BankUnited’s earnings call late last week was chock full of quotes that are worth noting for the record. I will post again once I’ve been through their detailed financials. In the meantime, this should entertain:
–Mgmt noted that the stock is down (to $5, from a 52 week high near $29). This they blamed on “unregulated short sellers, the market and the general economic climate.” Hmmm. Nothing to do with the asset side of your balance sheet? The fact that 60% of the loan book is Option ARMs? Maybe it’s that 53% of the residential loan portfolio is in Florida, 9% is in California, and 7% is in Arizona….the bubbliest of the bubble states? Or maybe it’s becuase 92% of the $7.5 billion OptionARM portfolio, 55% of the total residential loan portfolio, is accumulating negative amortization?
Yup, must be those nasty short-sellers.
–A year ago, because BKUNA had “no non-performing assets….[the bank] had no structure to handle” NPAs. So they’ve now built up a team of 50 “from scratch.”
–Mgmt trumpeted multiple times on the call that they have “no exposure to subprime.” Fair enough. Though they didn’t care to mention that only 17% of the residential loan portfolio was full doc/employment verified. The rest is stated income, low doc or no doc. This fact they buried literally at the bottom of their earnings press release.
–Mgmt has a strategy to improve shareholder returns, they plan a return to their roots in “retail banking.” What’s a key pillar of this strategy? “Wealth management.” Oh, the irony. One wonders: will there be much wealth left to manage in Florida after the state’s housing mess works itself out?
–They seemed to make a big deal that 2006 vintage mortgages were the only ones popping up in NPAs and therefore the problem is manageable. Anyone else think 2005 and 2007 vintages will continue to perform just fine?
–Lest we all be fooled, management emphasized that “Florida is thriving!” And that “employment losses in construction are being absorbed.” Management is downright happy to be in Florida, which they describe as “one of the best markets, if not the best” to be in.
–At the end of management’s monologue about the quarter’s results, they noted that the bank will weather the housing storm because they have an “excellent management team.” No comment.
Oh, by the way, not once during the half-hour monologue did management mention negative amortization. Nevermind that NegAm made up 63% of net interest income in the quarter.
Then the call moved into the Q&A session…….
Q: Loan loss reserves increased from $59 million in the Sept. quarter to $118 million in the most recent quarter, but NPAs (again: non-performing assets) were $431 million, up from $209 million. Doesn’t it seem like reserves should be higher given the rapid increase in NPAs?
A: If NPAs continue to increase, reserves will increase. But we “don’t anticipate a reserve increase of this magnitude next quarter.”
Q: What happens if the nation falls into recession?
A. We think South Florida, where our loans are concentrated, is “resistant” to recession. All the “immigrants” coming from Latin America, you see.
Q: For non-performing loans, how are LTVs varying from the time when those loans were originated?
A: LTVs on NPLs is 90%, up from an average of 78% at origination. 9% of the increase is due to a decline the valuation, 3% is due to NegAm.
Q: S&P has estimated that losses from subprime loans will reach 30%. Thoughts?
A: S&P clearly messed up their ratings on debt securities so we’re not inclined to trust their estimates now. And remember we didn’t get involved in subprime. We never had 1% start rates. Those “are a joke!” [Note: high dudgeon!] Our disposal costs are 11%. That includes losses due to valuation, “but doesn’t include carrying costs.”
Q: How much of the residential portfolio is 30-89 days past due?
A: Last quarter it was $234 million and we anticipate this quarter’s number will be “slightly above” that when we release it. [They found the number later during Q&A, it was $290-$300m, up a "slight" 27%]
Q: How will lower interest rates impact you?
A: They will benefit us. As rates come down and conforming limits go up, more people will be able to refinance. [Anyone else peeved that the Fed is pumping liquidity back into the market? Or that taxpayers, er, Fannie and Freddie will take on more risk?]