This is sort of a dead board, but here goes. . . It has been interesting watching the price of the litigation warrants basically drop since their issuance. Now selling at a hair over $5.I seem to remember reading somewhere that the expected recovery from the litigation could be in 10-12 $ range per share of GSB stock (unsure on this), which may be high end. Also am not sure if more shares were issued since estimate.Does anyone have any information on what current recovery is likely to be on this case? The warrant entitles holder to pro rata portion of 85% of recovery in suit. It would appear that the warrants are trading at a discount, either due to uncertainty over the recovery, or perhaps because of a belief that any recovery will be in the distant future. Of course, it could also be that GSB shareholders are dumping them because, like me, they are having trouble understanding their value. If this is the case, maybe they are a good buy?
A prospectus was issued 5-22-98 regarding the GSB tracking warrants...GSBNZ. This should have been mailed to shareholders this past week, or call (818)500-2723 investor relations. In short, there are about 85 million LTW (Litigation Tracking Warrants) issued or reserved.GSB has won its case and it has been upheld by the US Supreme Court (by a vote of 7 to 2). The case has been remanded to the Claims Court for a determination of damages. GSB has presented three alternative damage theories ranging in amount from $900 million to $1.9 billion. The Government denies that the bank has suffered any compensable damages. A decision is anticipated during the December1998 quarter.If the amount recovered is $250 million, each LTW would be worth $2.91. If $500 million is recovered, each LTW is worth $5.83. If $1 billion is recovered, each LTW is worth $11.66. If $1.5 billion is recovered, each warrant is worth $17.49., etc.As with any court case or damage award, there are appeal processes which could delay the payment of any monies. If nothing is actually recovered, the warrants are worthless.So, the warrants could be worth anywhere from $0 to about $20.This is a calculated, speculative risk. It is more of a gamble than an investment. You could double or triple your money, or end up with nothing...kinda like options.Personally, I'm going to sell half and hold half. Part of me is a gambler, the other part hates to lose.Hope this helps...good luck to you.
It is a little early for this question but, once you sell the warrants, how is the gain reported on your taxes. Is the amount you receive the amount of the capital gain. I am guessing that it would work the same if GSB spun off part of its business into GSB2. If I bought GSB at 12.50 what would I do at tax time if I sold GSB2?Thanks in advance.
Thanks, Grayfuldad.I got my prospectus, too, over the weekend. It appears that GSB presented testimony showing damages of .9 to 1.9 billion dollars; it did not say what, if anything, the government evidence of damages was. I wouldn't say these warrants are a gamble; it is just a very different type of investment. Asia, inflation, and a bunch of factors are not going to impact the value of these, it is going to be legal factors which, if provided enough information, a Fool could make an educated assessment of. Or maybe a Fool with a JD or some background in law. Definitely a risky investment, since they could be worthless, but I know people who bought Marvel and KooKooRoo. :^DThe other factor is when they pay, if they pay? The present trading value could be a fairly good assessment of the net present value of the expected pay off.
