I have my great grandmother’s clock from Vienna. It doesn’t work, but I remember the chi...
Dobbs: Seeing Green at GreenPoint
06/20/2003 12:00 am EST
Lou Dobbs needs little introduction. As anchor of CNN's Moneyline, he is one of the most popular, respected and well-known individuals in the financial field. He believes that a company and its stock is a reflection of the quality of top management, and in his new financial newsletter, he interviews the CEOs of leading companies which he feels will benefit investors. This is an exciting new addition to the financial advisory field and we're thrilled to be able to share some insights from the latest issue of the Lou Dobbs Money Letter.
Dobbs notes, "Tom Johnson is CEO of GreenPoint Financial (GPT NYSE), which operates GreenPoint Mortgage, a leader in what are called ‘specialty mortgages,’ and GreenPoint Bank, the second-largest thrift in the New York area with $12 billion in deposits. Having those two operations under one roof is smart business, reducing the firm’s sensitivity to the cyclical nature of interest rates—a problem plaguing many financial companies. At GreenPoint, when rates are low, the mortgage business accelerates; when rates rise, the thrift picks up the slack.
"Since taking over GreenPoint in 1993, Tom has had an impressive run. He got rid of the underperforming housing division while increasing the company’s presence in New York. As a result, GreenPoint has weathered the market downturn extremely well, posting an impressive earnings growth rate of 24.3% for the last five years. It’s no surprise, then, that the stock has more than doubled in the last three years. GreenPoint combines the successful thrift with specialty mortgages, not traditional ones. Second, it fits squarely with our investing in value approach from both corporate and valuation standpoints. The stock is trading at only 8.6 times earnings (the P/E for the financial sector is 18, and the savings and loan industry’s is 13.9), and the company’s commitment to shareholders meets our test of good people doing good business. In addition, the stock yields 2.5%."
The bolded questions below are posed by Dobbs to Tom Johnson, whose responses follow each question.
Whenever refinancings decrease, your company is well-positioned to deal with that, isn’t it? Wouldn’t it affect you less than other mortgage companies?
"We’re really the only major mortgage company devoted first and foremost to what we call specialty mortgages. We’re the world’s greatest exception processors. We’ll do loans that don’t fit the standard mold. They’re called alternative A loans. The A means that they are high-quality borrowers, but they may have special needs. We think we can lean into the wind when re-financing volume steeps off. We also depend on two other factors. The first is the inherent balance in that we’re not just a mortgage company, but also a retail banking company. We have 84 branches in New York, and that’s growing. Our deposits have been growing very rapidly. And, as you know, the banking business is countercyclical to mortgage cycles, so that will pick up in profitability. And the second countervailing factor is that we do only mortgage loans. We don’t have any consumer loans or anything like that. That means that we benefit from rising interest rates on our balance sheet, rather than the other way around, which is the way most people are positioned.
Have you seen an uptick in delinquencies, especially since you don’t require the same documentation as traditional mortgages?
"For the last five years our loan losses have been under five basis points per year. We’re real careful about the way we do it. Since we’re non-standard lenders, people wonder about the underlying risk that we take because we may not know a person’s income picture, but we require a big down payment from them. Our average down payment on a new loan is 36 cents on a dollar. Then we do our own appraisal to be sure that we know what the underlying collateral is worth. We don’t have big loan losses.
Switching to consumer banking, you’ve opened up several new branches. What is your growth strategy, and are you going to accelerate acquisitions?
"We’re in the middle of a branch expansion program that we believe will result in continued increases in the business that we do in New York City. We’re pretty much devoted to the New York region, and we’re going to grow as rapidly as we can. In the years between 1995 and 2001, with all of the big bank mergers in New York, the number of branches in this town actually went down by 10%. And with the population expandingduring that period for the first time in decades, New York became one of the most underbanked cities in America.
What do you think is the right multiple for your stock?
"Something more than where it is. Last year, of the top 50 market cap banking companies in America, we were number one in ROE (return on equity) at 27%, number one in ROA (return on assets) at 2.4%, and number five in the efficiency ratio, which measures how well you use your expenses to create revenue. We were fifth best in loan losses, and we were number 50 in price earnings multiples. So I think we’re fairly cheap given our performance. In addition, over any longer-term period that you want to look at—three years, five years or from inception—the growth rate in our earnings per share has been over 20%. So you tell me why we should sell at eight times earnings?"
The Gravitational 15 gained another +1.7% last week, and it did so against a backdrop of FG4 price a...
The best way for investors to participate in digital transformation is PTC. Stock is up 42.3% thus f...
In the first and second parts of this series I showed you the ideal seasonal tendency chart of S&...