With a 192 year old history and 37,000 employees, its crash would drop like an A-bomb on unsuspecting shareholders…”

So there’s one clue. Or two, I guess. And we already know their annual dividend tallies up to about $1.5 billion. Some more?

“A major rating agency just cut this bank’s outlook to negative.

“And, in a warning sign I’ve never seen before, this bank’s own employees are speaking up — questioning management about the fudging of numbers on their most recent earnings conference call.”

Perhaps you’d like to hear a bit more about the rationale? Of course you would! And the Gumshoe can cut and paste with the best of ‘em:

“Here’s Why Dan Thinks This Bank Will Get Slammed

“It all boils down to a few very simple things.

“This bank made risky loans to people who, unfortunately, are losing their jobs quickly…

“Without jobs, these people won’t be able to pay the bank back…

“The bank management is using accounting tricks to hide these losses from their shareholders, while some of the same executives even appear to be quietly dumping their own shares at peak prices…

“But they can only ‘fake’ it for so long…

“If those loans finally default, it’ll set off a cascading effect of losses… lower earnings… and a draining of cash…

“With no cash, regulators could force this bank to cut their massive dividend. And this dividend cut would force their share price to plummet — maybe as much as 50-75% in a day — as folks race for the exits.”

OK … so, we’ve got a few clues about the company, and we know that Amoss believes they’re essentially cooking the books with their loan losses and such, and that he seems to think that a collapse is imminent. What’s the stock?

From those clues, thrown willy-nilly into the Thinkolator, which is still covered with dust from a long layoff, I can tell you that the stock must be …

BMO Financial Group, usually better known as Bank of Montreal (trades at BMO in both NY and Toronto)

This is one of the venerable Canadian banks — and it is about 192 years old and has more than 37,000 employees. And it did have a Bank of Montreal analyst asking somewhat snippy questions on the last conference call about the expected losses and the accounting thereof. I have no idea if that’s unusual or not, I’m not a habitue of bank conference calls, and I don’t know whether or not analysts who are employed by the bank giving the call typically kowtow to the CEO and CFO or ask tough questions.

BMO has been reporting profits every quarter — but of course, a bank has lots of ways of reporting profits even if they’re not genuinely profitable, as Dan implies, and we have certainly seen plenty of evidence that banks can go from profitable juggernaut to pile of rubble in a matter of weeks if their projections turn out to be overly optimistic. Whether or not Amoss is correct that this will be happening to BMO, I have no idea — analysts are still predicting that they’ll be recording profits for this year and next, and that the shares trade at a forward PE of about 10, which is a lot lower than the valuations of many of the big US banks … but then again, the big US banks fell a lot further, too, and have much more of a “snap back to profitability” investment thesis behind them.

So why Bank of Montreal? Well, it could just be that it didn’t walk on the precipice of disaster the way many of its big cousins south of the border did — they were still profitable and doing reasonably well last Fall when Citigroup and Bank of America were begging for bailouts, so some investors started to think of all of the big Canadian banks as a sort of safe haven in the financial sector … after all, the shares collapsed “only” 50-60% in 2008, not the 95% that many US banks “enjoyed,” and BMO, for one, is actually just about even with where the shares traded a year ago, which is something you can’t say about a lot of big American banks.

Maybe Amoss is arguing that this safe haven allure has blinded us to the fact that many of the banks have the same kind of asset-writedown problems coming as do our banks here in the States. Not sure, that’s just a guess — certainly Canada’s economy is weak thanks to their close ties to the US, even with the relative boost they get from being a big natural resources exporter, but BMO and its Canadian counterparts are global banks, so they’re getting a taste of the global slowdown.

The teaser ad goes on to tell us that the bank is in trouble because of their exposure to the oil and automobile industries and to the communities impacted by unemployment in those industries, and because they have not been earning enough to cover the dividend (a dividend cut at BMO, one of the “big five” Canadian banks, would, in Amoss’ opinion, cause the shares to crash).

If you’d like to learn a bit more about this interest in Canadian banks that swept through Wall Street as US banks were teetering on the brink (and may still be), there was a good article in Barrons back in February that highlighted Bank of Nova Scotia but also touched on BMO and a few others.

So … if you believe Dan will be correct and that this stock will fall after they cut their dividend (which is a healthy 5%+ at the moment), how would you do it?

Well, if it’s all about faltering earnings reports or lowering dividends, you’d probably expect it to happen along with the quarterly reports. BMO reports next on August 25, the day after Dan Amoss is scheduled to release his report, and we’ll probably hear from BMO again in mid-November, and then in early March.

