Something Funky Going On With Financials – Treasury Puts In Floor Price on Regional Banks
There’s a local bank I’ve been keeping tabs on called Integra Bankcorp. Its a small regional firm that is essentially a savings and loan bank, they take in deposits and give out mortgages. Behind the scenes there is something going on, the Treasury is keeping its stock price, and likely the stock prices of many other regional banks, artificially higher.
Doing research on this kind of thing is difficult. SEC filings are as hard to find as they are to read but through Google search I was able to stumble upon a goldmine of information.
Check this out, right there, that’s the key to the financial rally that began March 6 and its stuck in the hard to read legal jargon that the SEC likes to use to make sure only collegiate-level readers can profit on the news.
Here’s the deal:
The treasury has a warrant to buy 7,418,876 at an exercise price of $1.69 per share for ten years, which was granted to the treasury for its purchase of 83,586 preferred shares at a price of $1000 a piece ($83,586,000 total). The preferred shares yield 5% for the first five years and 9% for each subsequent year.
If shareholders do not agree to the 35% dilution of their common stock shares, there are only 20.6 million in existence, then the following will occur:
The price will then drop by another 15% to $1.44 per share and do so each 6 months until the price falls to a set low of $.93 per share. So should the shareholders decide they don’t want to liquidate, the floor price the treasury is willing to pay will drop. Again, the Treasury can buy the shares at any time in the next 10 years for a set minimum price of $.93 pending the shareholders are interested.
This is why the banks are popping. Not because the economy is getting better, not because US banking is sound, and not because ordinary investors want this corporate fascism. The treasury issued a floor price of $1.69 for the common stock shares on February 25th and look what happened after that:
The equilibrium price at which investors should accept the dilution is $1.09 per share. Shareholders should be willing to sell at $1.69 to the treasury only if the price of the stock is lower than $1.09. I have marked this level on the chart.
There’s a long time to go for this company, and the warrant to buy the stock. Though I’ll admit I missed out on the first cha-ching on the government’s dollar, I’ll be in on the next! Until 8/25/2009, this stocks a buy at any price below $1.09, its free money!
Just for added fun, check out how the insider’s traded:
Yeah, they know what’s going on. 
