To Our Clients, Colleagues and Friends:    

· It’s kind of shocking, isn’t it, to see so companies sell at deep discounts to book value Downey Savings is at 30% of book value, First Horizon Bank at 68%,  M GIC at 61%, P M I at 22%, and Wamu at 50% of book value. It’s often because the market doesn’t trust book value to be accurate. But it could represent a great bargain.

· The FDIC says that as of April 30 it had received just 42 applications for deposit insurance for new banks this year, compared with 83 in the first four months of last year. We hear, and it makes sense, that they’re putting a lot more emphasis on the experience and quality of the proposed Board of Directors. Not management, but the actual Board.

· Here’s a direct quote from Credit Suisse research piece:  “We would note that Fannie said that fair value book value fell from $35.8 billion to $12.2 billion in the quarter. However, the fair value of preferred was $14.3 billion, leaving fair value for common of negative $2.1 billion or over $2 per share. Common GAAP book value fell to about $22.50 from just under $28 at year end. This will be increased slightly by the offerings. Half of the capital raise was consumed in the current quarter.”  We’re not quite certain how to interpret it, but it doesn’t sound terribly positive.  

· We’ve done advisory work at some of the banks in East Europe , and we’ve gotten to know the management at Raiffeisen International Bank pretty well.  It’s an Austrian bank (with American ADR’s) that’s a good way to make one investment and have exposure to all of Central and Eastern Europe .  They operate in Poland , Hungary , Estonia , Romania , Latvia , Lithuania , Czech Republic , Slovakia , Slovenia , Serbia , Croatia , Bulgaria , Kosovo , M acedonia , Albania , and all the other countries that used to be part of the Soviet Union .  By the way, their stock is up 46% since March, and we think it’s one of the stocks you can buy today, pretty much ignore for ten years, and wake up and be amazed sat how well it’s done.  East Europe is a very growth region, and when we were in Romania , we read about a Western software company that had been outsourcing to India but had just moved it to Romania . Well educated people at lower wages.

· Are loan officers complaining that rates are a bit too high?  Have them do some research and get back to you with where rates stood in M ay of 1981.  We’ll tell you the answer here: FN M A rates were about 19%.  FHA was 17.5% (with six points).  And for those whose warehouse lines were priced at Prime, the prime rate then was 22%,<