Thursday will be a telling day to followers of Pacific Capital Bancorp. BankTalk has not been tracking Pacific Capital much in the last few months, as they sold their refund anticipation loan business to Platform Partners in early January.  Absent our gaze, PCBC shares have skyrocketed.  Believe it or not, but PCBC has soared from about $1.20 to over $4 per share.  It is the highest-returning stock in the Russell 3000!

This gain makes no sense.  The performance at the bank has done nothing to justify its returns. Here are few important facts:

• Pacific Capital still has not made a TARP payment.
• Pacific Capital has not addressed its capital ratios.  It has been operating in violation of expectations placed on the bank by the Office of the Comptroller of the Currency and the Federal Reserve for over a year.

Even a quantitative analysis hints that something is not right. PCBC’s Texas Ratio (non-performing assets/tangible equity) is 97 percent.  That means that if all of the non-performing assets had to be written off, that there would be almost not tangible equity left.  RBC developed this metric to predict bank failures. Banks tend to fail when Texas Ratios reach 100 percent.  Hmmm.

PCBC is trading above book value! This means that the market believes that all of those construction loans at PCBC are actually worth more than their outstanding principal balances!

According to Seeking Alpha, the largest investors in Pacific Capital are all index funds and quantitative funds. These are uncommitted buyers.

Pacific Capital will host an earnings call on April 29th.

I have new data on lending by JP Morgan Chase from last year.  Even at first glance, the numbers show how hard it has been to get a home mortgage loan.

Chase received more than 469,000 loan applications in 2009. They turned down more than 36 percent of those loans. That is much higher than in recent years. That is the big picture. Cutting their lending into smaller pieces shows where they were willing to offer capital, and where they were not.

• Not all loan guarantees were the same. For example, less than one of every four USDA and VA-back home purchase loans were denied, but more than 31 percent of home purchase FHA mortgages were denied.
• It was virtually impossible to get a loan to fix up your house.  Chase turned down 68 percent of rehab loans. It was even harder for African-Americans. Chase approved a conventional home rehab loan to only 1 in 10 African-Americans (10.7 percent).
• It was a market for refinancing: Chase had more than 267,000 applications for refinances and slightly more than 73,000 applications for home purchases.  Those applications resulted in about 118,000 refinances but only 25,760 home purchase loan originations.

To me, the most disturbing number is the sum of home purchase approvals. For one of the nation’s second largest bank to only make 25,000 home purchase loans is shocking. In 2006, JP Morgan Chase Bank made, by itself, more than 154,000 home purchase loans.  Chase Manhattan Bank, one of its subsidiaries, made another 19,101 home purchase loan originations.

JP Morgan Chase’s annual meeting is scheduled for May 18th in New York. Any shareholder can attend the meeting.

Warren Buffett has spoken out about derivatives in the past, but he is working hard to protect his own investments in these instruments from  potential Consumer Financial Protection Bureau legislation.

The trail from Buffett to bill goes through Nebraska Senator Ben Nelson.  Nelson inserted a provision in Senator Dodd’s current draft of the new CFPB bill that would exclude existing derivative contracts from supervision under any new legislation.

Warren Buffett

I am not arguing against that idea. Indeed, it seems fair as a principle (and well-established as a legal precedent) to not pass laws that ex post facto change the terms of agreements between private citizens. To me, the issue is Buffet’s two-facedness. He has been caught in a contradiction.

Here are two facts that don’t add up:

• Warren Buffett calls derivatives “financial weapons of mass destruction.”
• Berkshire Hathaway holds a portfolio of $63 billion in derivatives.

Buffett’s critique of derivatives would have a lot more weight if he wasn’t such an active participant in this area.

Buffett has a ready partner in Sen. Ben Nelson.  While Nelson got a lot of attention for exacting concessions from his own party in (more…)

Bank of America‘s shareholder meeting on Wednesday promises to attract plenty of attention from advocacy groups.

The North Carolina AFL-CIO is probably the largest group to organize in opposition to B of A. They are joined by the Community Reinvestment Association of North Carolina and NC United Power, as well as by others.

NC United Power is an affiliation of 24 religious groups. They are acting in coordination with the Industrial Areas Foundation. Last year, NC United Power took a stand against usury. They remain committed to putting a ceiling on interest rates. No less an expert than Moses (more…)

Goldman Sachs has your local community bank in its sights. Since last fall, Goldman Sachs has quietly purchased parts of four banks.  Another acquisition is currently pending a review by the Federal Reserve.

Here is a list of those institutions:

• Atlantic Capital Bank
• Avenue Bank
• Doral Bank
• First Marblehead Bank

The profile of these banks are all different, save for the fact that each has fallen into financial trouble. Goldman is striking when their prey is weak. Doral Bank, for instance, was a big player in sub-prime mortgage lending. First Marblehead has been one of the larger players in (more…)