Tuesday, August 12, 2008

NCC catalysts

6/30 Adjucted capital is as follows:
Equity 18.0
LLR 3.4
Visa 1.0
AAM .4
Remaining losses [3.8]
Remaining capital 19.0B
If 2X co. est. [3.8]
Twice the loss Cap 15.2B

At 6/30/08 NCC increased their estimated remaing loss in the worst portfolios to 3.8B. The losses are 2.5 in Nat HE, .3 in SubP 1st Mtg, .5 in SubP 2nd mtg, and .5 in Const. They charged off 1.3B YTD so they have taken or identified 5.1B of losses. But they raised 7B in a terribly dilutive offering so we should expect more hits in these portfolios or significantly larger than normal losses in the core business. But, the 2X estimate of 7.6 still to come would still leave them well capitalized and with a clean balance sheet.

So what could move the stock before it becomes evident that they have enough capital? The following events could be catalysts, in no particulat order:
Sale of the Liquidating Portfolio
Reduction of NPA and LLP in upcoming quarters
Sale of Allegiant Asset Management
Large new positions by leading value money managers 6/30 or 9/30
Strong BUY recommendations by Bove or Whitney
Elimination of FDIC Memo or SEC informal investigation

Those catalysts could accelerate the stock price movement. The underlying earnings will do it by itself eventually. NCC has pre provision and pre tax earnings of $600 per quarter. A $150 M ongoing provision gets pretax earnings of $450 0r 1.8B per year. With 2.1B shares outstanding, thats .85 eps. Using a 10P/E, 12X tax effected, gets an $8.50 share price on todays earnings stream and emphasis on collections, not growth. Normal times will grow the net significantly and the share price as well.

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