Fructivore Investments

Windstream (WIN) has just announced that they are acquiring yet another phone company, NuVox, for 280 million in cash, about 180 million in stock, and 180 million in assumed debt, total 640 million. 

NuVox focuses specifically on business, which makes it a desirable fit with Windstream’s plan to offset landline loss with high revenue customers. NuVox claims to produce $115 million in “adjusted” earnings, the adjustment being to smooth out nonrecurring charges and to put $80 million in depreciation and amortization back in. So, as adjusted the purchase has a P/E ratio of 5.6, but eliminating depreciation and amortization charges is an old trick invented in the 80s to make mergers and buyouts look more attractive, and it didn’t work then. And yet, most phone companies have depreciation charges that exceed their capital expenditures so not all of the $80 million may have to be put back in. Of course, since NuVox is private I have no concrete information to work with. Windstream also claims that the combined firm will have $30 million a year in synergy, but for synergy the wise investor says “I’ll believe it when I see it.”

In addition to being a good strategic fit, management claims that the acquisition will be accretive to cash flow. Accretiveness to cash flow is the easiest thing in the world: just buy a company with a lower P/E ratio than yours. And, if you put all the depreciation back in and indulge management’s view of $30 million in synergy, (canceling one optimistic assumption with one pessimistic one about depreciation), you get a P/E of 11, which is a little bit below WIndstream’s unadjusted trailing P/E ratio, but of course Windstream’s cash flow is significantly higher. So, the actual accretiveness is up in the air.

In terms of strategic fit, I keep thinking back to those Fairpoint rumors. Fairpoint had a market that was almost completely unsaturated with profitable high speed services, and their intention was to fill that gap in the market, thus earning sufficient profits to pay off the ridiculous debt they took on to make the purchase. Of course, they were too busy dealing with integration issues to make any headway, forcing them into bankruptcy. With this acquisition, much of the penetration work has presumably been done, thus making Windstream’s post-merger work easier, but also entitling NuVox to a premium in its purchase price.

In the final analysis I am neutral towards this merger, since unless the depreciation is in fact greatly in excess of the capital expenditures I’m not convinced that Windstream is getting anything that hasn’t been paid for in full.

As I stated yesterday, American Lorain has announced that they have sold stock and warrants totaling 5 million shares for $2.40, 1.75 million shares worth of warrants at a price of $3.70 that become exercisable six months after the transaction closes and have a term of 5 years thereafter, and 500 thousand shares worth of additional warrants with the same terms except that they only run for two and a half years, all for the price of $12 million.

As anyone can see, though, $12 million is simply 5 million shares times $2.40; the warrants seem to have been thrown in for free. These warrants, which are essentially call options, according to the Black Scholes formula using a high volatility assumption, and based on $3 a share, are worth $1.16 and 76 cents respectively. Now, of course writers smarter than I ( as well as less smart) have criticized the Black Scholes, since it is inaccurate for valuing options that are long-dated or far from the strike price and is based on an unrealistic view of asset price behavior, but it is undeniable that the warrants are worth more than nothing. In fact, I believe the consensus is that the Black Scholes tends to undervalue such options, in which case this was definitely a poor arrangement for American Lorain. And, since I think the company was undervalued before the deal was finalized, this price is even more indefensible.

Of course, since I think that a price of $5 is minimally adequate for the company, I see it more that the firm has just given away more than $1 per warrant. I can only assume that the price was negotiated around a month ago when the stock was trading at less than $2.40, since at $3 before the announcement it seems like a ridiculous deal.

Even going by market prices, at $3 a share, the company loses 60 cents times 5 million shares, $1.16 times 1.75 million in the 5-year warrants, and 76 cents times 500 thousand in the 2-1/2-year warrants, total $5.41 million. Before the deal was announced, the firm was trading at  $3 a share with 25 million shares outstanding, total $75 million. After the announcement yesterday, the share price dutifully retreated to $2.70, total market cap $67.5 million. It fell further today, of course, but what didn’t?

Now, the company will receive $12 million from the sale proceeds, but be diluted by 5 million additional shares. If the warrants are not exercised, there will be no further dilution, so ($75 million plus $12 million sale proceeds – $5.41 million in discounts), divided by 30 million shares, comes to $2.72 a share.

