RE:RE:RE:RE:RE:RE:CC --HC confident of alternate funding solutionsWith your level of financial knowledge, equity investing is the last thing you should be doing, especially dealing with one that's in crisis.
I am going to make this very easy for you in a form of equation. On a regular day, Book value per share = (Average SE + Retained Earnings) / # of shares outstanding. The BVPS is just a measurement, an indicator, mainly for comparable analysis. You compare BVPS of A's to B's of a similar company to see who is trading at premium/discount to one another. On its own it is not going to tell you much. Forget that $26 per share bs... that is not how you interpret it.
In the event of crisis, like one of the long investor here pointed out, the BV is the value in its most straightforward form: How much is it worth once you subtract all the liabilities from the assets, on paper. However, the problem is here. HCG is not like a manufacturer with lots of physical/tangible assets, unlike auto manufacturers or retailers. So, in the event of crisis, the assets, which primarily comprised of single family residential mortgages loans (Non securitized mortgage loan assets), are hard to put a price tag on. $20B accounting assets of this nature ARE NOT how much they are going to sell for. Please remember this.
For CFA there are strict criteria in valuating BV if the assets have a huge impairment/allowance nature. That's why they need to do impairment testing so often.
The reason why everyone is panicking or nobody wants their loan book is because of the implication of these subprime non-securitized mortgages in the event of housing collaspe, even one that is small scale. If it's the Big5's loan book they are probably easier to sell off, but the primary mortgagees of these mortgages are b-rated, meaning they typically have a harder time getting finance from the top tier lenders. (Business for self/Off the record income earners/Day Traders like you)
Circle back to the assets' face value, like you said, of $26/share. In the event of housing collaspe, hypothetically, for 50%, it doesn't work out to $13/share. Your liabilities are the same, but your asset value will be impaired as mortgagees default on their loans.
i.e. If you have a conventional mortgage with 35% downpayment on a $1M property, you owe Home Trust $650K + interests amortized for the next 25 years. If the value of the property goes to $500K, what are you going do? If you keep working hard and weather through the cycle, maybe the value goes back up and you are okay. BUT your neighbour Fred isn't as lucky. His business went belly up and he has to default on the mortgage. Home Trust gets nothing back but the $500K property that's up for auction. The assets then are impaired, or they called it the credit loss. Now think of a business who have a loan book with all these subprime mortgages, tell me on if I am spilling non-sense to say the BVPS is not $26? Pal it is not $26 I can tell you that.
Have good weekend.