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Strategies & Market Trends : Stocks Crossing The 13 Week Moving Average <$10.01 -- Ignore unavailable to you. Want to Upgrade?

To: KM who wrote (7052)	11/18/2000 6:53:24 PM
From: Bucky Katt	Read Replies (2) \| Respond to of 13094

RE: Our talk about a possible growing banking crisis, here is an excerpt from this weeks Barrons> Credit concerns re-emerged in the banking sector last week after two major institutions, Bank of America and First Union, warned in their 10-Q filings about their exposure to a single borrower, presumably the struggling Sunbeam. Bank of America also stated in its 10-Q that it sees a doubling in chargeoffs in the fourth quarter compared to the third quarter. Bank of America and First Union have an estimated $500-$600 million of loans to Sunbeam, whose stock trades for less than a dollar. The week also saw bankruptcy filings by Pillowtex and ICG Communications, while Regal Cinemas and Armstrong World Industries warned that they may seek bankruptcy protection. Armstrong is being overwhelmed by asbestos liabilities. The stocks of three other companies with asbestos exposure trade below 4, suggesting they look vulnerable: Federal-Mogul, Owens-Illinois and W.R. Grace. Finova, a sizable non-bank financial company, also is on the ropes. Its shares lost almost half their value, dropping 1.19 last week to 1.38, way below their 52-week high of 43, after announcing a potential $350 million equity infusion from Leucadia National, run by the talented and reclusive vulture investors Joe Steinberg and Ian Cumming. Finova fell despite that seemingly good news because the Leucadia infusion would likely involve massive dilution to existing Finova holders. One investor estimated that Finova's shares outstanding could balloon to 300 million from the current 61 million if all the new equity financing comes into place. The Leucadia equity infusion, however, is contingent on Finova reaching an agreement with its bank lenders. The banking sector also is being hurt by the ongoing crisis in the sub-investment-grade telecom sector. "The tally of stressed credits across the economy is mounting rapidly, suggesting an end to credit deterioration is nowhere in sight," wrote Kathy Shanley of the Gimme Credit newsletter. Bank of America fell 8 to 40.38; First Union was off 5 to 25.50; Bank One dropped 4.50 to 32.56 and Chase Manhattan declined 3.25 to 39.63. If Chase does experience credit setbacks and its stock continues to fall, J.P. Morgan may feel pressure from its shareholders to pull out of its merger with Chase. The original Chase offer for Morgan was over $200 a share, but Morgan stock now fetches 146. Morgan, in contrast with Chase, has little credit exposure. Credit-card specialists also got hit, with Capital One and Providian off sharply. One of the little-noticed disasters in the sector has been CompuCredit, a fast-growing sub-prime credit-card lender. Its shares fell only 0.25 to 18.88 last week, but they're down from an October peak of 66, before the company announced higher-than-expected loan chargeoffs in the third quarter. There's a big battle on the Street between CompuCredit bulls, who believe it's the next Providian, and bears who think the company will be overwhelmed by credit problems. The stock trades for just six times estimated 2001 profits of $3 a share, but the big question is whether it will achieve that forecast. "Banks need to come out of denial and recognize the scope of their problems," says Mike Mayo, the former banking analyst at Credit Suisse First Boston, who has long warned about the industry's credit exposure, including comments a month ago in Barron's ("Ear to the Ground," October 23). He points out that a third of all syndicated loans now are sub-investment grade. First Union and Bank One could be vulnerable to a downturn because they're already preoccupied with tough restructuring efforts. Wall Street has wanted to believe that Bank One's new chief executive, Jamie Dimon, can revive it, but Mayo thinks Bank One's problems may overwhelm Dimon's best efforts. Given its challenges, Bank One still trades at a relatively high 12 times projected 2001 profits of $2.88. Bank of America, by contrast, fetches under eight times estimated 2001 earnings. Some analysts think Bank One's profits could be just $2.50 a share next year. One of Mayo's concerns is that loans are going bad very rapidly. He noted that 15% of First Union's bad loans were made only this year. >what brilliant management!< Bank stocks look inexpensive with many trading at single-digit multiples of 2001 profits, but the issue is whether those earnings estimates are too optimistic given the worsening credit backdrop. The message is banks stocks are and have been short targets, and the FED is watching this close, you can count on it...And some of this may explain why they (FED) have held rates up, to slow or outright stop some these stupid loans. Remember, forget what they say, watch what they do. I think we have already figured it out! And consumer loan/mortgages may be the next hit.