by Travis Johnson, Stock Gumshoe | September 6, 2018 5:45 pm
Ugh, another “you get a check!” teaser pitch… these are everywhere nowadays, and they’re getting a little tiresome.
But still, we aim to please… and readers are asking, so let’s get to answering.
The ad this time around is from one of the Casey Research newsletters, E.B. Tucker’s Casey Strategic Investor ($99/yr), and this is part of the headline:
“In 2008 taxpayer funds were abused by the bank bailout.
“Now Bill S.2155 opens the door to dispersal of ‘compensation funds’ to anyone who claims them.
“$195 Billion in ‘Bailout Compensation Checks’ Being Paid Out Now. Claim Yours.
“‘They fixed it, or at least have gone a long way toward fixing it.’ President Trump’s remarks regarding Bill S.2155
“Anyone can receive this money. Some people are paid $8,979… $9,587… and $15,111 on a regular basis. Discover how you can receive this income too….”
This is a tease about the smaller banks who, thanks to that bill mentioned, are getting a bit of a break from the Dodd-Frank regulations so they can have a bit more flexibility than the “too big to fail” banks whose collapse could (and almost did) destroy the global economy.
They’re not technically lying (most big publishers have had their run-ins with the law, they are careful to run promos by their lawyers), but let’s say that they’re not emphasizing the truth very much. I skipped about halfway through the ad, most of which is angry commentary about how awful the big banks were, all designed to get you incensed and put you in a frame of mind to say, “hey, yeah, I bet I DESERVE some free money!”
And then started to get into the details of what they’re talking about with these “Bailout Compensation Checks” — we know it’s not going to be a “you get free money” check, but what are they talking about?
“CNN Money says banks have more cash than they know what to do with nowadays.
“And unlike the stingy mega-banks…
“Their fast-growing competitors are passing that cash on to you through fatter dividend payouts.
“This is why we’re looking at this as President Trump’s back-door approach to compensate Americans for what happened in 2008.
“It’s also why my team calls these payouts ‘bailout comp checks.'”
So that word, “dividend,” close to halfway through the loooooong ad, is the first indication that this is an investment they’re talking about… not just a “program” that you can “enroll in” or “sign up” to receive “bailout compensation.”
But quick, we have to get back to big dollar numbers to ramp your greed back up… so we go right into the list of “checks” people are receiving:
“It’s estimated about $195 billion will be paid out this year alone.
“Just like at the size of some of these “bailout comp checks”…
“$18,815 paid to Thomas J.
“$18,530 paid to Scott J.
“$19,706 paid to Glenn M.
“$21,376 paid to Margaret K.
“$28,311 paid to Brian D.
“$40,806 paid to William H.”
And then, finally, the first clear statement of the ad… which comes 20 pages into the 43 page transcript:
“Depending on the size of your investment, it’s possible you could even cash a check in the amount of $65,372 just like Craig D. does.”
So we’ll emphasize that part, since they didn’t:
“Depending on the size of your investment”
So yes, I’ll bet that whole list of names is dominated by executives and board members of banks, who have very large shareholdings and therefore get large dividend checks. But let’s get into the details and see what other info we can uncover:
“There are dozens of banks paying these “bailout comp checks” to investors.
“But rather than tossing names at you, I analyzed this sector and found the best two for you.
“I picked them based on the following criteria:
“Ideally, they should have around $20 billion in assets. This is the sweet spot to benefit from the new law change.
“These are strong, healthy companies that are acquiring smaller banks.
“Their bottom-lines are booming—so the size of your ‘bailout comp checks’ will grow over time.
“And since they’re doing so well, you could more than double your money on their stock price!”
OK, so that’s their criteria for buying these banks… which ones are they hinting at?
Here’s the first bit of clues:
“Your 1st Source for Bailout Comp Checks:
“This bank is the strongest financially I found. While other banks were languishing under the bailout and the subsequent Dodd-Frank bill…
“This bank’s share price steadily climbed….
“… the CEO… Currently, he owns $43 million in company stock….
“Since 2010, his bank has acquired 15 banks.
“This grew their assets from $3 billion to $21 billion.”
And he also says that the bank’s net interest margin (which is the difference between what they earn by lending and what they have to pay for deposits or other funding) is 50% higher than its peers.
And, of course, “insiders are raking in piles of cash” with this one… for example:
“Dan T. takes home roughly $7,240.”
