Banking On It

It's been a while since I reported on the status of Sterling bank, one of our two local banks.  For the past few months, it really looked as if it were about to join the company of the 110 or so banks that have failed in 2010, its deposits to be taken over by some other bank or made good by the FDIC.  Although there was some rescue work reported, that effort seemed to have come a cropper.  Sterling's stock price continued to fall, its volume sales were erratic, the private equity firm that was apparently going to provide some of the capital it needed seemed to be joined by no one else able to make a sufficient increase in the bank's capital.

And then this week, a turnaround.  Of course, the turnaround in Sterling Financial's fortunes came at the expense of someone: in this case, its current share holders and then also the rest of us taxpayers.  Two private equity firms plus a few dozen smaller investors came up with over 700 million dollars and the bank returned to them about four billion shares of stock.  Which means that the current stock holders proportionate share of the company's value/earning was significantly lowered. 


And also, the U.S. Treasury Department had a little of the action.  Back in the grim Fall/Winter of 2008, Sterling got a bundle of money ($300 million plus) from the government which was converted to preferred shares.  This week, the agreement with the feds was to convert those preferred shares into common stock, now worth much less.  The Treasury, i.e. to say the taxpayers, took a $227 million dollar loss in this agreement. Of course, it would have been a bigger loss if the bank had failed and the FDIC had had to take on the costs of converting the bank PLUS the Treasury to lose all its investment in Sterling from the TARP program.  Sterling may well be rescued now, although it remains a penny stock, its current price around sixty cents per share.

I guess I can safely renew my check supply, though.

We've Been Here Before

You remember that Stanton Northwest Properties was going to build a hundred of million dollar houses back next to Lily Point Preserve, and it was going to have steps down to the beach and everybody rich from ROTUS was going to come and buy the million dollar houses and belong to the Lily Point Beach Club, even though the properties were way, way above the beach, but that's detail.   You do remember?  At the time, it seemed an unlikely development because the problems with real estate housing/development loans made either financing or proposing such a project seem like a very bad business to be in.  And then it actually became a very bad business to be in.  And Stanton, apparently, fell out at/with/through the bottom of the market.

But someone else, apparently, has taken up this burden of building a 100 big houses next to Lily Point Preserve.  It's an appalling idea, but somebody has to do it, apparently, and it is, according to those in a position to know, two companies named Lily Point, LLC, and Cassimar U.S. Inc.  And who would they be?  Googling provided a little Cassimar information but no Lily Point LLC information.  Cassimar is owned by someone named Wayne Knowles, out of the University of Saskatchewan, and now in Bellingham in the real estate world and apparently a Point Roberts resident.  It is surprising to think that someone doing this kind of deal would have so little Google presence.

A recent sheet of information about this appeared at the Point Roberts public library for purposes of providing information to the public.  The public, or at least some subset of it, is in arms or at arms or alarmed.  In any case, there is a public meeting on Monday night at the Community Center, 6 p.m., to discuss what might be done.  There are eagles and eagle nest trees and tree cutting at issue.  Also, the All Point Bulletin has many details from the County level of permits and requirements here. 

Here are some of the trees:

The area at issue is between Claire Lane and Paul's Road, with APA Road on the north and the beach on the south.  This photo is taken from the bottom of Paul's Road, looking back toward APA Road.  As you can see, lots of this acreage has already been cleared and there are lots of deciduous trees, as well.  But in the back, there's a fair stand of big firs, and as I took the picture, an eagle was larking around from tree to tree quite near me.

Another place we've been before is Sterling Bank.  For unknown (to the public) reasons, Sterling's stock today sky-rocketed, gaining about 60%.  Now that's not much in absolute terms, given that it has been hovering well below a dollar, but it went well up above $1.00, which is a big deal since it was under threat of being de-listed on the exchange.  Anyway, some recent developments suggest that someone may be attempting to buy the bank, which would/could be good for stockholders.  Today's stock sales were in the 16 million range, whereas a normal day is about 1 million.

Howl!

UPDATED BELOW
Coyotes very active today up here in the center parts of Point Roberts.  I don’t hear them all that often, and usually it is in the summertime.  But today, there have been repeated periods of call and response.  Omens of some kind, doubtless, but we’ve lost the ability to know what they’re trying to tell us.