If the warrants do get exercised, as I think they will be, the company takes in an additional $3.70 per warrant, or $8.325 million, at the cost of further dilution. It also suggests that the share price of $2.40 was an even bigger discount, so I’ll just use the warrant price of $3.70 instead of $3 (for making this modification I am relying on no financial authority but myself, but it seems to me to have a certain logic). So, (75 million + 12 million + 8.325 million – 5.41 million in old discount – 3.5 million in new discount)/32.25 million shares comes to $2.68. So, with the warrants exercised or without them this new equity offering has diluted the company by 30 cents a share.

(It is curious, though, that the closing price $2.69, settled right between the above-calculated diluted values; I would never imply that the markets are efficient, but at the very least they are paying attention).

Si Chen, the firm’s CEO and majority shareholder (at least for now (unless he has an interest in the buyers of this offering in which case some shareholder derivative lawsuits would be in order, so I doubt this is the case)), is “very pleased with our ability to acquire this type of equity financing given the nature of the tight global markets. It speaks well of how the investment community views American Lorain.”

However, since the firm’s P/E ratio was 4.67 as of yesterday, this represents a cost of capital of 21.4%. Although I commented before on the high interest rates they get in China, the worst one in their last report was a “mere” 13.1% and curiously their cost of long-term financing is much lower than their short-term financing (although there could be subsidies at work; I’m not an expert on China’s internal investing environment). Of course one expects the cost of debt to be less than the cost of equity, but this year’s earnings to date are on par with last year’s,  and last year their interest payment was covered 7.5 times; it was covered 6.2 times the year before that, and year to date it is covered 4.5 times for a company that claims to see higher demand in the second half of the year. This coverage ratio, although not iron-clad, is consistent with investment-grade credit and it seems to me that raising the capital by borrowing, even though the firm would be pushed to the lower end of investment-grade, would be preferrable to giving up 8% in cost of capital and submitting to dilution.

Nor, to my knowledge, has American Lorain stated what they intend to do with the proceeds. As of last year their return on assets was 15.3% and their return on equity was 23%, so at a 21.4% cost of capital even if they did realize these results from their new capital (which is questionable because of diminishing marginal returns) they hardly produce any benefit that would justify this level of dilution. Even paying off their debt would significantly improve their already fairly strong credit profile.

Accordingly, I think this offering was entirely ill-priced, and should constitute a black mark on the market’s perception of the talents of American Lorain’s current management.

As some of you may recall, I suggested getting out of Capstead Mortgage (CMO) on the grounds that its fat dividend (currently 17%) couldn’t last forever and that, at a price of $14.60 and a book value per share of $11.50,  the price represented well over a year of excess dividends, and the Federal Reserve is not likely to keep interest rates low for that long.

Now, the price has fallen back to $12.80 as of yesterday and $13.30 as of today. However, their latest report indicates a book value per share of $12.20. However, the principal value per share is, I believe, sitting at around $10 per share, since adjustable-rate mortgages tend to keep their value in over time the face of interest rate movements and these are explicitly guaranteed by the US government, thus producing a nice premium over principal value. The principal value is important because mortgages are prepaid at their principal value, and last quarter Capstead Mortgage’s prepayments were running at a 23.5% annual rate. The prepaid securities can be replaced, but at the same premium which, based on the latest results, is 3.5%.

At any rate, $13.30 set against an unmodified book value of $12.20 is only six months’ of excess dividend, which seems to be long before the Fed will consider raising rates  (even though the economy is officially growing again) and even after interest rates rise, as long as they stabilize in a reasonable range Capstead Mortgage will be able to earn reasonable, if not their current outsize, returns. However, the mob in the marketplace will probably react to a diminution of the dividend as a sign of disaster, selling until the stock represents no premium at all, or even a discount, to book value. As I stated before, that is the time to really pile on Capstead Mortgage.

P.S. I know that American Lorain has just made a potentially dilutive equity offering. I’ll collect my thoughts on the matter and let you all know.

Well, it’s official: Fairpoint has filed for bankruptcy. As Moyer’s Distressed Debt Investing states, the actual filing of a Chapter 11 is never a surprise. Although it may seem curious that its creditors reduced the size of their claim from 2.7 billion to 1 billion, the reality is that the creditors are going to become the beneficial owners of Fairpoint no matter what the size of their claim. In fact, most bankruptcies involve some pre-filing negotiations of this type and it is rare but not impossible that these early maneuvers obviate the need for bankruptcy, although they did not in this case.