That’s true, though it has little to no bearing on the rest of us — Thinkolator sez we’re being told to buy Bank OZK (OXK), which used to be known as Bank of the Ozarks before they went on their wild expansion spree.
That “Dan T.” is presumably Dan Thomas, who is a Director and long-time executive at Bank OZK and a substantial shareholder, he owns 110,624 shares (market value about $4.5 million right now) and therefore when that 20 cent quarterly dividend is paid he gets a little more than $22,000… which, if you want to consider it on a monthly basis, would be about $7,375 a month (they did raise the dividend this summer by a half cent, so maybe that’s why Casey is lowballing that amount by a little bit… but that’s close enough).
If you wanted that kind of income, of course, it would cost you — you don’t work for OXK and don’t get any stock awards or options (I’m assuming), so you’d have to buy them on the open market. At $40 a share, buying that kind of income would cost you $4.4 million. The current dividend represents roughly a 2% yield, so if it’s just income you’re after, and you don’t wish to place a bet on whether Bank OZK will succeed in its business endeavors and grow its footprint in Florida or elsewhere, driving up earnings and the stock price, you could also get a pretty easy $7,000 a month in almost risk-free income from a money market account or savings account… it wouldn’t keep up with inflation but, well, if you’ve got an extra $4.4 million sitting around you’re probably not all that worried about inflation impacting your monthly income… though, to be fair, you also probably aren’t the target audience for a $99 newsletter that has to tempt you with “bailout comp checks” to get your attention.
Incidentally, Dan Thomas is pulling down at least $3 million in “non equity compensation” from Bank OZK, in addition to the $1.7 million worth of restricted stock he was granted last year, but he doesn’t wish to have all his eggs in OZK any more than you would — he sold about half the shares he was granted last year, at $47/share. There has been no buying among executives over the past year or two (that’s fairly typical, to be fair — insider buying is a nice positive signal for the stock price, but the absence of it is not necessarily a negative).
Bank OZK looks pretty impressive, thanks to their huge loan growth numbers and strong return on equity… but they’re probably a bit riskier than they look, too, since their loans are going to commercial real estate in (mostly) one region of the country, and I don’t have any idea how speculative those markets might be. A Motley Fool writer, for example, called attention to their high risk last year… worth considering, though I don’t know enough about the situation to play one side or the other. Do with it what you will.
And what’s the other one?
“Your 2nd Source for Bailout Comp Checks:
“I had a chance to get in on this next pick through a back door… way back in 2009. But other commitments kept me from pulling the trigger.”
If I’m right about this one, he’s probably pretty pleased to have not “pulled the trigger” … but let’s check the other clues:
“… had I owned it…
“It would have made me 7 times my money. And it was possible during the worst banking crisis since the Great Depression.
“That’s because this bank runs like a well-oiled, high-performance engine.
“Not only does the CEO and management team have this bank on point.
“They’re about to capture major market-share in Florida. That’ll fatten their bottom-line even more.”
Hmm… OK, maybe it was the wrong bank I had in mind. Other clues?
“Investors in on this bank since the start of the year are up 11.3%. That’s nearly three times better than Bank of America.
“And it’s 55% better than the S&P 500 so far.”
And we get a few other hints, with particular folks who have pulled in a lot of income from these “bailout comp checks”:
“Gerald L. bags about $8,642 monthly.
“And Andrew A. has $6,089 streaming in monthly.
“Then there’s Mary G. who’s netting about $9,426 on a monthly basis.
“Her income amounts to $113,118 yearly.
“Again, this assumes a large stake—but I don’t know of any other income vehicle as powerful as this.”
Seriously? That’s awfully disingenuous… banks can be good businesses, sure, but most folks wouldn’t consider them the most powerful income vehicles imaginable.
So who is this? Well, we’re left with a little lack of clarity, because I was assuming that the “back door” was probably one of the bank TARP warrants that were sold into the public markets by the Treasury Department after the bailout… but the other clues all point to a bank whose TARP warrants actually turned out to be a terrible investment.
Perhaps, then, the “backdoor” reference is not to a TARP warrant but to one of the smaller banks that this bank acquired along the way? We’ll have to leave this out there as a “maybe this is it, but we’re not sure” answer… Thinkolator points us to: Valley National Bancorp (VLY), which is another growing “small regional” bank, for lack of a better term — they have about $20 billion in assets, mostly loans on the books, and they have been expanding pretty aggressively in Florida, most notably with their acquisition early this year of USAmeriBancorp.
