There weren't any real strong reasons given for not selling. Afterwards, one of the guys (who owns PLT himself) said he was all set to vote to sell until my comment about bad management, which he didn't agree with. (?) Another guy usually doesn't comment much but his vote can carry or kill a motion because he's the largest share holder in out club. Interesting dynamics......
I did give everyone an alternative: Washington Mutual, (WM) or "WAMU." I had done an SSG back at our May meeting and it was a strong buy. I then sent out the following "10 Things I Like About WAMU" email when the Dime buy-out was first rumored. We voted to buy more last night.
BTW, WAMU had outstanding numbers yesterday, beating estimates by 10 cents.
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> In the case of WAMU, one of the factors that we analyzed for why the stock was in the doldrums for a long time was the interval needed to digest its last major acquisition spree
Yes, it took them a while to digest the big acquisition of Abrahmson (sp) two years ago (?), but this Dime rumor is a much smaller target. In addition, I would argue that a few years ago when Greenspan was raising fed rates we saw a contraction of WAMU's stock price because of the resultant squeeze on their margins. Most thrifts suffered then. Now, of course, it's different. The recent fed cuts, which make it cheaper to borrow money, have fueled a surge of mortgage business as buyers move to take advantage of lower rates through both refinancing and new loans.
Savings and loans stocks are generally viewed as defensive plays, another reason I like them. They perform best when the Federal Reserve is cutting interest rates and the stocks of more fast-growing companies, like technology firms, are falling. Banking analysts say that much of the money that's poured into S&L stocks during the past year came from money managers rotating out of tech stocks. If you're convinced the economy has bottomed out and tech companies are ready to get back on track, then we should discuss selling WAMU. But I think there's a lot of uncertainly about the economic recovery.
Because I'm assigned to follow WAMU, here's my 10 reasons why we need - and should increase - our "portfolio anchor" of WAMU and, by association, Fannie Mae:
1. Washington Mutual has a history of successfully integrating acquisitions. In Feb they bought Bank United ($18b in assets) and in April they acquired Fleet Mortgage ($6 bil in assets). They also recently bought the mortgage arm PNC Financial Services Group Inc. Dime has assets of about $27 billion.
2. Size counts, and so does geographic coverage. WAMU is now the largest thrift in the country (assets of $220 billion) and they would likely make bids for other East Coast banking companies if it succeeds in buying Dime. (Remember they are already in the greater Atlanta area.) As they grow and integrate, they Increase efficiency, lowering relative costs while increasing scale.
3. Favorable interest rate reductions lead to better margins. S&P says in their last WAMU report, "A wider net interest margin will drive an increase of over 40% in net interest income....Non interest income should also climb more than 40%, bolstered by higher mortgage banking revenues resulting from refinancing activity......we anticipate EPS will advance about 32% in 2001." And WAMU's trailing PE is 14 or so for a company growing at over 20%! (Yes, we must remember that banks are valued differently than tech stocks and that S&P - like other Street analysts - may be overly optimistic and their estimates should be taken with a grain of salt. Still, that's good growth at a very reasonable price.)
4. Because WAMU is both a lender and a mortgage banker, they can generate income throughout different interest rate environments with products and services like commercial banking, consumer finance, securities brokerage, mutual fund management and property/casualty/life insurance, and CDs. They attract new checking account customers with no-fee checking, and then can cross sell other products.
5. They have a strong and growing brand. It test well, perhaps because of the connotation of George Washington, or perhaps because people associate "Washington" with the word "trust," D.C., or whatever. The brand has successfully crossed the chasm from local thrift ("The friend of the family") to national player.
6. The Occasio retail concept pioneered in Las Vegas has broken all internal expectations. It's innovative. It's low cost. Customers like it. It tests well.
7. They have a higher quality loan portfolio than some of the larger banks, mainly because of WAMU's emphasis in residential, rather than commercial, loans. They seem to take fewer loan risks.
8. They know how to treat customers. As I reported in May, WAMU was the winner of the Satmetrix Best Customer Satisfaction Award for the financial services category. "Washington Mutual distinguished itself further by being one of only a few national banks to score higher than its regional competitors." WAMU uses comprehensive feedback systems and a number of incentive programs to assess and reward high levels of customer satisfaction.
9. They’re on a roll, as contrasted to most of our holdings. In May I also reported WAMU easily surpassed Wall Street's earnings estimates for Q1 (by 13 cents!!!!), declared a 3-for-2 stock split, added 430,500 new checking accounts, triple the number from last Q1, and declared a cash dividend of 22 cents. "This is a blowout,” said an analyst.
10. They have a seasoned management team that's been together for many years. They know how to grow. They are innovative risk-takers with a conservative, careful bent, in my opinion.
- Kris |