I still haven’t seen anything to confirm the rumor that Windstream is buying up Fairpoint’s debts in order to carry some of Fairpoint’s more lucrative operations. But I will repeat the necessity of caution; buying more than one could afford was what killed Fairpoint to begin with–how anyone can expect a telephone company to pay off a debt at 13% interest is beyond me.

I may be in the minority among the financial community and the public, but I do not assign any mystical economic or investing qualities to China or any of the companies in it. There was a similar hysteria in the 80s over Japan, and we all recall how that ended. I find it similarly unlikely that China has discovered how to repeal the ordinary rules of economics. Furthermore, although I have no direct proof of it, I suspect that the astounding growth figures in China are exaggerated, considering that they are still reporting high GDP growth in the face of articles from earlier this year about exports dropping and migrant laborers going home.

However, these sentiments should certainly not disqualify a Chinese company from consideration for investment; Warren Buffett (and presumably other investors as well) noticed that South Korea sits in the shadow of North Korea’s missiles and its accounting rules make Japan’s look like a model of transparency. This resulted in a number of stocks drifting around to a P/E ratio of 3. But, with careful analysis, it became clear that among the mess a few of those stocks were legitimately offering those kinds of P/E ratios.

American Lorain (ALN on the Amex), sadly, doesn’t have a P/E ratio of 3. But it is 5.26 as of this writing, which is not bad. It is an American-registered firm that, through a multi-tiered capital structure, owns four operating subsidiaries in China, one of which is shared 80:20 with the Chinese government. They produce a wide variety of chestnut products and other processed foods in a number of markets, primarily China, but including the rest of East Asia and various other nations. Although they claim to control various proprietary technologies including a method for permeating a chestnut with syrup without altering its texture, I don’t believe that they are blessed with any sort of durable competitive advantage, although they claim to be the largest chestnut processor in China. Operations-wise, they seem to be fairly dependent on bank debt, and based on their SEC filings short-term interest rates in China are surprisingly high; between 5 and 10% for their various short-term borrowings, which they have expanded considerably in anticipation of the third and fourth quarters when they see their highest demand. Their balance sheet does also count more than $2 million worth of “landscaping, plant and tree” as an asset, which seems like kind of a stretch.

The company also does not have a long operating history, having only been in operation in its current form for a couple of years since its effective IPO and having only been listed on an exchange since last September, although the actual business has been in operation since 1994. They have also had issues with getting their SEC filings in on time.

At any rate, if any of you have an appetite for investing in China, American Lorain is a suitable candidate; it is a firm in a relatively stable industry, with reasonable growth potential, that is manifestly underpriced both in terms of P/E ratio and return on equity, even without consideration of any supposed China premium. I don’t necessarily believe in international equity and currency exposure just for the sake of having the exposure, but international underpriced exposure is a different matter entirely.

Warren Buffett once wrote that in financial analysis, having an IQ above 125 is wasted and that success in investing is largely a matter of temperament. This tells us two things, one, that the world’s greatest investor thinks that dispassionate adherence to investing principles is more important than fancy quantitative models, and two, that Warren Buffett’s IQ is 126.

The most dispassionate method is the “net-nets” recommended by Ben Graham. These are firms whose working capital (cash and short term investments, receivables, and inventory) exceeds their total debts, and which are selling to a discount even to that. In other words, the current assets of the firm will pay for the purchase of the entire firm, and the firm’s longer-term assets and the future earning power they represent are available for free, or in fact, the current shareholders are paying you to buy them. The Snowball, Warren Buffett’s biography speaks of Benjamin Graham’s employees wearing lab coats and filling out forms to calculate whether a net-net existed. Nowadays, with SEC filings available online and the Excel spreadsheet having been invented, one would expect that these opportunities are harder to find, and indeed they are, and upon seeing them one might be curious as to why.

In theory, a diverse portfolio of these investments could be purchased without any further analysis, but as I’ve stated there may be something other than a depressed market at work. USEC Inc., for example, sold at less than its net working capital for a long period, but it was actually stockpiling cash in order to build its centrifuge plant, and we all know how that worked out.

