Poetic Portfolios

I continue to hold CapitalSource (CSE) because I believe it will recover very quickly as the economy improves. However, this is a company in transition, and with each news release it is as if the company is completely new. I’m often tempted to sell simply based on how complicated it is. My four part series took a close look at this company, and I thought it would be useful to take another look after their third quarter earnings and other recent announcements. (more…)

Over the past several days, I’ve looked at CapitalSource Bank, CapitalSource’s Health Care Real Estate Portfolio, and CapitalSource’s equity in securitization residuals. The equity in each component of these businesses is $916 million, $650 million, and $910 million respectively. All of this for a company with a market capitalization of less than $500 million.

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So far, I’ve looked at CapitalSource Bank and CapitalSource’s net leased health care properties. The two combined have a book value of almost $1.3 billion and intrinsic values that are likely 20% higher than this value. Yet CapitalSource has a market cap below $500 million.

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Yesterday I began my analysis of CapitalSource with a look at CapitalSource Bank. CapitalSource has a current market capitalization of under $500 million, yet CapitalSource Bank has a book value of $910 million. At year-end there were no delinquencies or non-accruals in the bank’s portfolio, though it had a good portion of CapitalSource’s reserves based mostly on their macro view of the economy. The bank appears to be worth every bit of its book value.

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About one year ago, I took a look at CapitalSource (NYSE: CSE), and have since bought shares. At the time, I was drawn to their dividend yield and wanted to make sure that the assets of the company were stable enough for investment. A lot has happened since then in both the broader economy and at the company.
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I am venturing into the wreckage here, looking for the undamaged or slightly dinged. I’ve been down this road before. Drawn to their high yield, I was nibbling at Thornburg Mortgage (NYSE: TMA) last summer when the credit crisis was just beginning. After the first round of dilution to meet a margin call, I determined the yield was just not going to be there and sold. Lucky me, I only lost 50% on that “investment.” More painful has been my investment in First Marblehead (NYSE: FMD), a company totally blindsided by the credit crisis. I have yet to introduce the portolio where these investments occurred, but trust me when I say that I approach my look at CapitalSource (NYSE: CSE) with great trepidation. (more…)