And like most banks they pay a decent dividend, though they have not grown the dividend in the past five years — that’s presumably because they’re pouring their capital back into growth, or maybe they were just paying too high a dividend in the first place or the regulators didn’t want them to grow it (it was a 7% yielder for a while back in 2013).
What’s that “backdoor” into the shares? Like I said, I thought it might be the TARP Warrants — Valley National, despite the “these small banks don’t need the gummint” talk, was one of the TARP bailout banks, and as such the government was granted warrants, which were later sold to the public — so there were TARP Warrants available for Valley National… actually, there still are (VLY/WS), but the exercise price is somewhere in the $17.50 neighborhood and they expire in November, so with VLY shares going for about $12, those warrants are essentially worthless and trade for less than a penny. If you had bought them when they were first sold by the government, they probably would have cost you 75 cents or so… with no real opportunity for a massive gain since they started trading, as far as I can tell (the stock hasn’t really gone anywhere for many years).
So perhaps that “backdoor” is that you could have been a shareholder of one of Valley’s acquired banks and gotten a nice boost… though 7X your money would be quite a stretch. There are plenty of banks that have returns like that since the bottom of the financial crisis, including some with much better returns (I still gnash my teeth at the fact that I sold JP Morgan and PNC Financial warrants far too early, for example, both of those would have been even more massive winners if held to expiration). Or maybe we’ve just got the wrong bank in this case, which is also possible — but I’m hung up on the individual clues, which in this case include those three insiders… what’s the match there?
“Gerald L. bags about $8,642 monthly” could match up with Gerald Lipkin, Chairman of the Board at Valley National… he actually sold almost all of his shares a few months ago, but before his sales in May he would have been pulling in about $9,535 per month in dividends… so that’s pretty close.
“Andrew A. has $6,089 streaming in monthly” could also match up nicely to Andrew Abramson, the Lead Independent Director who has 173,826 shares right now, which would bring in about $6,373 in dividends per month.
“Then there’s Mary G. who’s netting about $9,426 on a monthly basis” is a close match for Mary Steele Guilfoyle, who was a director of VLY for about 15 years — she just resigned about two months ago and has been selling down her shares, but if you caught her close to her recent maximum of about 263,000 shares she would have been pulling down close to that much in dividend income. Her income’s a bit below that now, with 240,203 shares held as of the last report in late July, she would be getting $26,422.33 per quarter, averaging out to $8,807.44 per month.
So those matches are pretty compelling… though whether you think Valley Bancorp looks great probably depends on whether you can see into the future — the past is not so inspiring, the shares right now are right about where they were at the depths of the financial crisis in early 2009, so your return over the past decade would have been pretty much limited to the dividend… but it is a profitable bank, they’ are making money and growing, and they’re not trading at a crazy valuation on a price/book basis (though only about half their book value is “tangible,” which is a little concerning for a bank — they’ve grown book value partly by acquiring other banks at a premium to book value, which goes into goodwill)… so, who knows?
I haven’t spent a lot of time looking at banks lately, but growing banks with solid return on equity who are able to grow their deposits and loan books in appealing areas of the country can certainly be worthwhile investments. Bank OZK looks like a much better bank than Valley National Bancorp, but that’s probably because they have a larger and more aggressive real estate lending business — which would, one assumes, also make them riskier in the event of a commercial real estate downturn. VLY is likely not being given much credit by investors for its relatively solid business, but maybe that’s because they haven’t been able to grow their tangible book value on a per share basis… or maybe there’s just not much motivation to buy a smallish low-growth bank when the big banks are doing so well. Perhaps sentiment or growth will begin to turn with recent acquisitions, I don’t know.
But we’re out of time for today, so I’ll leave you with those two ideas to research if you’re so inclined… yes, you can (sort of) get “Bailout Comp Checks” by buying shares of banks that pay dividends, but the average dividend yield on those kinds of smaller banks is in the 2.5% per year range, so to get those huge amounts cited you need to be prepared to buy millions of dollars worth of shares… or hope for some windfall gains as the stocks rise over the coming years.
I don’t have much of an opinion on the two banks teased, personally, but perhaps you do — care to share? Just leave a comment in the friendly little box below. Thanks for reading!
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