Mentioned this elsewhere earlier today, but shorted PacWest Bancorp (PACW) today at $20.45.
My general thesis in adding a bank short here (with perhaps others to come) is that banks are increasingly stuck between the rock of government regulators discouraging foreclosure and the hard place of deadbeat mortgage borrowers.
According to a recent NY Times article, more Americans have decided to stop paying their mortgages, and stop worrying about it ( http://www.nytimes.com… ). The couple profiled in that article is spending its mortgage money on steak dinners and trips to casinos. Makes me wonder how much of our recent recovery is a result of this sort of thing, mortgage money being channeled into consumer spending.
The NY Times article noted that the time it takes a deadbeat borrower to lose his property to foreclosure has increased 75% since 2008, thanks in part to government pressure against foreclosure. It takes an average of 415 days for a bank to evict a Californian from his home today. See this graphic:
So why short PacWest Bancorp here?
- Lost $2.17 per share over the last four quarters.
- Lost money in three out of the last four quarters.
- Negative returns on assets and equity.
- Weak chart, trading below 50 and 200 DMAs.
- Insiders have been net sellers over the last year.
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