Anyway, some kind person on the Internet has a screener to identify these opportunities. Most of them are over the counter or penny stocks, which are difficult to trade and subject to liquidity issues, which does suggest that neglect by the market is still a significant cause of these net-nets appearing. Some of them are in danger of delisting, which in theory does nothing to a firm’s operations, but usually does adversely affect its share price and also its access to capital markets. More troubling than trading difficulties, though, are operational difficulties; if the firm has a negative operating cash flow, it is quite conceivable that it will burn through the discount it sells for, thus robbing these issues of their apparent safety. Another issue is firms that reclassify their long-term investments to short-term, as with Asta Funding, a debt recycler on the list, has reclassified all of its portfolio of debts as receivables, when in reality they hold the debts for multiple years. Other firms may have inventories that need writing down.

But a firm that can avoid these troubles is almost by definition an attractive investment. Key Tronic Corporation (KTCC), manufactures circuit boards and other electronics. They have positive operating earnings, although they are a bit low in terms of return on capital, but more importantly they have 61 million in current assets, 27 million in debts, and 24 million in market cap, leaving a discount to current assets of $10 million, producing a 42% discount which makes a very decent margin of safety. Hence, this firm is worth more liquidated than it is valued at as a going concern, and when the economy improves and they have more orders, their return on assets should dramatically improve.

So, clearly fine returns can be made off what the market overlooks, if you do a little homework to make sure the market isn’t actually right.

Damodaran on Valuation claims that unnecessary financial assets, such as stocks or bonds or other securities of other corporations, have no effect on a company’s valuation, since the risk-adjusted discounted cash flow they produce is equal to their present value, so there is no incremental benefit to owning them or decremental drawback from getting rid of them. Of course, this position assumes that markets are efficient which is at odds with both the central theory of value investing and presumably Damodaran’s own purposes in writing, since he did call his book Damodaran on Valuation, rather than Damodaran on Giving up and Becoming an Actuary.

However, he does raise a good point; why should the shareholder pay management fees and submit to double taxation for a firm to hold financial assets that the shareholder could just go out and buy if the company had just issued a dividend instead of paying for the assets? The only possible explanation is that the firm is in fact capable of producing better investment results than the majority of its shareholders. Damodaran cites Berkshire Hathaway as a rare example of this firm; most corporate managers who are not Warren Buffett realize that investing in securities to produce above-average returns is difficult to do well and indefensible if done badly. Just ask any failed investment bank.

So, what do we do with a firm that does not seem to be aware of this principle? Specifically, CCA Industries Inc. (CAW), a tiny firm that makes low-end toothpaste and beauty products, reports that of its approximately $33.5 million in assets, $14.5 million are short-term investments or marketable securities. Year to date income produced by these investments has been $212 thousand, resulting in an annualized return of a bit under 3% as of the May 31 reporting period. However, for their actual operations, the other $19 million in assets has produced pretax earnings of $1.29 million, which is a return on assets of 13.6% if it is doubled to fill out the year. (And this assumes that all the cash on their balance sheet is needed for their operations). So, it is pretty apparent that the financial assets they hold are superfluous. In fact, if they did distribute all of their excessive assets, the market cap, currently 29.5 million, would drop to 15 million, which would be amply supported by $1.7 million in after-tax earnings (apart from accounts payable they have virtually no debt to speak of).

This being the case, how has CCA gone this long without some enterprising investor raiding it? According to the writeup at the Value Investor’s Club, it is because the firm is controlled by two old men in their 70s. There was a deal proposed last year to take the firm private, but it fell through. Otherwise, the stock seems to be entirely under Wall Street’s radar.

If Damodaran is correct, and the unnecessary financial securities do not produce any actual value to the company, then buyers of this company are in fact buying $19 million in actual capital, $2.6 million in operating earnings, and $14.5 million of excessive holdings taunting them. Unfortunately, as long as the two old men control the company there is no realistic way to force the distribution of the excessive assets, and in the meantime the firm’s aggregate return on capital will be suboptimal, resulting in a depressed share price. We hope for the sake of the noncontrolling shareholders that the company’s owners will listen to reason.

P.S. They pay a 6.7% dividend, although the dividend history has been somewhat erratic.

Edit: The firm just announced earnings, but without the concrete detail that breaks down operating versus investing earnings. When I have those, I will do an update.  I don’t expect too much to change in my analysis, though.