Hey FoolishRat, I may be dead wrong, but I figure the value of the warrants is equal to the percentage of value of the warrant to the underlying stock on the day of issue...June 1, 1998. I don't have the exact figures, let's say that on Friday May 29 GSB closed at $37.50. On Monday, the warrants opened at $5.75, so the stock was worth $37.5 - $5.75 = $31.75.The percentage value of the warrant to the stock is $5.75 / 31.75 = 0.153333. In your case, the 12.50 basis price would be $12.5 x o.15333 = $1.92 basis price for the warrant, and $10.58 basis price for the stock.Maybe a tax person or a stockbroker could verify this, or maybe a reader of the column has some exact figures.My situation is a little more complicated. Years ago I purchased Cenfed stock at the IPO price of $10. It split 3 for 2, and got two 10% stock dividends, bringing the basis price to $5.39. The GSB merger was for 1.2 shares of GSB for each Cenfed share, so I calculate my basis price at $4.49 per share. That gives me a $0.69 basis price for each warrant, and a $3.80 basis price for each share of GSB.Now I know why the Fools advocate a long term hold strategy. It's too darn complicated to figure out the basis price when you get ready to pay taxes on the capital gains. Also, I feel the warrants, although just issued, qualify for long term capital gains treatment if the underlying securities were held longer than 18 months.Any tax folks or stock valuation gurus out there? Thanks...Greyfuldad
Hey JJinLA, my personal assessment of the damage award is that it WILL happen, but maybe not until late 1999. My calculated quess is that the government will vigorously appeal any decision. The reason is that there are 30+ other financial institutions with similar claims. It could cost the government $20 billion to settle them all. GSB is farther along than anybody, but if this is settled, then it sets an easy precedant for the others waiting in the wings.Without anything more than a quess, I figure the damages will be in the middle, with $1 billion being the net award (only an educated guess). That would still make the warrants worth $11.66. The final decision will be political as much as anything else. Will the government be willing to pay $20billion to the S&L industry after the billions they paid in the bailout of 8 years ago? Then again, 1999 and 2000 are election years. Will the politicians pay heed to the taxpayers/voters and oppose this, or will they double-talk, blame it on the courts and accept contributions from the banking lobbies? My guess...take the money and run. After all, the institutions with the suits are the strong ones who survived the S&L debacle.Any other viewpoints are welcome. I feel the warrants will eventually pay off, but (like the stock market) will climb a wall of worry to get there. The price of the warrants will probably drift downward, then shoot up on any positive news from the courts. Who knows, maybe I'll increase my positions if the price is right.As for the underlying stock, I figure GSB is still a long term hold. The merger with 1st Nationwide will go through in August, and that puts Ron Perelman in control. Say what you will, but that man knows how to add shareholder value. Especially if he's one of the major shareholders. Hang on to your hat, it's gonna be a wild ride.Let's keep this thread going...anyone else out there?
Greyfuldad,Thanks for your response. I read on a Yahoo board that the 85% of payout received by shareholders will be used to buy shares of GSB stock once everything is settled. I don't know if this is true or not - it doesn't really make a lot of sense. I just figured once they collected the money GSBNZ shareholders would be paid and the symbol would be retired. I haven't received the document everyone else is referring to. Hopefully that will answer all of these questions.Also, in regards to GSBs future, what does everyone think the likelihood of GSB being acquired by one of the larger banks? I think the company has always been an attractive takeover candidate but the litigation has held that up. Now that it has been spun off to shareholders the door is open.
grayfuldad,Is the recovery by GSB taxable? The warrants are worth the amount of recovery, net of costs and taxes. FWIW, someone on Yahoo calculated the value of the warrants subject to a 42% corporate tax rate. I know next to zip about tax law. Okay, make that zip.If that analysis is correct, then the top upside for the warrants may be close to 11.66. If a 1 billion recovery , a reasonalble guess (or as reasonable as any, in the lower range of what GSB is seeking) netted 11.66 these things would be a screaming buy at $5. If you factored in a 42% tax rate, a 1 billion $ award would make the warrant worth @6.75 I think the Gov can appeal only the amount of damages, having taken the underlying case to the supreme court and losing, so an appeal can only cause delay, possibly of one more year.
<<FWIW, someone on Yahoo calculated the value of the warrants subject to a 42% corporate tax rate. I know next to zip about tax law. Okay, make that zip.>>Clarification: the award would be subject to a corporate tax, thereby affecting the "net of taxes" value of the warrants. The warrants themselves will not have a taxable consequence for the holders until they were sold.
One issue that seems to be missed is the 42% corporate tax rate applied to the pot. If you see my analysis, I think the best you get is$10.42 assuming the bank gets 1.9 billion.
The way I have been looking at these warrants is by worst to best case. The worst this settlement is going to be is $3.32 a share while the best, according to my calculations is $10.96. The award however is going to be paid out in GSB stock. @ $4.56 GSBNZ trades at a discount in relastions to its goodwill peers. GSBNZ is 37.42% above worst. CCPRZ is 56.6% above worst case of $8.86. GSB will be the first case to be decided also. Final arguements are scheduled for September 11th and a decision should come between Oct. 15 and yr end
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