And reasonably warm today, too.  Maybe that’s what they’re howling about.  The bushes are showing alarming signs of swelling buds.  ‘Wait,’ I want to tell them, ‘You’ve got all of January still to get through.’  But maybe they, like the coyotes, know something we don’t.  We did see, coming through Vancouver a few days ago a row of four trees in bloom--pink flowers--in front of the condos down on English Bay, right near the entrance to the Burrard St. Bridge.  And there are daffodils showing their leaf tips over at the Community Center, here in Point Roberts.  Well, we’ll see.

Other things we are seeing about:

1. According to the business news, the FDIC (the part of the federal government that is in charge of bank closings, among other things) is said to be getting serious with Sterling Financial Corp., the parent company of Sterling Savings Bank.  Sterling is said to have less than two months to get a plan together to get its business, as it were, back on track.  So we’ll be hearing more about that as February comes to a close.  In the meantime, two or three more legal firms have announced that they’re trolling for participants in a class action suit against the company.  The FDIC has been on a vacation as far as closing banks is concerned, but they’ll be back in that business next week.  It is also reported that they’re hiring a lot of new, but temporary, workers to help them in that sad activity.

2. The WUTC held its public hearing on Pt. Roberts' trash issues on the 29th, although earlier in the day than originally scheduled.  I suppose it occurred to them that it wasn’t difficult enough for people from Point Roberts to get down to Olympia for this hearing to find out what they think, so they re-scheduled it to 9:300 a.m.  A veritable red-eye trip.

In any case, they had the hearing, and attendance appeared minimal, at least as far as the ‘Sign-In Sheet’ revealed.  At the end of whatever happened, the Commission requested the staff to get some information for them (not a moment too soon, I’d say) as to Whatcom County’s actual trash/recycling plan, the Commission’s staff’s analysis of that plan, the State of Washington’s views on the status of Freedom 2000, and the (I assume) federal Dept. of Transportation’s view on the status of Freedom 2000 with respect to licensure  (12/31, 'notice of bench requests' at the link).

And within less than 48 hours, the state responded ('response' 12/31, at the link; now there’s a bureaucracy that’s performing at top speed; kudos to them) by announcing that they had dissolved the company (i.e., Freedom 2000) on December 1, 2009, because of the company’s failure to complete various paperwork required of such companies in order to be recognized by the state.  That would be 28 days BEFORE the public hearing on whether Freedom 2000, the company, should be awarded the opportunity to collect our trash and recycling. 

A friend asks, ‘So, where does that leave us now?’  Good question.  Freedom 2000 is no longer a company, apparently, and Points Recycling and Refuse, the Wilkowsky contestant, is offering to do less than the County says is to be done.  I would think that figuring this out would take, oh, maybe another 30 days?  Stay in touch.  Or maybe just howl.

Update:  On January 4, Freedom 2000 filed reinstatement papers, including fees, etc.  So, presumably it's back in business.  Link here.

Sterling's Struggles

It’s been about two months since Sterling Financial Corp., the parent/holding company of Sterling Savings Bank (which has a branch here in Pt. Roberts) received its ‘Cease and Desist’ order from the FDIC.  Sterling’s most important job during this period was to increase its capital by about $300 million.  In order to do this, the corporation could sell stock, sell bonds, or get a line of credit from some other financial outfit.  I guess they could sell assets, as well, including real estate they had foreclosed.  And there might be other things I don’t know about; I’m not an expert in this field—I just follow the news.

Selling stock isn’t very useful because Sterling stock sank on the FDIC order’s news.  The stock price has  bounced around over the last 8 weeks, but mostly it’s bounced down, and is now in the high 60 cent area.  Sterling did set up a web page where they were arranging to sell their foreclosed properties, but that’s not likely to be something that happens fast given the housing market.  Does private equity wish to rescue Sterling?  Would you think it was a good investment to buy Sterling bonds at this point?  No, nor would I. 

Poor Sterling!  It’s even been removed from the NASDAQ Mid-Cap listing because its stock fell below $1.00.  This delisting is a slow process, however, and what this amounts to is NASDAQ saying that they will really, really do it if Sterling's stock stays below a dollar/share over the next six months.  In addition, Sterling still owes interest on the TARP funds that it got from the U.S. Treasury, including the last payment that it missed.

