David Tepper, founder of Appaloosa Management, specializes in distressed-debt investing. He has made some of his largest returns from crises, bankruptcies and other disasters. Case in point: his 132% return in 2009. Over his 18-year career at Appaloosa, he has also consistently timed investments and markets accurately, typically allowing him to enter and exit positions at the most profitable points. He has made a 29.2% average annual return since his fund’s inception. In light of his history of accurate timing of investments, his cutting of most of his bank stocks in the third quarter stands out as it is contrary to what many gurus, even Warren Buffett, are doing. He bought most of his financials at their lowest points. Which prompts the question of whether he is giving them up at the most optimal time as well.
In a 2010 interview on CNBC, Tepper said that investing in bank stocks during the height of the crisis was easy. The government had issued a Treasury paper announcing that they would buy Bank of America securities at $6. “They told me where they were going to buy other stocks. Nobody believed them, the market kept going down. We actually did,” he added.
In the same interview, he commented that he did not see a way to lose going long equities — either the economy would improve naturally and he would profit, or, the government would artificially raise it by a QE3. This year, no Q3 appears forthcoming.
“We’re, for better or worse, we’re a herd leader, ok? We’re at the front of the back. We’re one of the first movers. First movers are interesting. You get to the good grass first, or sometimes the lion eats you,” Tepper said.
The financial stocks David Tepper sold out of in the third quarter are: Bank of America (BAC, Financial), Fifth Third Bancorp (FITB, Financial), SunTrust Banks Inc. (STI, Financial) and Wells Fargo & Co. (WFC, Financial).
Bank of America (BAC)
Much of Tepper’s historic 2009 return came from acquiring 47,550,000 common shares of Bank of America near its breaking point, around $3 per share, in the first quarter of 2009. Only a quarter later, the stock had reached $10.86 and he began selling. He continued large portions of shares each quarter after that as the stock rose to as high as about $17 per share. By the third quarter of 2011, he had 10 million shares left, and sold them all at about $8 per share —just before the stock fell to a 52-week low of $5.13 in October.
On Wednesday, Fitch Ratings issued a report saying that U.S. banks have “manageable direct exposures to the stressed European markets (Greece, Ireland, Italy, Portugal and Spain)” but that “further contagion poses a serious risk.” The report also said that the U.S.’s sick largest banks — JPMorgan Chase & Co. (JPB), Bank of America Corp. (BAC), Citigroup Inc. (C, Financial), Wells Fargo & Co. (WFC) and Goldman Sachs Inc. (GS, Financial), and Morgan Stanley (MS) — had $50 billion in risk associated with the GIIPS as of Sept. 30.
Bank of America began issuing layoff notices on Nov. 17 in conjunction with its plan to eliminate 30,000 jobs by the end of 2012. Two more rounds of layoffs are impending, the Charlotte Journal reports.
Buffett, who recently invested in Bank of America preferred stock, takes a longer-term view. He told CNBC that, “Bank of America, you know, went off in a hundred different directions and a couple of them, such as Countrywide, are going to be ungodly expensive before they get all through with it. That's got nothing to do with the present management and Brian [Moynihan] has the job of cleaning up some of the problems of the past.”
Fifth Third Bancorp (FITB)
Tepper bought 21,849,728 shares of Fifth Third Bancorp as part of his bank shopping spree in 2009. He paid roughly $3 per share then, added 6,577,482 shares in the next quarter when the stock went to $6, and has been only selling the stock since as the price travelled up. In the third quarter, he eliminated his remaining 3,106,826 shares at about $11 per share.
Fifth Third Bancorp is a diversified financial services company headquartered in Cincinnati, Ohio. As of September 30, 2011, the Company had $115 billion in assets and operated 15 affiliates with 1,314 full-service Banking Centers. Fifth Third Bancorp has a market cap of $11.02 billion; its shares were traded at around $11.98 with a P/E ratio of 10.2 and P/S ratio of 1.5. The dividend yield of Fifth Third Bancorp stocks is 2.7%.
Fifth Third Bancorp never saw a revenue decline through 2008 and 2009, but in 2010, revenue fell to $7.2 billion, its lowest since 2004, from $9.5 billion in 2009. Free cash flow has held fairly steady, and return on equity and return on assets expanded.
While the bank does not originate subprime mortgage loans, hold credit default swaps or asset-backed securities backed by subprime mortgage loans, it has exposure to weakened economic conditions and a challenging credit environment. The provision for loan and lease losses decreased 81% year over year in the third quarter and nonperforming loans decreased to 2.44% from 2.72% year over year.
George Soros bought a small position in Fifth Third Bancorp in the third quarter.
SunTrust Banks Inc. (STI)
SunTrust Banks, Inc. is a commercial banking organization. Suntrust Banks Inc. has a market cap of $9.7 billion; its shares were traded at around $18.06 with a P/E ratio of 15.4 and P/S ratio of 1. The dividend yield of Suntrust Banks Inc. stocks is 1.1%.
