Midwest Banc: Dr. Jekyll or Mr. Hyde? (MBHI)

Midwest Banc Holdings Inc. (NASDAQ: MBHI) looks like it is taking an about-face move from its comments from last week.  Shares of the holding company for Midwest Bank and Trust Company are hitting new lows amid the panic selling in financial stocks.  The company now is selling $110 million worth of preferred stock and is suspending dividends on the common stock.  Without surprise, it is raising its loan loss reserves.  This is meant to shore up the balance sheet. 

The company says, "The successful completion of this offering,excluding the over-allotment option, would put MBHI’s total risk basedcapital ratio at approximately 11.5%, among the highest of its Chicagopeers."  While reserves are going up, these are still acceptable inhard times.  Midwest expects to increase the allowance for loan lossesto approximately 1.6% of loans as of September 30, from 0.9% atJune 30. Its positions in Fannie/Freddie are being written down to zero. The company also is taking a goodwill impairment charge of $80 million.

Just last week, the bank notedthat it would remain well-capitalized even if the value of itspreferred stock in Freddie Mac and Fannie Mae were reducedto zero.  The company also said it would monitor the situation andis committed stay well capitalized.

Shares were at $3.69 last week when we covered that piece.  Thismorning shares are down about 30% at $3.06 on double the normalvolume.  Its 52-week trading range is now going to be far lower.  Wecan’t tell if there is a Mr. Hyde hiding behind the face of Dr. Jekyll.  But Wall Street has taken away 80% of the value from its highsone year ago.

We’d be interested to know what happens if it didn’t raise the cash.  Back in 2006, this was a $25.00 stock.  That feels  like a long time ago.  Midwest’s slogan on their website is "The Bank Where You Belong."  Those who have been long its stock probably don’t want to hear about belonging.

Jon C. Ogg
September 17, 2008