Last week, there were stories in the financial press that Sterling was likely to miss its due date for that capital increase ordered by the FDIC.  That date would be this Tuesday.  Of course, the FDIC doesn’t have to do anything right away, and usually doesn’t.  There are many, many over 500 banks on the ‘Troubled Bank List,’ many more than are about to fail.  Banks that fail are usually on the Troubled Bank List, but it is possible to stay on that list for a long time, and it is even possible to get off that list by rectifying one’s financial problems.

From my vantage, Sterling looks like a pleasure boat surrounded by sharks, though.  This week, two law firms announced that they were looking for people to be members of a class action lawsuit against Sterling for federal securities law violations, relating to allegations that Sterling failed to accurately present its financial status last year.  These two (one, two) law firms are looking for people who bought Sterling stock from July '08 to January '09. 

A third law firm is looking for Sterling employees, whose retirement account funds were used to purchase Sterling stock during that period, as part of an investigation into whether Sterling failed to act prudentially under ERISA, the federal law that deals with retirement fund programs, and thus should be subject to another class action suit.

The company has traded out several of its highest officers.  But the sharks keep swimming closer. 

A few more banks fail almost every Friday.  And for almost all those banks, some other bank takes over the operation immediately.  On Friday, you have an account at Greenstreet Bank; on Saturday, that account is now held by Redstreet Bank, right in the same building it was on Friday.  The customers are safe; even the tellers and other day-to-day employees are usually safe.  It’s the shareholders, bondholders, and the executives who take the hit.  And in this case, it could also be the taxpayers, since there is a TARP investment at stake.  We live in interesting times, where it is possible to learn about things you never thought to learn about previously, including about your own little bank..

Sterling Update

Sterling Bank, it has just been announced, has received a 'cease and desist order,' which puts it on the list of banks likely to fail.  Not immediately and not necessarily, but in sufficient danger that it must either raise new capital or be taken over by the FDIC.  It's stock, not surprisingly, sank again today, down to the $1.40's this morning.  The CEO has been replaced.

Update:  "Customer deposit accounts and non-classified loans are unaffected by the agreement with regulators. Deposits remain fully covered by FDIC insurance to at least $250,000 per depositor. In addition, non-interest bearing transaction accounts and qualified NOW Checking accounts are fully guaranteed by the FDIC for an unlimited amount of coverage under the FDIC’s Transaction Account Guarantee (TAG) program, in which Sterling is a participant. The coverage under the TAG program is in addition to, and separate from, the coverage available under the FDIC’s general deposit insurance protection."  More info on the nature of the agreement with the FDIC here

Tarnished Sterling

Sterling Bank’s stock continues to struggle; today down in the $1.70’s per share, and lots more sellers than buyers.  Part of the problem, I assume, is that this past week it was revealed that among the many banks nationwide that received federal money from the TARP (troubled assets relief program), 33 have now failed to make at least one dividend payment to the U.S. Treasury.  (As a condition of receiving TARP money, each bank was to pay a 5% yearly dividend to the Treasury, in quarterly payments.)  Sterling received over $300 million from the TARP program last year, and thus would be expected to pay $15 million yearly/$3.75 million quarterly to the Treasury.

CIT Group also failed to pay its much larger dividend to the Treasury.  CIT Group is almost too big to fail even as it struggles to avoid bankruptcy.  Sterling Financial Corp: not so big.  Sterling previously cancelled its dividend on common stock and preferred stock, and also deferred payments to bondholders.  It did pay its TARP dividend payment in May, but missed the August payment.  This is not good news for our Point Roberts branch.

Law, Order, and Finance

“Hope is about 100 miles (160 kilometres) from Point Roberts, Washington state, the last place Jenkins was reported to have been seen before entering Canada. Police believe he took a speedboat from Blaine, Washington, across a bay to Point Roberts, Wash., and then walked across the Canadian border.” Thus reporteth the Associated Press.

Point Roberts is now so famous that I have had two California friends/relatives get in touch with me to find out about how we’re doing. That is, have we survived the brief visit to Point Roberts of some Calgary guy who is alleged to have killed some Hollywood model after appearing on a TV reality show. Well, with that kind of drama, I suppose Point Roberts is a natural next step on one’s escape route. And then a stroll across the border into Canada before going on to Hope to commit suicide. I guess Hope would be the next natural step, although Bountiful might be an alternative choice. All that border guarding and this is the result? A Canadian guy who has inspired a manhunt takes a speedboat to Point Roberts and then walks across the border? I presume he was not traveling with stone fruits or contraband beef.

