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10 Bank Stocks Trading Below Book Value

Pacific Capital Bancorp (PCBC) of Santa Barbara, Calif. was trading for 0.6 times tangible book value at Thursday's closing price of $1.35. Shares were up 41% year-to-date, however, the stock has been quite volatile, peaking at $5.11 on April 23.

TARP Status: The company owes $180.6 million in TARP money and has missed four dividend payments on preferred shares held by the Treasury.

Capital: As of March 31, Pacific Capital's Tier 1 leverage ratio was 4.29% and its total risk-based capital ratio was 9.64%, putting it below the thresholds required for most banks to be considered well capitalized.

On April 29, the company announced an agreement with a subsidiary of Ford Financial Fund LP for a $500 million investment, with Pacific Capital selling Ford's SB Acquisition Company $45 million in common shares for 20 cents apiece and issuing preferred shares for the rest.

As part of its agreement with the investment group led by Gerald J. Ford, Pacific Capital offered to redeem $67 million in trust-preferred securities at a generous 18 cents on the dollar. It also offered to tender $121 million in subordinated debt for 27 cents on the dollar. This is a perfect illustration of how painful it can be for investors to have their company "saved."

When the Ford investment is closed, Pacific Capital will begin a rights offering, giving shareholders of record the previous day an opportunity to buy common shares at the 20 cent price.

Earnings: Pacific Capital reported a net loss to common shareholders of $80 million or $1.71 a share, following a loss of $431 million or $9.24 a share during 2009. Most of the losses reflected elevated provisions for loan loss reserves.

Asset Quality: The nonperforming assets ratio was 6.00% as of March 31. The net charge-off ratio for the first quarter was 6.62% and loan loss reserves covered 5.77% of total loans.

Prospects: The Ford investment is probably sufficient to save the company, but will leave current shareholders with a very small stake. This company provides a case-study in the steep price that must be paid by various classes of investors to save a bank that's on the brink. Then again, as far as the debt holders and trust-preferred investors are concerned, the Ford deal certainly beats a total loss.

The volatility of the shares leading up to the Ford deal should be enough to scare investors away.
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