Dec
15

TARP Portfolio

Last week I posted to watch and see whether the TARP payment by Citigroup might be a market catalyst. This morning, Wells also announced that they were going to repay the TARP money.

The market appears to be opening soft today and I am looking to play the possibility of repayment of the TARP as a bullish story by buying BAC at $15, WFC at $25 and C at $3.5. I come up with these entries because $15 was the price of BAC’s secondary offering and my best guess is that $25 will be the discount on WFC’s secondary offering and that $3.5 will be the discount on C’s secondary offering.

Another potential candidate for the bank bailout portfolio is Lloyd’s (LYG). The bank has been recapitalized and avoided the UK government taking an additional ownership stake in the bank (unlike RBS). I think this could go down as low as $3 but I’m a buyer at $3.50 (200 day SMA).

I’m not expecting these stocks to take off right away. I’m looking at this portfolio of bailed out banks as a longer term investment rather than for a short term bounce.

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  • I did some thinking and I'm going to pass on WFC. It is only 30% off its high and that it is simply too rich considering it is hard to see bank profitability returning to the highs anytime soon.
    In contrast, BAC is 60% off its high and of course C and LYG are junk banks. The capital limits the downside risk but there is a ton of upside if these banks can just get back to normal.
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