Description

SAEB is a microcap special situation that presents an attractive profit opportunity through short sale if the trade can be executed. 

The stock price closed yesterday at $1.44.  The bank just issued 173 million new shares, or 92% of current shares outstanding, at $0.35 per share.  In a very optimistic scenario, the bank survives and Saehan earns $0.07 per share in 2012.  The bank's market cap of $272m ($1.44 x 189m shares) is a ridiculous 43% of the bank's $640 million of assets; Wells Fargo, for example, has a market cap equal to 12% of assets.  The stock might be worth at most $0.70.  That is the short story.

Saehan Bancorp is a Korean-American bank that became "significantly undercapitalized" by regulatory standards in the second half of 2009.  On December 7, the bank entered a consent order with the FDIC and the California State Department of Financial Institutions to increase the bank's Tier 1 capital leverage ratio to 8% by February 8 and to 10% by March 8. The ratio was 1.1% at December 31.  In effect, this required the bank to raise $30m by February 8 and $60m by March 8.  Miraculously, it did just that.  The details are in the Korean-American press. 

http://www.labusinessjournal.com/article.asp?aID=71399238.997446.1887717.4485.2119761.133&aID2=145200

http://www.financialwire.net/2010/03/10/saehan-bancorp-raises-60-6-million/

The key is that the FDIC has halted the auction for Saehan for the second time (first was at Feb 8), and according to Saehan's CFO, the regulators visited on Tuesday to confirm the capital raise to ensure that the funds were properly accounted for.  After their due diligence, the regulators have "officially" raised the bank's status to "well capitalized."  Note that I have NOT verified with the regulators that this is true, but I have verified with numerous sources that the auction has been halted. It seems unlikely that the FDIC would not accept the funds.  It can always close Saehan Bancorp at a later date and the $61m will most likely reduce the FDIC's ultimate loss.

Saehan now has $67 million of tangible common equity and $640 million of assets, of which $56 million are non-performing loans and $23 million are "other real estate owned," or OREO. If Saehan is able to manage through its $79 million in non-performing assets (12% of total assets) and survive, it might return 1.5% on assets.  That would be net income of $10m, or $0.05 per share.  So the common stock price of $1.44 is 30x an optimistic 2012 EPS level.

Catalyst

Details become clearer that the company issued 179m shares at $0.35 per share.