Bank Strategy 2015 Review

Back in 2014, with a portion of my portfolio I embarked on a strategy of buying Regional Banks and collecting a dividend (although typically a little smaller) while waiting for a potential merger to occur.  In early 2015, this strategy was validated by Lanny (Dividend Diplomats) with his CZNC purchase.  At that time I had 41 positions with a 6-1-2  result.  Meaning, I had a 21.9% success ratio of picking merger candidates, with 2 being reverse mergers (I get screwed on the premium), and one (2.3%) with a full premium.

Now I can’t say that I was overly thrilled with the outcome of the first year, but Lanny thought it was decent.  So I did a little research and stretched into some smaller banks.  I bought a group and couldn’t  decide between SUSQ and MNRK as the final candidate.  I chose MNRK only to see BBT later pick up SUSQ.  Six months later I placed an order to buy NPBC only to see the price spike in pre-market trading.  I switched my order to PWOD only to find BBT beat me again.  But it did validate the theory that I’m getting closer to the ‘sweet spot’.

So the results for 2015 are in and my 49 positions produced a 16-3-0 result.  Meaning my selection of merger candidates improved to 38.7% but more important is receiving the premium on 3 (6.1%).  So now we’re seeing some results closer to my expectations!

I’m not certain how long this strategy will work and I’m under no illusions otherwise.  But I do expect it to continue through 2016 and will finalize this years entries probably around tax time.

Advertisements

4 thoughts on “Bank Strategy 2015 Review

  1. Thanks for linking to our website. I also agree with the strategy (this is the other Diplomat here, not Lanny). The banking industry is experiencing some intense consolidation for a variety of reasons (overbearing regulation, lack of succession planning, etc.). We have focused on purchasing stocks like CZNC because of not only their yield, but their strong ROA/ROE figures and lack of troubled loans. It is interesting to read about your results and the successes you have enjoyed since you are practicing this strategy on a pretty large scale. It is always fun to read about another person who is involved in this strategy.

    Take care and best of luck in 2016!

    Bert, The Other Dividend Diplomat

    Like

  2. Hey Bert – and congrats on the wedding! It appears the real gems can be found on the OTC market. But I prefer more liquidity – and visibility. I did run across a report on mutual conversions – and may make another OTC purchase – just thinking out loud now …

    Anyway Good Luck to you too in 2016!

    Like

  3. It’s like 2008 again for the oil and gas industry, where I think they will merge or get bought out as some small companies run out of cash and yields would get too high. Can’t pay the credit that they were going to use the money to expand. Their balance sheet is bad because they base the oil price of off $65-$70 instead current $30/barrel.

    I look at sea drill, marathon, BP as candidates to be bought, but I’m afraid they might have to crash before getting picked up.

    Like

  4. You’re probably right but I believe there is more carnage to be had. BP was already in a weakened position due to the Gulf spill. XOM or CVX might be suitors if prices are stable. I would be surprised if SDRL survives in its current form. They have about 25% of their rigs going off contract over the next year, moving more transactions to off balance sheet status, and the sheer amount of related party transactions give me pause. MRO is the most interesting but still a little risky for my tastes. But I do own BK which facilitated MRO’s last debt offering.

    Like

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s