Mr. Pink, I have the following comments on the just released PVN earnings report:
(1) PVN's net interest income is actually negative (-$11.1 million). The reported income of $82 million actually comes from "non-interest" income. That is interesting. Where did "non-interest" income come from ? The "non-interest" income took a huge leap from $278 million in Q298 to $357 million in Q398. Without the "non-interest" income, PVN would have shown measly, if not losses, for the quarter.
(2) "Non-interest" income could have come from gain on sale of securities (securitization) or come from fees charged on loan originations. But comparing Q298 and Q398 reveals that PVN's consumer lending growth in unsecured lending (credit cards) and home loans is NEGATIVE. The big lending increase comes from "Unbanked". Just what is "unbanked" lending ? I surmise it is lending to consumers who have no bank accounts and can't get credit anywhere. Sounds risky to me.
(3) Loan securitization sales is a big fat zero. In Q298 and Q398, securitized loans remain at $6.8 billion. So, PVN isn't able to escape the demise of loan securitization market.
(4) PVN talked big about those 60% and 70% increase in revenue and earnings over comparable quarter last year and showed utmost confidence about 50% growth next year. Careful look over sequential growth of Q3 over Q298 reveals that loan growth (earning asset) is a mere 2% -- $12.1 billion over $11.9 billion. If this sequential growth rate is kept up, where will the 50% growth rate be coming from in 1999. The big lending boost comes from "Unbanked" lending, a jump over $600 million sequentially. The "Unbanked" lending is highly questionable in my mind.
(5) The on-balance sheet net credit loss rate has jumped from 7.74% in Q2 to 9.55% in Q3. This is a huge jump, indicating deteriorating loan portfolio. Any financial institution with bad loan approaching 10% will have its stock killed, but not PVN. Back in Q397, PVN's bad loan ratio is below 4%.
(6) Shareholder's equity increased from Q2 of $692 million to Q3 of $718 million for a gain of $26 million. Yet, PVN's Q3 boasts an earning increase of $83 million. Where did the remaining equity of $57 million ($82 mil - $26 mil) go ? Share buyback ? Don't think so, as the shares outstanding in Q2 and Q3 remain virtually unchanged.
(7) PVN is more of a credit card play than a home loan play, given the amount of outstanding unsecured lending ($8.8 billion out of $11.8 billion). With on-balance sheet credit loss approaching 10%, I don't think its off-balance sheet (securitized loans) can be much better. Now, who pays for the losses when the securitized loans go sour ? PVN or the unlucky purchaser of the securities. If the purchaser pays, I am sure the market for that securitized market is drying up quickly. The last financial company who got crazy over credit card lending is Advanta National Bank. Its stock is lingering at single digit and selling at 40% of its book value.
(8) The earnings reported can be easily massaged by increasing or decreasing the amount of loan loss provision. The real earnings is yet to be found. Remember Oxford Healthcare.
(9) Regardless, the book value is only $7.58 per share. Financial stock should only trade at twice book.
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