Update:  Their interest and dividend income is up to 245 thousand year to date, producing a return on capital investments of 2.3% on an annualized basis (although they also have some capital gains which pushes the total to 2.8%). Their return on assets from their actual operations is 14.0% pretax. QED.

Those of you who watch Jim Cramer, of whom Seth Klarman said that he is a symptom of everything that is wrong with the financial world nowadays, will recall that last week he expressed approval of the safety of Windstream’s dividend. He also mentioned Fairpoint Communications (FRP), after qualifying his remarks with the fact that they have little in common apart from them both being rural telecom companies—their financial positions are completely the opposite. Fairpoint Communications has recently announced that they are defaulting on their credit facility, and that their larger creditors have agreed not to force them into bankruptcy until the 30^th.

Fairpoint recently acquired Verizon’s land lines in New England for $2.3 billion, which it turns out was a few hundred million too much, thus demonstrating the value investing principle that there are no good or bad investments, only good or bad prices. After all, anything can be at least liquidated, and with a bankruptcy in the works that is looking like a distinct possibility. Since that time, declining revenues have sunk their income, causing them to suspend their dividends in 2008 and now, it seems, to suspend their interest payments as well.

According to rumors, Windstream is a potential buyer of Fairpoint’s distressed debt, alongside several players in distressed debt. This is perfectly reasonable; inside or outside of bankruptcy, the creditors take the assets of the defaulted debtor, and Windstream certainly could do more with the assets than a distressed debt fund on Wall Street. If they acquire a powerful position in Fairpoint’s distressed debt, this will give them a suitable platform in the Chapter 11 negotiations to arrange transfer of some or all of Fairpoint’s assets to them. It is not unusual in a bankruptcy to create a situation where there will be cash and securities in the reorganized corporation available, with creditors able to choose between the two of them. So, Windstream would perhaps be able to take more securities and less cash. And, since the market for distressed debt tends to be illiquid and the valuations necessarily conservative and more geared to liquidation rather than going-concern values, distressed investing generally produces high returns to go along with the analytical and legal work involved.

Even outside an actual Chapter 11, bankruptcy is still a specter that hovers over the entire process of negotiating a debt workout. Such a workout still results in selling off profitable divisions and arranging debt-to-equity conversions to provide partial relief to satisfy creditors. Just look at AIG. In fact, in a significant proportion of bankruptcy cases, the debtor has already acquired a sufficient number of votes from the creditors of each voting class, thus making the actual bankruptcy process largely a formality, as with GM’s. So, inside or out of formal bankruptcy, Windstream has the same angle.

I should point out, though, that in the last reported quarter, high speed subscribers in the regions Fairpoint purchased from Verizon declined by 3.3%. The company attributes much of this to “cutover related issues;” in other words, they were too busy integrating their systems after the merger to actually sell their products. This is understandable, but since Windstream and every other telephone company is trying to combat loss of land lines by expanding their premium services, this is disturbing news. Their operating income, although it exists (positive operating income now or eventually is a minimum requirement for saving a company with bankruptcy as opposed to killing it), is very low, just a hair over 1% return on assets, so hopefully there is room for improvement.

Obviously, it is too early to say anything, and the rumor of Windstream even buying the debt has not been confirmed, but since Windstream has embarked on two opportunistic acquisitions already in the last year, it would be a positive development for them to be feasting on Fairpoint’s corpse alongside the other vultures. As for ourselves, we like low-hanging fruit and have no objection if some fruit gets blown off the branch by a strong economic headwind. So, if the rumor is true this is another positive for Windstream, although they might want to recall that acquiring more than they can chew is what killed Fairpoint to begin with.

And if you’re wondering about the Star Trek picture, I kept typing “Farpoint” instead of “Fairpoint,” and I couldn’t find an image that suggests a bankrupt phone company anyway.

Some of you may recognize our old friend the yield hog from the Windstream article, but we should ask ourselves what a dividend signifies. For bonds, yields are typically all we get, but for stocks? True, a big dividend yield will amortize our margin balance if we choose to buy on margin, but as Seth Klarman puts it, margin is unnecessary for the value investor, and indeed is often counterproductive.

But, if the firm does not distribute its free cash flow in the form of dividends or some other way, that money is still sitting inside the firm and still belongs to the shareholders. Of course, Ben Graham’s quick and dirty valuation formula valued dividends at three times undistributed earnings, but in his day dividends were viewed as an integral part of the return from equity investment, whereas now they are viewed as a distraction from the corporation’s management trying to build their empire.

