First Citizens - New Stock Idea

[matjone]

what do you guys actually think about this deal?  Not that it matters much what me and my handful of shares have to say about it, but to me it looks like FCBN shareholders are getting shortchanged.  4 shares of fcnca with a bv/shr of 223 for 1 share of fcbn with a bv/shr of 1149.  I like the idea of a bigger and hopefully more efficient bank but it seems the terms could be better.

 

 

forgot to include the $50 payment.  Still seems like a bad deal.

 

[watsa_is_a_randian_hero]

what do you guys actually think about this deal?  Not that it matters much what me and my handful of shares have to say about it, but to me it looks like FCBN shareholders are getting shortchanged.  4 shares of fcnca with a bv/shr of 223 for 1 share of fcbn with a bv/shr of 1149.  I like the idea of a bigger and hopefully more efficient bank but it seems the terms could be better.

 

 

forgot to include the $50 payment.  Still seems like a bad deal.

 

I think they had good intentions (they own both), and in fairness to minority shareholders of both co's they designed it to be an exchange at roughly equal P/TBV ratios.  That said, FCBN's recent ROE has been much better than FCNCA's, and FCBN's long-term average ROE track record is much better than FCNCA's.  So, while the proposed transaction was certainly good in terms of boosting the stock price, I think FCNCA shareholders are getting a better deal than FCBN's. 

 

This conclusion came about to me after much thought over the last couple months.  While the proposal boosted the stock price to higher levels, I ultimately concluded I'd be better off to vote against the deal.  I also don't think it will matter what I vote, as I control a small number of shares (a few hundred shares between my own accounts and accounts I advise on), but nonetheless I wanted my vote heard.

[CorpRaider]

Any of you guys still involved with this one?  If so, can you give me a quick proxy check.  Am I reading this right that they get their equity compensation based solely on TBV growth (i.e., they explode the bank size and compensation by rolling up a ton of acquisitions...like a lot of CPG managements that were/are compensated purely on growth with no ROE/ROIC provisions)?  I understand management holds a ton of stock so that may counter any bad incentives, somewhat, but.... 

[WhoIsWarren]

Hi CorpRaider,

 

Yes I'm still involved.  Regarding your concern, I don't believe any compensation arrangement is perfect.  If there are bad actors and a weak Board then whatever the metrics used they can be gamed.  Regarding growth in TBVPS as a yardstick of how the bank is doing, I think it's as reasonable as you're going to get.  It's over 3 years and is not very aggressive (max payout 36% growth over period, 11% p.a.).  Intangibles are not a big feature of the b/s.  And while ROE is not explicitly mentioned, growth in tangible book value per share is a function of RoE.  There have been acquisitions it's true, but not that much really especially considering its strong b/s.  In fact, the bank has bought back c.10% of shares outstanding in the last 18 months or so at above book value.  I imagine they could have gotten more growth in book value through acquisitions?  Finally, note the low level of management pay compared to other banks.  CEO gets paid a modest basic $1m a year and his total comp is capped out at $3m.  If they really wanted to screw shareholders, bumping up basic pay a maximums would be the first port of call.  So overall I see is no evidence of abuse - in fact, quite the opposite.

 

As you mention, the Holding family members collectively owns over 50% of the company, a stake worth almost $3bn today.  CEO and Chairman Frank B. Holding Jr. owns at least 15% (maybe 20%?).  So protecting (and safely growing) capital must be to the forefront.  If they were stuck for cash, increasing the dividend (payout ratio less than 5%) would be an obvious first step.

 

[CorpRaider]

Yeah good points.  Thank you for your response. 

 

I've just been looking at some banks relative to WFC over the past week and had that question.

 

Related stream of consciousness:

 

I was looking at the MTB and the USB proxies too (not really as comps to FCNCA, just kind of fell down the rabbit hole).  I definitely would prefer some ROA ROTCE factors in there (like they have). 

 

I like the USB formulae the best (I think the MTB one was kind of vague, e.g., we are good guys and will do good things).  I noted that MTB reintroduced options (I might guess what Wilmers would think about that).  Rene' Jones comp has really jumped up from ~$4MM to ~$7MM.

 

...I like WFC, but I should probably grab a few shares of these others and start getting print annual reports.  I did like the Jones MTB letters.  The latest one discusses the ability for regionals to compete against the scale of the money center banks, particularly with respect to tech spending.

[WhoIsWarren]

I'll read of the MTB letter with interest.

 

One thing is for sure, the First Citizens' letters are bland so bland.