BMO doesn’t have LEAP options trading right now, so the choices for buying puts are expirations in September, December, or March — I don’t know what Amoss typically looks for in a recommendation, but two typical strategies would be to buy an in-the-money put and hope for a reasonably conservative return and, if the stock stays stable, some chance to preserve your investment, or buy out-of-the-money puts for a chance of greater leverage to a falling share price.

In the money would mean that you’re buying puts that are actually worth something today — buying a put option gives you the right (but not the obligation) to sell a given stock at a set price before the option expiration date, so a put with a strike price above today’s share price is in the money, one with a strike price below the share price is out of the money.

BMO shares are right around $46.50 right now, so a $50 put would be “in the money” because it’s actually worth something now — you could sell it today for at least a $3.50 profit (per share, so $350 per options contract since each contract represents 100 shares), effectively buying shares at $46.50 and selling them for $50. Out of the money would be, for example, buying a put contract at a $40 strike price, spending a lot less money but hoping that if the shares fall below $40 (so down by 15% or more) the option price would move much more dramatically.

The teaser ad implies that this dividend cut might come as soon as the August earnings release, which is after the August options expiration, so probably the most aggressive play on that would be buying out of the money September puts — you could get a September $40 put for about 70 cents, and if the dire prediction of a dividend cut comes through, or if the shares collapse in half in short order, you’d do far better than tripling your money (if the shares fall to $23, a $40 put is worth $17 at expiration, so 70 cents to $17 is a huge return). Of course, the reason it’s huge is that most people think it’s unlikely — just like any other longshot. If you believe in the thesis but think the timing might be slower, you could do the same for March, for example — a $40 put with a March expiration would cost you more like $3.50, but would give you more time to be right.

Will that work? Beats me — I am perfectly content to believe that banks fudge their earnings like crazy, as evidence abounds to that effect, but I get weary eyes reading bank balance sheets, and, to be frank, I rarely understand them very well. I can see that BMO’s dividend is a bit aggressive for their current earnings level, but that doesn’t mean they’ll necessarily be slashing it anytime soon — or that their earnings will necessarily fall. I’m sure Amoss has read their filings much more carefully than I have, and he did pretty well for a lot of my readers during the market downturn, so perhaps it’s worth your time to look into it.

If you’ve got an opinion, let us know if you’re excited about Bank of Montreal, or the other Canadian banks, whether for their good or their bad prospects. That’s why the lil’ ol’ comment box down below is calling your name.

And of course, if you want to share your opinion of the Strategic Short Report … or see what other folks think … you need only wander on over to the Stock Gumshoe Reviews site.

If you want to read up more on BMO, you could start with the last conference call transcript here (including the questions from the Bank of Montreal analyst, Ian DeVerteuil). Or you could sit through the next earnings release in a couple weeks, see if Amoss’ recommendation moves the stock (or causes a spike in the price of the put options) and then wait to buy in after it has settled down a bit … if it does. Or who knows, it could certainly be a terrible idea … it’s your money, so it is, of course, your call.

Great to be back with you after a little break, relaxed and rested and really far behind on email — hopefully the daily publishing will hold this week as I get back in gear, I can’t wait to see what schemes, scams, touts and teases I’ve missed …

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31 Responses to “The Next Major Bank Stock Set to CRASH” Dan Amoss

  1. Our neighbors to the North have high personal debt although it is lower than US citizens.
    I don’t doubt the Canadian Banks will wind up tarnished as a result. The unemployment rates are increasing there, too, although not at the dizzying rates we’ve seen in the US. Credit card defaults are up. In some areas (not an epidemic) foreclosures are on the rise.
    While I can’t say whether Canadian Banks play with their numbers the way the US Banks do, it seems likely we will see their earnings fall.

    It’s probably a good play to purchase some puts, or perhaps do put spreads.

  2. Yes you were missed, but even a stalwart Gumshoe needs a hiatus from time to time. Thanks for the detailed BMO treatment above.

  3. Welcome back. If you play the results, be careful to choose an option with volume and low spread. If the results are good, put options with high spread today will trade with a very low bid.

  4. You asked if it was unusual for bank analysts to ask tough questions.

    Bank analysts rarely ask tough questions (or even significant ones) on conference calls.

    I’ve listened to at least a hundred such calls and they’re generally boring and filled with minutia. The only semi- controversial questions are usually whether management’s investment and/or loan writeoffs are adequate.

