treasury department

NJ Bank returns TARP funds, is it a good investment?

by Thomas Mullooly on April 11, 2009

The Treasury Department said Friday that Sun Bancorp Inc. of Vineland, New Jersey, repaid $89.3 million, money it originally received on Jan. 9. They gave back the TARP money. Does that make it a good investment?

Sun Bancorp has sufficient funds to complete the redemption.

Additionally:

“When the Capital Purchase Program (which is part of the Troubled Assets Relief Program, or TARP) became available to well capitalized and healthy financial institutions like Sun, it was a positive partnership between the government and business to stimulate the economy through additional lending and community support,” said Thomas X. Geisel, president and chief executive officer of Sun Bancorp.

Geisel continued: “The partnership then became politicized, the rules and regulations changed, and the dynamics of the partnership substantially shifted. These changes significantly restricted the way we support our customers and communities, as well as the way we run our business.”

Sun Bancorp was well capitalized by regulatory standards before accepting the CPP investment and will continue to be well capitalized under the same standards after the redemption.

Great.

I’m sure the Bank did not appreciate the Government getting into their business anyway. Neither would too many businesses.

But here is where it gets interesting:

The Company also issued a Warrant to purchase 1,543,376 shares of its common stock to the Treasury Department at an exercise price of $8.68 per share. According to the Company, they expect the Treasury Department to liquidate the Warrant following the full redemption of the Preferred Stock.

Part of the TARP deal was return of the money, plus interest, — plus warrants — to purchase shares in the bank. 1.5 million shares of the bank. This represents nearly 7% of the entire shares issued. They can exercise the warrants at $8.68, the stock closed Friday at $7.00. This creates significant overhang in the stock. I say that because a major stockholder (the US Government) will be looking the sell shares as the price moves up over $8.68.

So what does the chart look like?

Sun Bancorp-April-2009 Wow. The story sounds great, but the chart looks terrible. This is a stock that is stuck in a long term negative trend. And that trend will not change until the stock can break through that red overhead resistance line. That line is currently sitting at $11, a long way from $7.00. And in between $7 and $11, there is a significant amount of stock that will be for sale starting as soon as the stock moves beyond $8.68. This is a good example how we have to “marry” fundamental work with technical work. The fundamental story sounds compelling. The technical story looks ugly.

Good for Sun Bancorp, but I’d rather find somewhere else to put money to work.

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GM seeks up to $30 billion in Aid: fact?

by Thomas Mullooly on March 2, 2009

This was the headline on the Associated Press on the evening of February 17th, 2009. Is that a fact?

This is how the media distorts. Pay attention.

So many investment decisions — made by investors, traders, mom & pop, everyone — gets determined by the headlines.

I am no fan of GM whatsoever. I think their products are not very good, their cost structure is bloated and the executives should not get a bailout. Lots of bad decisions over the years have put and the entire American auto industry in this position — this isn’t something that unfolded in the last few months.

But the media should be shot for their careless and sloppy reporting. The distortion is maddening.

As a preface, GM is currently trading around $2.00/share. The stock price is ALREADY TELLING YOU the company should be in bankruptcy. Even if GM’s stock price were to jump 30% in a day (or even a week), it is still not hitting $3/share.

But the “early impression” I had from clients that had been in contact with me in these past 24 hours is that GM needs an *additional* $30 billion dollars. Why? Read the headline and first sentence from the Associated Press:

GM, Chrysler seek more government aid, to cut more jobs
THE ASSOCIATED PRESS

The U.S. auto industry needs even more help from the government to survive than originally thought.
General Motors on Tuesday said it could need up to $30 billion from the Treasury Department to keep operating.

Unless you read the entire story, you would never know the actual numbers.

GM had already been approved for $18 billion in November, but only used $13.4 billion. They are now asking for $9.1 billion. So they were originally approved for $18 billion and will need $22.5 billion.

By the way, buried further down is the point that the “new” $9.1 billion is not even actually cash, but loan guarantees.

What about the remainder?

The remaining $7.5 billion is an “emergency” line of credit GM does not expect to use, but wants to ask for and have lined up. This is a “worst case scenario” (it’s already pretty bad) but this will cover expenses like bankruptcy costs, if it gets to that.

It’s the media’s job to sell newspapers, attract eyeballs to their TV channel or website. Don’t forget that.

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0% yield on Treasury Bills

December 14, 2008

It was reported this week that the Treasury Department sold $32 billion in T-bills at a yield of 0%. Yes, that’s NOT a misprint: zero percent yield. These are treasury bills which mature in four weeks. Yields on these kind of investments have dropped from 1.75% this summer to zero in December 2008. Clearly, investors [...]

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