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Strategies & Market Trends : Value Investing

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To: Paul Senior who wrote (21378)	5/25/2005 1:15:20 AM
From: Spekulatius	of 78673

re Doral (DRL) valuation - 110M shares = 1.54B$ market cap - 3.6B$ deposits - Earnings/share 2004 =4.23$ but this needs to be readjusted - according to management 40% of earnings are not mortgage related = 1.7$/share - IO restatement will reduce book value by 400M$ after tax. Adjusted book value will be 1.55B$ = 14$/share Gains on sale of Mortgage gains were 600M$ and incidentally or not?) 509M$ in IO's were retained. I conclude the without IO's the Gains on mortgage sale would essentially disappear. Thus, for valuation purposes, i value DRL's mortgage operation at zero $. If that is the case and the remainder (sans IO) of DRL's books are not cooked (a somewhat heroic assumption) a buyer at current prices would basically by a bank at book value with a PE of 8.2. This would make DRL's undoubtedly a value stock. The problem of course is the assumption that DRl's books are clean, with the exception of the IO strip valuation. I also looked at other Puerto Rican banks:RGF, which has somewhat similar problems and OFG which has a pretty scary non-performing loan rate (3.87%) on it's loans considering the booming real estate market but a much less leveraged balance sheet.

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