By Nigam Arora & Dr. Natasha Arora
Signal Limited is a Signal(s) with a great record in similar situations but does not meet all of the stringent criteria for a Signal. Typically Signal Limited has higher risk-reward compared to a Signal over the short term.
Finding The Gems
After the fall of Silicon Valley Bank (SIVB), Signature Bank (SBNY), and Silvergate (SI), stocks of regional banks have been wrecked. In many cases, babies have been thrown out with the bath water. The task for prudent investors is to pick gems in the wreckage.
The Difficulty
However, it is not an easy task because banks’ balance sheets are somewhat opaque. Often, only regulators and the bank’s management know what is going on.
The Potential Gem
New York Community Bancorp (NYCB) is a potential gem. How do we know this? Regulators have just allowed NYCB to buy certain assets of Signature Bridge Bank. NYCB is buying $12.9B worth of loans and the assumption of $34B in deposits.
The thinking is that regulators would not have allowed this if NYCB had problems on its balance sheet like many other banks.
$2.7B Potential Windfall
In addition to gaining $34B in deposits, NYCB is buying the loans at a $2.7B discount. Assuming these loans are ultimately paid, this is a potential big windfall for NYCB. Even if there are delinquencies in these loans, $2.7B appears to provide enough cushion.
Caution
As always, caution is warranted because these are complex transactions. We believe that our logic is sound, but there is no guarantee that regulators and bank management know all of the potential problems. For this reason, risk control is important.
Zones
The buy zone is 🔒 (To see the locked content, please take a 30 day free trial). The maximum recommended quantity is 25%. Consider scaling in with small tranches. To understand scaling in, please see the Trade Management Guidelines. The Trade Management Guidelines are billionaire and hedge fund techniques that all prudent investors should learn and use.
The mental stop zone is 🔒.
The target zone s 🔒.
This is a medium to long-term position.
Risk Control
The best risk control is a combination of the following:
- Total quantity. Please see the section “The First Line Of Risk Control” in the Trade Management Guidelines.
- Scaling in with small tranches.
- Scaling out in the stop zone.
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Nigam Arora
Nigam Arora is known for his accurate stock market calls. Nigam is a distinguished master of the macro. He is a popular columnist with over 100 million page views, an engineer, and nuclear physicist by background. Nigam has founded two Inc. 500 fastest growing companies and has been involved in over 50 entrepreneurial ventures. He is the developer of Theory ZYX of Successful Change Management and is the author of the book on Theory ZYX, as well as the developer of the ZYX Change Method for Investing.
Dr. Natasha Arora
Dr. Natasha Arora has significant expertise in investment analysis especially biotech, healthcare, and technology. Natasha is a graduate of Harvard Medical School followed by a postdoc at MIT. She has published several peer reviewed research papers in top science journals.
