December 2008

Dec. 8, 2008

Dec. 18, 2008

Baby Bank Bailouts The Federal government is beginning to dole out the 700 billion dollar bailout with about 160 billion already allocated to 52 financial institutions.  Another 50 billion has been approved for 93 more banks.  These are the largest banks in the country, and not all of them necessarily need the money.  Many questions remain as to what will be done with this cash infusion.  The original plan as it was sold to congress involves the banks voluntarily using the money to make more, hopefully safer loans.  The problem is that little word voluntary, which is the same strategy used to try and get the banks to stop making these ridiculous loans in the first place, and we all know how that worked out.  It has been reported that most of the banks will likely use the money to either make other investments, or will just sit on it for the time being.  All if this means that small banks will begin to see quite a bit of action in the coming months.  Many small and regional banks trade on the OTC BB and on the NASDAQ Small cap. Many folks are wondering if the baby banks will ever get any of the cash, and they are certainly welcome to apply for it.  In fact, the deadline for private and thinly traded banks was set for this past Monday, and over 1000 community banks have already applied.  The collective wisdom says that smaller banks have not been affected nearly as much by this credit crash, but just because they made it through the first wave of credit defaults, does not mean that the second wave of exotic mortgage expirations will not take their toll.  Also, these small banks are having trouble getting the capital to make smaller loans that small banks tend to make, like home equity and auto loans.  Despite their almost certain need for the money, these banks are very apprehensive about the program, and do not want to end up with new regulations and so forth with executive pay and the like, not to mention a fairly hefty dividend that the government is asking for.

Another way that OTC BB and NASDAQ Small Cap bank stocks will be affected from the bailout is there vulnerability to being taken over.  Several big banks have already said that they may use the money to buy smaller banks.  This will create a lot of speculation and activity in these lightly traded stocks going forward, and could result in some tremendous trading opportunities.  Banks with the strongest balance sheets will hold up the best, and will either use money to take over other banks themselves, or will be able to fetch a price higher than current market value.   The drama is far from over, however, and calls for more small banks to get bailout money are getting louder and louder.  As it becomes more and more apparent that the bigger banks are hording the treasure rather than letting it trickle down, small business will begin to feel the crunch, and will join in the chorus. Some of the more heavily traded regional banks on the OTC BB and Pink Sheets include Florida Community banks inc. (FLCM), Allegiance Bank of North America (ABPA), Canton Bancorp Inc. (CBPA), USA Bank (USBK) and Community Capital Bancshares Inc. (ALBY).  On the NASDAQ Small Cap are tons of more active and liquid small bank stocks, including UCBH Holdings Inc. (UCBH), Citizens Republic Bancorp Inc. (CRBC), South Financial Group Inc. (TSFG), Frontier Financial Corp. (FTBK and Bank United Financial Corp. (BKUNA).                                                                           PSD Thur. Dec 18, 2008

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