PCBC is overvalued based on future events.
Banks are highly leveraged businesses. The main source of funding are deposits insured by the FDIC. A non-bank company can attempt to exchange debt for new equity either out of bankruptcy or file for Chapter 11. Banks do not have this luxury. Regulators generally walk in on a Friday and shut you down.
I have spent most my business career in banking.
We are going to have to go over some math.
PCBC equity was $279.4 million at 3/31/10. When you strip out preferred stock of $177 million, there is about $102.4 million of common equity left after losing $83 million in the last quarter. At this run rate, PCBC will be out of equity in just under four months.
The company is under a Consent Order issued by the Office of the Comptroller of the Currency. One of the targets is Tier 1 capital at least equal to 9% of adjusted total assets (the “Minimum Capital Ratios”) by September 8, 2010. Capital ratio accounting is not a simple topic. To make it easy, PCBC needs to match 9 percent of $7.4 billion in assets with capital. The result is about $670 million.
Ford is going to invest $500 million.
The company’s $67.3 million aggregate principal amount of Trust Preferred Securities ; (ii) the bank’s $121 million aggregate principal amount of subordinated debt instruments ; and (iii) the Company’s Series B Fixed Rate Cumulative Perpetual Preferred Stock, aggregate liquidation preference $180.6 million (“Series B Preferred”), and related warrant to purchase shares of Common Stock, both issued to the United Stated Department of the Treasury are all going to be settled for less than what is owed.
Here is how it must work: (i) all Series B Preferred and the related warrant must be exchanged for common equity in an amount equal to twenty percent (20%) of the aggregate face value of the Series B Preferred and the amount of accrued but unpaid dividends on the Series B Preferred, with Common Stock valued at $0.20 per share for this purpose, and (ii) an amount not less than seventy percent (70%) of the combined aggregate principal amount of all series of the Trust Preferred and all series of the Bank Sub Debt must be exchanged for cash in an amount equal to twenty percent (20%) of the face value of the Trust Preferred and thirty percent (30%) of the face value of the Bank Sub Debt, respectively.
The total amount in the exchange/tender offer is $369 million. A large portion will be "foregiven", which magically becomes capital.
You see $.20 per share mentioned throughout the filings. The stock will eventually trade near $.20. Anyone paying today's prices will be upset at themselves in a couple of months.
The best time to buy is within minutes of receiving word that all conditions have been met. Gerald Ford, Carl Webb and the rest of the team are top notch. If the past is any indication, the New PCBC will eventually be a much large operation.
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