SunTrust Banks traded for about $90 a share at its peak in 2007, and slid to about $7 in early 2009. At that point, Tepper bought 5,050,000 shares, followed by 3,490,930 in the second quarter of 2009. Again, he mostly sold shares as the price increased, finally selling his remaining 1,373,099 shares in the third quarter of 2011, at roughly $21 per share. SunTrust participated in the Fed’s Troubled Asset Relief Program (TARP), and faced investigation for executive compensation. In April, it completed paying back the $4.85 billion it owed from the bailout.
Revenue at the bank corporation has declined annually from 2007 to 2010, and is lower than 2010 for the trailing 12 months. Its return on equity, however, expanded from .80% in 2010 to 4.3% in the third quarter. Return on assets, likewise, expanded from .1% to .5% in the same time span. Deposits grew 10% from 2009 to 2010. Its nonperforming loan rate decreased to 4.08% from 5.33%
On Wednesday, Suntrust Banks was the fifth most shorted bank stock. On Thursday, JD Power & Associates announced SunTrust Mortgage ranked third highest among mortgage originators in its customer satisfaction survey.
Wells Fargo (WFC)
Wells Fargo & Company is a diversified financial services company providing banking, insurance, investments, mortgage and consumer finance services through stores, its Internet site and other distribution channels across North America as well as internationally. Wells Fargo & Co. has a market cap of $131.68 billion; its shares were traded at around $24.94 with a P/E ratio of 9.2 and P/S ratio of 1.4. The dividend yield of Wells Fargo & Co. stocks is 1.9%. Wells Fargo & Co. had an annual average earnings growth of 5.4% over the past 10 years.
Unlike his other bank stocks, Tepper bought Wells Fargo in the fourth quarter of 2009, with 11 million shares at about $28 per share, and did not turn a significant profit from it. Most of his trades since then have been sells, with a small purchase of 1,049,400 shares at about $28 per share in the fourth quarter of 2010. He liquidated his remaining 2,906,860 shares at about $26 per share in the third quarter of 2011. Wells Fargo is one of Warren Buffett’s favorite stocks as the third largest holding in his portfolio.
Wells Fargo’s revenue declined marginally from 2007 to 2008, and jumped from $52 billion in 2008 to $99 billion in 2009 on its purchase of Wachovia. In 2010, however, revenue decreased to $93 billion, with $89 billion for the trailing 12 months. Return on equity and return on declined from 11.1% in 2010 to 9.9% in 2010, though the third quarter saw improvement to 11.6%. Return on assets remained flat at 1% from 2009 to 2010, and increased to 1.2% in the third quarter.
Both loans and deposits increased year over year in the third quarter. Revenue declined to $19.6 billion from $20.4 billion. “While certain market-sensitive revenues were down from the second quarter, many of our businesses grew revenue,” was Wells’ Chief Financial Officer Tim Sloan’s comment on the situation.
To learn more about David Tepper and see what else he bought and sold last quarter, go here.
In a 2010 interview on CNBC, Tepper said that investing in bank stocks during the height of the crisis was easy. The government had issued a Treasury paper announcing that they would buy Bank of America securities at $6. “They told me where they were going to buy other stocks. Nobody believed them, the market kept going down. We actually did,” he added.
In the same interview, he commented that he did not see a way to lose going long equities — either the economy would improve naturally and he would profit, or, the government would artificially raise it by a QE3. This year, no Q3 appears forthcoming.
“We’re, for better or worse, we’re a herd leader, ok? We’re at the front of the back. We’re one of the first movers. First movers are interesting. You get to the good grass first, or sometimes the lion eats you,” Tepper said.
The financial stocks David Tepper sold out of in the third quarter are: Bank of America (BAC, Financial), Fifth Third Bancorp (FITB, Financial), SunTrust Banks Inc. (STI, Financial) and Wells Fargo & Co. (WFC, Financial).
Bank of America (BAC)
Much of Tepper’s historic 2009 return came from acquiring 47,550,000 common shares of Bank of America near its breaking point, around $3 per share, in the first quarter of 2009. Only a quarter later, the stock had reached $10.86 and he began selling. He continued large portions of shares each quarter after that as the stock rose to as high as about $17 per share. By the third quarter of 2011, he had 10 million shares left, and sold them all at about $8 per share —just before the stock fell to a 52-week low of $5.13 in October.
On Wednesday, Fitch Ratings issued a report saying that U.S. banks have “manageable direct exposures to the stressed European markets (Greece, Ireland, Italy, Portugal and Spain)” but that “further contagion poses a serious risk.” The report also said that the U.S.’s sick largest banks — JPMorgan Chase & Co. (JPB), Bank of America Corp. (BAC), Citigroup Inc. (C, Financial), Wells Fargo & Co. (WFC) and Goldman Sachs Inc. (GS, Financial), and Morgan Stanley (MS) — had $50 billion in risk associated with the GIIPS as of Sept. 30.
Bank of America began issuing layoff notices on Nov. 17 in conjunction with its plan to eliminate 30,000 jobs by the end of 2012. Two more rounds of layoffs are impending, the Charlotte Journal reports.
