IB Net Payout Yields Model

Trade: Added Regions Financial on Management Shakeup

Bought some more stock of Regions Financial (RF) in the Opportunistic (Long only) portfolio. Only had a 2% position and I doubled it to roughly 4% to bring it in line with the position weighting in the newly started model on Covestor.com that will be launched to the public in about a month.

RF was down some 9% at one point today after announcing management changes in the credit risk department. Naturally the stock dropped on news of a shakeup in management especially with several individuals 'retiring' in one department . I'm sure most sellers assumed more bad news on the way or possibly even some yucky fraud situation. (ok its not that natural to always shoot first without understanding the news but thats how the market works). Whats so bad about the Chief Risk Officer and Director of Credit Risk leaving when they were the risk leaders when the problems occurred? What risk did they help mitigate anyway?

This is another example of the market flying off the handle before researching the situation. Supposedly at the Merrill Lynch Banking conference today, the CEO mentioned that the BOD wanted them to leave since RF had not rebounded quickly enough from the financial crisis. Explains why the stock surged back to only a 4.5% loss more in line with the weak market. Our purchase at $5.7 is already looking good with the $5.9+ close. As they say, panicking never makes you money.

Sounds like excellent news to us. Management should've been moved out a long time ago. Whether this helps make room for a buyout is pure speculation at this point, but RF is ripe for a deal. A struggling regional leader where shareholders are likely to favor a premium cash out as opposed to holding on to see what management can do. appears to be an ideal candidate for a consolidator.  

via Bloomberg:

  • Regions slumped 49 cents, or 7.9 percent, to $5.71 at 1:38 p.m. after disclosing late yesterday the departures of Chief Risk Officer Bill Wells and the heads of credit risk and problem-asset management. The moves weren’t prompted by additional reserves or charge-offs for bad loans, the company said. The announcement is spurring investor concern that losses on loans may mount, said Christopher Gamaitoni, an analyst at Compass Point Research & Trading LLC in Washington.
  • The group of departures “certainly signifies substantial risks toward future performance and valuation of their current assets,” said Gamaitoni in an interview. “If the economy turns down and credit just doesn’t get any better, there’s a lot of negative reaction that could happen very quickly,” crimping the stock’s price, he said.
  • These departures are not the result of any determination with regard to additional problem loan migration, loan-loss reserves or charge-offs,” Chief Executive Officer Grayson Hall said in the statement. “We are committed to having a strong leadership team in risk management and to continuing to de-risk our balance sheet.”
  • Wells resigned, according to the statement. The firm’s director of credit risk, Michael Willoughby, retired. The head of problem-asset management, Tom Neely, “has left the company,” it said.
Prime example of the mindset on Wall Street these days. Automatically assuming the worst doesn't make an analyst more rigorous though a lot of people seem to think thats the case. 

Disclosure: Long RF


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