Life & Banc Split Corp T.LBS

We are all anonymous here

[Obscure1]

None of you know who I am and vice versa.

You have no reason to trust what I write here.  Heck, the mere fact that  I'm posting this should be setting off your spidey senses.

The backlash from the Credit Suisse news today is being felt across the world.  Asian bank stocks are taking a hit tonight.

You are probably thinking that this has nothing to do with you as nothing bad can happen to Canadian banks and the lifeco's.

You may be right, but you also may be wrong. 

We got a glimpse today of what could happen.  Manulife shares dropped 3.27% and Sunlife shares dropped 2.57% today.  They are not immune and neither are our bank stocks.  Today we saw National bank share drop 4.2%.   

I don't have a crystal ball.  While I was a Bay St financial analyst in the past, that experience doesn't give me any additional insight in this situation.  What I think I can offer from 40 years in the markets is that none of us can predict the immediate future and none of us are smart enough to outsmart the market.

I don't know how the banking tremors that we are seeing are going to work out and when. 

What I do know is that LBS is highly leveraged to movements in the banks (and lifeco's which are essentially banks). 

If the share price of the underlying finco's held in the LBS fund drop by 10%, the NAV of the Unit will drop by 10%.  If that happens, the NAV of LBS will drop about 24.5% as the leverage is currently 2.45x.  To get that number, simply divide the Unit NAV ($17.05 ish) by the LBS NAV ($6.95 ish).  Therefore, a 10% drop in the 10 stox held in the fund would put the LBS NAV at about $5.25.  That would still keep the dividend intact. 

What if the underlying stox drop 12% instead of 10%?  The Unit NAV would drop to $15.00 before the dividend distribution which means the dividend on LBS shares would not get paid.

I don't think that Split investors really understand it is how much risk they are taking on when things go sideways in the market and especially if the bank stox are out of favour.  We saw today that Moody's downgraded the banks and they are not alone.  Please trust me when I say that the banks are currently out of favour.

Like many LBS investors, may rely on the high monthly dividend payouts to make the math work in your life.  I get that.  However, there are times when you have to decide if it is better to be safe than sorry. 

You might want to think about the current banking industry disruption in terms of a robbery.  If a gunman tells you to give him you wallet and your phone or he will shoot you, you would likely do he says and live for another day.  Selling now could be the choice to live another day. 

Taking a quick look at the historical chart for LBS on Yahoo Finance, I see that the price dropped from $10.58 on August 1st, 2008 to $3.00 by February 1st, 2009.  Not only was that a time of fear for LBS investors, the shares didn't pay any dividends for about 6 months. A similar pattern played out from Jan 1, 2020 when the LBS share price was $8.42 to where it bottomed at $4.00 by July 1st. During the Covid downturn, the LBS shares didn't pay out for 9 months.

I believe in the words of Kenny Rogers' famous Gambler song..... "you got to know when to hold em, know when to fold em, know when to walk away, and know when to run". 

Given that the earth is moving beneath the feet of the banking industry and that LBS is a highly leveraged bank Split, I would implore you to think about the line "know when to run"

If you do choose to sell, you can always buy the shares back in a few days or weeks when the smoke clears.  The LBS share price has only come off $0.50 since the poop hit the fan last Thursday which blows my mind given the circumstances.  One thing you can always count on when it comes to stox that pay out high yields is that many investors will hold on much longer than they should.

If you do sell and things get messy for LBS, you will be safe while you wait and you might be able to buy back double the number of shares in a few months that you own today. 

I don't currently own any LBS shares so I don't have a dog in the fight.  I post about things that I think I know in the hope that it might help just one person.  I do this because I have lots of bad karma to make up for from dumb decisions that I made when I was young.

[itsthehitman]

Thanks for your insight....very interesting  Let's hope that Canadian banks at least are not too out of favor as it seems there is very few places to run in these troubled  markets.

[itsthehitman]

Thanks for your insight....very interesting@ Let@s hope that Canadian banks at least are not too out of favor as it seems there is very few places to run in these troubled@ markets.