Buffett, who recently invested in Bank of America preferred stock, takes a longer-term view. He told CNBC that, “Bank of America, you know, went off in a hundred different directions and a couple of them, such as Countrywide, are going to be ungodly expensive before they get all through with it. That's got nothing to do with the present management and Brian [Moynihan] has the job of cleaning up some of the problems of the past.”
Fifth Third Bancorp (FITB)
Tepper bought 21,849,728 shares of Fifth Third Bancorp as part of his bank shopping spree in 2009. He paid roughly $3 per share then, added 6,577,482 shares in the next quarter when the stock went to $6, and has been only selling the stock since as the price travelled up. In the third quarter, he eliminated his remaining 3,106,826 shares at about $11 per share.
Fifth Third Bancorp is a diversified financial services company headquartered in Cincinnati, Ohio. As of September 30, 2011, the Company had $115 billion in assets and operated 15 affiliates with 1,314 full-service Banking Centers. Fifth Third Bancorp has a market cap of $11.02 billion; its shares were traded at around $11.98 with a P/E ratio of 10.2 and P/S ratio of 1.5. The dividend yield of Fifth Third Bancorp stocks is 2.7%.
Fifth Third Bancorp never saw a revenue decline through 2008 and 2009, but in 2010, revenue fell to $7.2 billion, its lowest since 2004, from $9.5 billion in 2009. Free cash flow has held fairly steady, and return on equity and return on assets expanded.
While the bank does not originate subprime mortgage loans, hold credit default swaps or asset-backed securities backed by subprime mortgage loans, it has exposure to weakened economic conditions and a challenging credit environment. The provision for loan and lease losses decreased 81% year over year in the third quarter and nonperforming loans decreased to 2.44% from 2.72% year over year.
George Soros bought a small position in Fifth Third Bancorp in the third quarter.
SunTrust Banks Inc. (STI)
SunTrust Banks, Inc. is a commercial banking organization. Suntrust Banks Inc. has a market cap of $9.7 billion; its shares were traded at around $18.06 with a P/E ratio of 15.4 and P/S ratio of 1. The dividend yield of Suntrust Banks Inc. stocks is 1.1%.
SunTrust Banks traded for about $90 a share at its peak in 2007, and slid to about $7 in early 2009. At that point, Tepper bought 5,050,000 shares, followed by 3,490,930 in the second quarter of 2009. Again, he mostly sold shares as the price increased, finally selling his remaining 1,373,099 shares in the third quarter of 2011, at roughly $21 per share. SunTrust participated in the Fed’s Troubled Asset Relief Program (TARP), and faced investigation for executive compensation. In April, it completed paying back the $4.85 billion it owed from the bailout.
Revenue at the bank corporation has declined annually from 2007 to 2010, and is lower than 2010 for the trailing 12 months. Its return on equity, however, expanded from .80% in 2010 to 4.3% in the third quarter. Return on assets, likewise, expanded from .1% to .5% in the same time span. Deposits grew 10% from 2009 to 2010. Its nonperforming loan rate decreased to 4.08% from 5.33%
On Wednesday, Suntrust Banks was the fifth most shorted bank stock. On Thursday, JD Power & Associates announced SunTrust Mortgage ranked third highest among mortgage originators in its customer satisfaction survey.
Wells Fargo (WFC)
Wells Fargo & Company is a diversified financial services company providing banking, insurance, investments, mortgage and consumer finance services through stores, its Internet site and other distribution channels across North America as well as internationally. Wells Fargo & Co. has a market cap of $131.68 billion; its shares were traded at around $24.94 with a P/E ratio of 9.2 and P/S ratio of 1.4. The dividend yield of Wells Fargo & Co. stocks is 1.9%. Wells Fargo & Co. had an annual average earnings growth of 5.4% over the past 10 years.
Unlike his other bank stocks, Tepper bought Wells Fargo in the fourth quarter of 2009, with 11 million shares at about $28 per share, and did not turn a significant profit from it. Most of his trades since then have been sells, with a small purchase of 1,049,400 shares at about $28 per share in the fourth quarter of 2010. He liquidated his remaining 2,906,860 shares at about $26 per share in the third quarter of 2011. Wells Fargo is one of Warren Buffett’s favorite stocks as the third largest holding in his portfolio.
Wells Fargo’s revenue declined marginally from 2007 to 2008, and jumped from $52 billion in 2008 to $99 billion in 2009 on its purchase of Wachovia. In 2010, however, revenue decreased to $93 billion, with $89 billion for the trailing 12 months. Return on equity and return on declined from 11.1% in 2010 to 9.9% in 2010, though the third quarter saw improvement to 11.6%. Return on assets remained flat at 1% from 2009 to 2010, and increased to 1.2% in the third quarter.
Both loans and deposits increased year over year in the third quarter. Revenue declined to $19.6 billion from $20.4 billion. “While certain market-sensitive revenues were down from the second quarter, many of our businesses grew revenue,” was Wells’ Chief Financial Officer Tim Sloan’s comment on the situation.
To learn more about David Tepper and see what else he bought and sold last quarter, go here.