[Later addition: It occurs to me that if he knew enough to get to Point Roberts from Blaine, he might have known enough to walk across the border at some locale NOT the border station.]

I guess we were lucky to have been up here in the Sunshine Coast so we didn’t have to risk being stuffed into the trunk of a car or whatever by the alleged Mr. Jenkins.

During the same interval, or a little more, the plucky little Sterling Bank has come to yet another crossroads that has left it looking unclear about the next step on its journey. Early this year it announced no dividend for the common shareholders. Last week, alas, it had to announce that it was not going to pay any dividend to its preferred shareholders either, nor to its junior debt holders, and its fans responded by knocking it down another 20+ percent. Now, at barely half the price of Citigroup, it looks like it has a chance to get back to its low of $1.01. That’s a destination that sounds a little Hopeless. On the upside, it hasn’t yet received a ‘cease and desist’ order from the FDIC, which means it is not on the FDIC list of 300 deeply troubled banks. That drama continues.

Banking on Change

Sterling Bank had another impressive adventure today. For a while it has managed to keep its stock at a substantially higher price than Citigroup (at least percentage wise). Citigroup is generally thought to be insolvent except for the fact that the U.S. Treasury thinks it’s too big to fail. But yesterday, Sterling announced plans to expand its ‘shelf registration’ to $500 million. That means it is asking the SEC to permit it to sell, as it needs to, up to a half billion dollars worth of stock, bonds, or whatever else it might have around to sell. At $2 and change per share, that would be a lot of stock. This would seem to suggest that its managers are thinking they’re going to be needing to raise more capital (sort of failing their own stress test?).

The market responded today by knocking off the Sterling Financial share price by 22%, putting it back down under Citigroup by about 16 cents (at $2.49: not as bad as it was in December of 2008, of course). I keep reading that community banks everywhere are about to be hit by commercial real estate loans gone bad. The FDIC keeps putting banks into receivership (but very few, so far, in the Northwest generally or Washington specifically.) Almost 60 banks closed so far this year, but that is nothing compared to what happened in the 1930’s depression. So, maybe it’s just another up and down for Sterling, and they’re just waiting, now, for the up part.

On the other hand, up here on the Sunshine Coast, we are now into another week of Festivals, and the sun keeps shining. Partying on!

Timing the Market

Much talk in the news about glimmers of improvement and the green shoots to be seen here and there. My plan for starting my future investment career was to buy 1,000 shares of our local Sterling Bank if it ever got to a dollar or below/share. And, although it did get very close to that--$1.03, I think, was the bottom so far—it did not meet my timing requirement and so I did not invest in bank shares. Alas, had I done so in early March when it got down very near a dollar, I would now have quadrupled my investment. Of course, because I was going to buy only 1,000 shares, I would have profited only $3,000. I think getting rich probably requires something more than penny stocks, $1,000, and a quixotic timing strategy. By contrast, many have recently found that losing a lot of money doesn’t require much of anything at all by way of strategy.

Sterling (and, to a lesser extent, Banner bank) continue to interest me, though. Sterling was around $9 in January, and now it is $4.33. About a month ago, it surged ahead of Citibank, and has managed to stay ahead, and everybody says that Citibank is insolvent. So the market seems to know that Sterling is better off than Citibank/Citigroup, but then that’s not saying much.

In any case, it may still be too early to give up my dreams of penny stocks. According to the academic economics blog ‘Calculated Risk’ (May 19) ‘Commercial real-estate loans’ (which are the real problem for small banks) “could generate losses of $100 billion by the end of next year at more than 900 small and midsize U.S. banks if the economy's woes deepen, according to an analysis by The Wall Street Journal. . . ..Total losses at those banks could surpass $200 billion over that period “

And today, according to the same source, “the FDIC released the Q1 Quarterly Banking Profile today. The FDIC listed 305 banks with $220.0 billion in assets as “problem” banks in Q1, up from 252 and $159.4 billion in assets in Q4.” That’s 305 banks out of the ‘900 small and midsize U.S. banks.’ And to add to Sterling Financial’s woes: the Fitch Rating Service downgraded the corporation ten days ago: Outlook, Negative.

Those green shoots now…where were they spotted?