The Wall Street Journal site, wsj.com, published an article yesterday called Ugly Banks Are Alluring. The title makes me think of the folks who advertise We Buy Ugly Houses. Coming back to the message in the article, it seems some banks are being purchased at below market values. Distressed sellers where the owners of the bank are selling part of the firm so they can get out of a credit crunch. Discounts available for cash buyers.

For those RE investors in OH an icon of OH banking is featured. National City, headquartered in Cleveland, has just sold a large chunk of itself at a deep discount. Also mentioned is another bank many RE investors will recognize. Washington Mutual raised new funds by accepting a discount for cash.

When negotiating on an REO or a short sale just remember that the seller might need the cash a lot more than normal. Rather than fear bankers remember that when they have their cap out they look beggars in suits.

A couple of quotes from the article that are specific to National City.

"Lured by rock-bottom stock prices and enough leverage to buy stakes at steep discounts to existing shareholders, private-equity firms are betting that their targets will emerge from the ongoing crisis in stronger shape, even if the turnaround takes longer than such investors typically prefer."

...

"While existing shareholders won't like seeing their holdings diluted, Corsair and other investors getting bargain-priced shares threw National City a financial lifeline just in time. The bank reported a first-quarter loss of $171 million and slashed its dividend by 95% to just a penny a share. National City also warned that loan delinquencies and charge-offs will keep rising, citing trouble in its home-equity portfolio and small-business lending."

Keep reminding yourself that banks who are selling REOs or are foreclosing are also selling off large chunks of the bank. Bankers are looking for investors who can come in with cash and are willing to cut a deal for a piece of the bank. Sooner or later the banks will need to clear out all the bad assets (REOs). When they have fresh cash they can more readily take the full write-offs needed to clear the inventory.


A classic motivated seller focusing more on getting the cash than on the exact price they end up accepting to do the deal.

John Corey

http://online.wsj.com/article/SB120878432510831163.html?mod=hpp_us_whats_news
You likely need to be a paying member of the WSJ.com site to get the full article. If you want a full copy and cannot gain access try the cached option on Google.

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