In theory a corporation should only hang onto its excess cash if they can produce higher returns by keeping it than its shareholders can produce by receiving it and investing it themselves. Cash has fairly low returns, so building up cash just to keep it built up on the balance sheet should be viewed as robbing the shareholders. Benjamin Graham actually tried to engineer a hostile takeover to get a firm to disgorge its unnecessary investment holdings.

Breitburn Energy Partners LP (BBEP) suspended its dividend last year on the grounds of enhancing liquidity, and predictably the price of the shares tanked. As with Linn Energy, apparently Breitburn was viewed a dividend factory rather than a corporate empire type. But, also like Linn Energy, it seems to be a convincing one. In fact, they have adopted the same hedging strategy running for years into the future, so a buyer is betting on their competence as a natural gas and oil producer rather than on the movements of oil and gas prices. Using the technique of doubling current earnings they will earn $200 million this fiscal year, giving the company a P/E ratio of 2.5, or 5 based on last year’s pre-tax full year earnings. They have been increasing the pace of their operations, though. In fact, if Breitburn had not eliminated its dividend they would be yielding almost 20% at current prices. Now, rather than piling up their cash, they are paying down debt (ironically, piling up cash would be the most liquidity-enhancing move of all). Going by their books, they have cut their liabilities considerably since they started preserving money. However, the interest rate they pay currently is about a fourth what their cost of equity is as determined by their PE ratio so if they wanted to fix cost of capital instead of liquidity they are going about it the wrong way.

So, if you liked a productive, hedged producer like LINN, and are willing to forego a dividend until Breitburn’s managers decide that they are sufficiently liquid, Breitburn should be the ideal stock.

According to the news, the FDIC’s insurance fund is in danger of being totally drained. The article’s author speaks of several strategies that can be used to shore it up, which is borrowing money from banks, from the government, or by levying a special fee on banks. The article portrays all of these as risky and unnatural options. Borrowing money from banks that can afford to lend it is called a bad idea because it diverts money from the private sector. Borrowing money from the government is bad because it looks like another bailout. And raising the money by a special bank fee weakens banks that cannot afford to be weakened right now.

As to borrowing the money from healthy banks, any effect on the private sector from removing the money would be dwarfed by the fallout from the massive bank run if an investor actually suffered a loss due to the bankruptcy of the FDIC. Of course, since the bankruptcy of the FDIC fund is not seriously an option this is not going to occur. However, it seems to be unreasonable for the FDIC to have to pay interest to one bank on behalf of the depositors of another. Using the Treasury’s line of credit would make more sense, although it does look like another bailout to the banking industry, and banks themselves are not looking forward to higher fees down the road to repay interest and principal.

Of course, these would be the banks that are the problem in the first place, and who do not seem to be aware of the concept of insurance. Obviously, a sound system of insurance requires risk-based pricing, so as risks go up an insurance company has to increase its premiums accordingly in order to remain solvent. And it seems to me that if a bank cannot handle an occasional disruptive, unforeseen expense like this, it would be better off in receivership. After all, there are plenty of wealthy banks that are capable of taking them on.

Great Southern Bancorp (GSBC) for example, has taken on two failed banks this year. Although the economic situation has impacted their results they have been able to squeeze out some profits, and on the whole I believe them to be in an excellent financial condition. However, I’m not exactly pleased about their handling of loan loss reserves. Capital One deals with reserves in the aggregate, which, considering their size, they have to do. As recently as 3^rd quarter 2008, GSBC reported non-performing commercial loans singly, as befits a small town bank. However, since their transfers to loan losses normally run only a few million per quarter, a cluster of bad loans can produce a huge mess in unforeseen expense. In 1^st quarter 2008, they lost a great deal of money (for them) by loaning a large sum to bail out a fellow bank that subsequently went under, and not very much later they lost another small fortune on Fannie and Freddie preferred stock. Since these experiences they seem to have learned to wait until after the receivership/bailout to commit capital to banks. If their earnings return to normal they would have a P/E ratio of 10 or 11 which is suitable for a normal bank, although the TARP money they accepted forbids them from raising their dividend.

So, if you want a bank, rather than gamble on the recovery of an unwieldy large bank that needs the special attention of the Treasury, consider a small one that is busy eating smaller ones.