  5. Dan must be clairvoyant, 3 of the 4
    trend indicators broke down days ago, yet the MACD & the 1yr. chart itself still looks quite good.

    Yep Travis, not only were you missed, your absense somehow knocked out the underpinnings of our markets, even the beaten down dollar is rallying, talk about unintended consequences.

  6. I don’t know what Amos is smoking, but it must be powerful. BMO is a very strong bank. Loan delinquencies are low and Canadian home foreclosures are close to an all time low. Dan is spitting in the wind on this one.

  7. Welcome back, seems your vacation did not prove to be a distraction, you actually nailed it, but no need to wait for the day BEFORE the impending event—-

    “***Canadian Unemployment to Hit BMO. Just a quick note on BMO, the subject of your July issue, which is reporting earnings on Aug. 25: the employment picture in Canada is not getting better, so BMO will have to start ramping up its loan loss provision expense. …..
    [excerpt shortened for copyright considerations]
    “The Ontario manufacturing economy is important for BMO, because that’s where most of its growth in corporate and consumer lending took place in recent years. Ontario is highly dependent on Detroit 3 auto production, which will remain soft for years. BMO is still early in its credit loss cycle, yet the market is absolutely giddy to own this bank, pricing it at a nosebleed 1.6 times book value (a book value that’s at risk of shrinking as nonperforming loans grow). BMO cannot afford its dividend, and I expect the Aug. 25 earnings report to be ugly. The December 2009 $40 BMO puts (BMOXH) remain a buy. Best regards, Dan Amoss, CFA”

    Since BMO is dual listed; Canadians may wish to check out equivalent Canadian options as they also offer OCT. which would be a little extra time to the cheap Sept options that Travis mentioned which are higher risk of not allowing enough time for the market to punish the stock on a bad report!

    It all depends on the mood of the market a week hence but it can not hurt to COMPARE all the possibilities offered as a combination of strike price and expiry dates, just be sure to allow for exchange rates when comparing the Canadian options!

  8. Advice for Investors, a respected Canadian financial advisory, today (August 20)commented on the expected earnings of the big five Canadian banks, all of which exceed their dividends. Although BMO is the “lowest on the pole”, it covers its dividend by 35%. While BMO is most at risk among the Big Five of shaving its 2.80 dividend -a rather high yield of 5.6% – the bank should be able to maintain its dividend and remains a buy according to the advisory. Where Amos gets his doomsday idea is anyone’s guess.

  9. BMO…Cdn…what’s he connection of it to “Harris Financial Org” in the States?
    I have no idea who the Harris group is…but did the BMO get dragged down by this affliation somehow ??

  10. Wellington Fin. Blog..you need to read the article by “Gumshoe” again. He is not recommending any thing, he opening discusses a “Teaser” from Mr. Amoss and clearly states that if you are going to do anything with BMO, here’s some moves.period. Please reread his posts also, no recommend on the promo..if you have followed his website, you know that is not his thing. Please correct your posting.

  11. Sorry Guys

    I worked for years in the Banking system in Canada. Saw the MBA loans in the 1970′s(Mexico,Brazil,Argentina).
    Have had dealings with B of M on a personal basis.

    Currently switching all my personal banking to B of M. They are on a roll.

  12. I can’t get Mr Amoss report. It’s said it was on for 50% off and when I clicked it was closed…how come?

  13. Hmm, looks like Amoss was really, really, really wrong. I hope you shorties got your 3% profit and got out quick otherwise Amoss will have lead you down the wrong path YET AGAIN.

    Why does anyone listen to that fool anymore?

  14. Why would ANYONE listen to this Amoss fool? Clearly he’s all ego and no brains and he has NO clue how the Canadian banking system works.

    3 years ago, the banking industry was claiming that Canadian banks are far too conservative. Now that the bottom fell out, the Canadian banks look pretty solid, especially compared to the American banking version of the Titanic.

    It’s a shame that anyone would waste any money on anything that Dan Amoss publishes. I think he should give anyone that has ever bought anything from him their money back.

    Oh, by the way, as of my writing this, BMO stock is up $3, good luck with your shorts!

  15. I hope you braced for it. BMO announced earnings of $0.97 in this latest quarter, a signficant drop from $0.98 in 2008. Net income increased from C$521 to C557 mln. (increase in shares issued)and provisions for credit losses dropped. Bail from this sinking ship fast and those wiley accountants. Perhaps Amoss will get it right next quarter. Hope you sold last week before it collapsed today. Oops, it didn’t collapse, it went up about 6% as did all of the Cdn. bank stocks.

