Beware Banks' Unfunded TARP Talk
This column originally posted on RealMoney.com on Jan. 30. For more information about subscribing to RealMoney, please click here.
"There cannot be honest markets without honest publicity. Manipulation and dishonest practices of the market place thrive upon mystery and secrecy." --Securities Exchange Bill of 1934
Colonial BancGroup's (CNB) recent disclosure of potentially problematic terms tied to a previously announced government investment should give investors pause about basing investment decisions on companies' statements about government bailout applications.
Colonial on Dec. 2 said in a Securities and Exchange Commission filing that the Treasury had approved an application for a $553 million preferred equity investment through the Troubled Asset Relief Program, or TARP. Shares of the $26 billion Montgomery, Ala., holding company responded by rallying 50%, closing at $3.08 that day.Investors wondering why Colonial hadn't made any further announcements likely got their answer when the company reported earnings after the market close on Jan. 27. In the report, Colonial mentioned that its preliminary approval to receive $553 million (a revised number) in TARP money was contingent upon raising an additional $300 million in capital on its own. The problem is the company never mentioned this in its Dec. 2 filing. In an environment where the public equity market was pretty much closed to banks, and the competition for private money was fierce, this might have raised concern to some investors who believed receiving the TARP money was a mere formality. Investors in BankAtlantic Bancorp (BBX), which has not updated the status of its Nov. 14 application for $124 million in bailout funds, and E*Trade Financial (ETFC), which has not yet received word from the government since its Nov. 7 application for $800 million, might want to take heed.
Colonial BancGroupColonial on Jan. 27 reported a fourth quarter loss of $825 million, which included a non-cash goodwill charge of $575 million. Excluding the non-cash items, the operating loss for the fourth quarter was $291 million, or $1.45 per share. Not surprisingly, shares were down 46% on Jan. 28, which was a great day for many other bank stocks.
Select the service that is right for you!COMPARE ALL SERVICES
Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.
- $2.5+ million portfolio
- Large-cap and dividend focus
- Intraday trade alerts from Cramer
- Weekly roundups
Access the tool that DOMINATES the Russell 2000 and the S&P 500.
- Buy, hold, or sell recommendations for over 4,300 stocks
- Unlimited research reports on your favorite stocks
- A custom stock screener
- Upgrade/downgrade alerts
Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.
- Diversified model portfolio of dividend stocks
- Alerts when market news affect the portfolio
- Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.
- Real Money + Doug Kass Plus 15 more Wall Street Pros
- Intraday commentary & news
- Ultra-actionable trading ideas
Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.
- 100+ monthly options trading ideas
- Actionable options commentary & news
- Real-time trading community
- Options TV