Marshall & Ilsley
of Milwaukee closed at $7.78 Thursday or 0.9 times tangible book value. The stock was up 43% year-to-date.
The company owes $1.7 billion in TARP money, and has been making its dividend payments on government-held preferred shares.
Marshall & Ilsley's Tier 1 leverage ratio was 9.36% and its total risk-based capital ratio was 14.47% as of March 31. Guggenheim analyst Marty Mosby, in his report initiating his firm's coverage of M&I with a "Buy" rating, says the company "does not have [the] regulatory capital cushion to repay the TARP funds," and he expects the company to issue $1 billion in trust-preferred securities and another $1 billion in debt to repay TARP. This would be a big advantage to common shareholders, who would avoid having their positions diluted.
As we discussed in our look at
banks that could be hurt by regulatory reform
, Sen. Susan Collins's amendment to the bank reform legislation would bar banks from including trust-preferred equity in Tier 1 capital. If the amendment were enacted in its current form, the capital-raising plan discussed by Mosby would be untenable. Then again, the senator said last week that the exclusion of trust-preferred equity form Tier 1 capital would have to be phased-in.
The first-quarter net loss to common shareholders was $140.5 million or 27 cents a share, following a 2009 loss of $859 million or $2.46 a share, as the company made elevated provisions for loan losses.
Nonperforming assets comprised 5.55% of total assets as of March 31 according to
, down from 5.71% the previous quarter. The first-quarter net charge-off ratio was 3.89%, and reserves covered 3.55% of total loans. During the first quarter, net loan charge-offs totaled $423 million, which was the lowest level of loan losses over the past four quarters. While the company still reserved more than it lost -- adding $458 million to reserves during the quarter -- There were many signs that loan-quality problems had crested, since early-stage delinquencies had declined for four quarters and the inflow of nonperforming loans had declined to its lowest since the third quarter of 2008. .
With the political and regulatory bias against
equity, it seems likely that Marshall & Ilsley will at least consider a common equity raise. Some of that risk is baked into the current discounted price of the stock, which was trading for 9 times the consensus estimate for earnings in 2012. Marshall & Ilsley appears to be a decent play on the recovery for long-term investors. Mosby's 12-month target for the shares is $10, which represented a 29% gain from Thursday's close.
|Who Owns Marshall & Ilsley?