  16. It is also interesting to note that ALL of Dan’s Current Holdings are LOSERS …….NOW doesn’t that instill confidence! LOL

  17. Can you imagine people paying this guy to lose their money that quick?

    BMO net income was up, the dividend was not cut and is safe.

    Hope he lost some of his own money.

  18. Bank of Montreal, Bank of Nova Scotia Get Ratings Adjustments

    by: FP Trading Desk
    August 16, 2009

    With third quarter earnings results looming, BMO Capital Markets analyst Ian de Vertueil fine-tuned a couple of his Canadian bank recommendations this week, putting Bank Of Nova Scotia (BNS) and Bank of Montreal (BMO) back on the same playing field.

    To start, the analyst upgraded Scotiabank from UNDERPERFORM TO MARKET PERFORM while increasing his 2009 cash earnings per share estimate for the bank from C$2.90 to C$3 and his 2010 cash EPS estimate from C$2.55 to C$2.65. Mr. Verteuil’s price target on the stock climbs from C$41 toC $42.

    He said in a note to clients:

    Since we downgraded Scotiabank six months ago, the shares have underperformed the bank group by 8%. We continue to believe the bank will feel more credit headwinds in the short term from its corporate loan book both in North America and internationally, but the underperformance highlights that much of this is reflected in the share price.

    Mr. de Vertueil now also has a MARKET PERFORM rating on Bank Of Montreal shares, after downgrading the stock from OUTPERFORM and lowering his price target from C$56 to C$53. He noted that BMO is relatively expensive on earnings but still trades at a discount to the overall group on price to book.

    He said:

    Since our upgrade a year ago, the shares have outperformed the group, up 9% versus the bank index, which is essentially flat.

    At the time of our upgrade, we thought the concerns on the bank’s off-balance sheet exposure were overdone. We don’t expect any material surprises in the quarter, but we think that most of the sentiment shift on the stock has now occurred. Given the bank’s limited leverage to a more stable credit environment, we believe that a downgrade is warranted.

    Overall, Mr. de Verteuil expects Canadian banks to report solid third quarter earnings.

    He wrote:

    On a reported basis, we believe that results will be well up from a year earlier, but this entirely reflects the fact that CIBC (CM) is comparing with a very weak quarter of a year earlier. Exclusive of CIBC, the group’s reported earnings will be down about 4% versus a year earlier.

  19. I believe any bank stock sets up well for a short position right now. I would buy the December 40 puts and be patient, sell half at 100% and then use limit orders on the remaining position. I think anyone that goes long on any financial stock right now is a fool and deserves to be separated from their money.

  20. They have had a number of insider sales in the last month or so, but they were all very tiny and most look like they were options exercises or part of sales programs — I wouldn’t read much into that. Most of the talk about insider selling was prospective (they’re going to sell, not they have sold) … specifics were going back a little further in time for insider sales, or quoting a stock rumor bulletin board.

    (the link to the post on stockhouse.com that claimed insiders sold a huge amount was here: http://www.stockhouse.com/Bullboards/MessageDetail.aspx?p=0&m=27256354&l=0&r=0&s=BMO&t=LIST
    … I haven’t checked to see whether the rumor was correct, though it definitely wouldn’t be surprising if it wasn’t, or if was otherwise misleading)

    Oh, and Canadian insider trading might easily be reported through their system, not through the SEC’s Edgar, so that data is not necessarily easily available on the big aggregator sites.

  21. Now that BMO announced earnings and it’s price has popped up, do you still stand by your post? Just curious what your thoughts are now, spreadtrader. I’m one of those apparently not so smart holder of puts & a bit uncomfortable at the moment.

  22. Yes, but I have no crystal ball. I just read the charts. This is a strong stock in an average sector, but its weekly momentum is negative. I tend to disregard price action around earnings because of all of the “noise”. The price has been near vertical since March and every security takes a break. It has retraced 62% of its move down basis weekly from July 2007; and the candle pattern on a daily chart is bearish. The evening star doji on August 3 was followed by a bearish engulfing candle on August 6. Could it challenge and exceed recent highs? Sure. It will likely do what the broad market will do. If the broad market does not correct, it may not correct here. But the probability is that it will correct within 30 days. That’s my story…..which calendar month put do you hold? Consider selling a lower strike put in a deferred calendar month to cover the cost of your option. If the near term put expires worthless and the put you sold eventually gets assigned, you bought yourself a great bank stock at a low price, eh?

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