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Posted
On 12/27/2024 at 9:22 AM, Saluki said:

This is an old strategy that seems to be forgotten about. I think it was mentioned in Klarmans book. Seems solid but the few mutual bank conversions left are getting harder to find each year.

 

Not exactly micro bank stocks, but there are two that I came across recently but passed on if you are interested in digging deeper: 

 

Kyoto bank is trading below book and owns a lot of shares of other companies like Nintendo and Kyocera, so it's a way to buy them at a discount. Neither of my brokers allows me to trade their shares so I can't invest, but looks interesting. 

 

KB financial has been written about on here i think. Well capitalized Korean bank but I don't feel comfortable about it because of the exposure to the real estate sector in Korea which has unique and unusual characteristics for lending.


I own a little Kyoto financial. I should’ve just bought Nintendo.

 

korean real estate DOES. NOT. DEFAULT. not sure why but ages ago we were tasked with modeling Korean secured defaults. Had like 500k defaults on a 5b+ portfolio. Korean real estate DOES. Not default! (Take this with a grain of salt, this was 10+ years ago)

Posted (edited)
17 minutes ago, LC said:


I own a little Kyoto financial. I should’ve just bought Nintendo.

 

korean real estate DOES. NOT. DEFAULT. not sure why but ages ago we were tasked with modeling Korean secured defaults. Had like 500k defaults on a 5b+ portfolio. Korean real estate DOES. Not default! (Take this with a grain of salt, this was 10+ years ago)

How would you even model real estate defaults? So many idiosyncratic factors go into the default rate.

 

I think the Japanese banks have huge NIM upside of the BofJapan raises interest rates which slowly seems to be happening. Of course you have to look at the maturity of their existing loans and bonds which I have no idea how to do.

Edited by Spekulatius
Posted (edited)

There are a variety of factors - for the US market blackrock built an incredible model that took macro factors, and applied them at the zip code and zoning level...for the entire country. was a massive model and very detailed. it was used to model potential losses on ABS products.

 

For Korea it was again for modelling losses under various economic circumstances at the overall portfolio level. If I have some time tomorrow I will try and dig up the documentation.

 

But it was the most difficult portfolio to model because historical losses were so low. And it's difficult to sell "yeah we expect 0.0005% losses in cases where the country GDP drops 20% (or whatever)".  So we took the nearest/most similar countries historical behavior (default rates, valuations etc.) as a proxy. And we hired some dudes from SK to provide some local color. Their words were "it is very, very disgraceful to default on your home in SK. you do not do it". We sold the portfolio soon after so didn't really look into that to see if it was true, hence my tongue in cheek comment.

 

 

Edited by LC
Posted

Ultimately these are PD/LGD/EAD models - similar to credit scoring but also include some valuation component of the underlying real estate during various scenarios (HPI down 5%, 10%, etc.). We also bake in a haircut to liquidate. 

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