Rabbitisrich

Not sure about 2Q12, but WFC didn't repurchase any warrants in 1Q. Unfortunately, the primary return of shareholder money is in the form of dividends. Stock buybacks are simply supplying shares for compensation.

I suspect that such checklist banking motivated Dimon's unfortunate "Basel III is unamerican" comments. It just comes down to "by how much?" and "compared to what price?"

I see, thanks.

Hey Leadingusforward, can you share BAC's response to your query? Maybe they didn't understand that your question required a clarification that pro rata includes open market bids.

I think I read somewhere that his preferred investment didn't contribute to Basel III capital. So mentally I figure if he exercises the warrants then BAC will get his $5 billion and effectively use it to buy shares back up to $14. So his $5 billion will wind up initially bumping up the share count by 700 million shares, but potentially it will only really hurt us to the tune of 350 million shares or less (depending on whether the shares are retired for less than $14). So I mentally just plan on 350 million share dilution from his warrants. Thanks. It seems like there are two ways for Buffett to exercise the warrants: http://www.sec.gov/Archives/edgar/data/70858/000119312511232422/dex11.htm My interpretation of the last line is that dividends only count to the per share valuation if they are unpaid AND accrued. There is also an interesting provision regarding buybacks: So the warrants receive "protection" from buybacks if the stock price rises following the announcement of buybacks (because the repurchase outlay reduces the numerator by more than the [before-announcement price X shares repurchased] reduces the denominator). Then the issuable shares increases by the ratio of old to new exercise price. It's just for pro rata buybacks, but it's something to watch given the size of the dilution.

Does anyone have a link to the exact terms of Buffett's warrant/preferred deal? It's difficult to model potential dilution from these unusual warrants. The exercise price adjustment is dependent upon the market price at the dividend period. The shares issuable adjustment depends on the exercise price. The net dilution depends on the amount of fractional shares issuable. Lots of moving parts.

Are you referring to BBCN? Interesting comment on the gas station - carwash. Sounds like an inside baseball sore spot. I regard that merger as being successful to date. Their charge-off rates are much more competitive with WIBC's than their balance sheet ratios over the recession. TDRs also perform better. WIBC is cheaper, but both are good bankers. I would rather that WIBC just repurchase shares than buy HAFC above book. There are some synergies to cutting out a layer of executive pay and back office redundancies, but these California based korean-american banks share similar geographic footprints and draw from a similar deposit pool (excl. brokered deposits). Even the loan officers switch from one bank to another and back.

Congratulations everyone. Now you can promptly forget GIPS and the asset manager code of conduct. Good luck on the next test fareastwarriors.

About 70-30 common to A warrants. 6 years is a long time, and the A warrants get interesting if BAC pays out $3 over that horizon. Depending on how you model the long-term earnings power and the mix of buybacks to dividends, the A shares can greatly outperform the common.

I dunno... $28MM PTPP, or $26.5MM after preferred share, to 2Q12 vs. a market cap of $387MM... highly capitalized... TARP preferreds and warrants repurchased... $2MM of non-interest expense related to improving credit quality... increased origination of residential mortgages (not a bad time to start)... what's the bear thesis?

Thanks for the attachment.

There are still plenty of regionals with improving or bottoming credit metrics, trading at <= 5X PTPP, likely overcapitalized by 10%+. Regionals don't compete with the big four on non-interest activities. They just make more on NIM AND experience lower charge-off rates. If you are worried about geographic concentration, just make a basket.

The Valueline 1-pagers are my primary sources of ideas these days. So handy to carry around on a tablet or phone.

I've been steadily talking myself out of doubts about some investment banking operations. It's like watching the market price a Starbucks for having bad coffee and overpaid staff, ignoring that it's planted in some of the best locations.

Some mixed results in 2Q12. Price per item increased by 1.8%, but SSS improved by 1.2% within Just4U markets, and 0.8% overall (not including fuel sales). Burd's response to a question about price competition: I'm curious about this "wellness" story, but unfortunately it looks like we won't get to see it until 4Q.

Good article on banking, and a neat explanation for why bulls focus on liabilities over shrinking margins and weak revenues: http://www.interfluidity.com/v2/3422.html

Very interesting, thank you. Kind of odd that the analyst uses 2009 figures, though.

You are right, but it looks like the author is playing with semantics to enhance his implication of excessive leverage. He uses the term equivalents but then uses the full notional values to suggest high leverage on invested capital.

For whatever reason, I didn't source this properly, but I have a note saying that BAC intends to reduce its long term debt to $220-$270 by the end of 2013. Did Moynihan lay out his debt reduction strategy to this extent? The Basel III target is 9.5%, no? Are you guys (Xazp and Parsad) forecasting a sub-max SIFI buffer due to BAC's shrinkage?

The simple fact that commercial paper is at $1 billion and is expected to decline to zero by year end is an incredible testament to the cash generating power of Safeway. Sure there's no growth. Sure there's unions and pensions. But Safeway still generates $1 billion FCF annually and the market value is $3.8 billion. My impression was that the CP usage was a little high due to calendar effects, but that CP will be a bigger part of cash flow management, compared to previous years, due to Blackhawk seasonality.

I live within walking distance to QFC, Whole Foods, PCC, and Safeway, and the Just 4 U program definitely increased my commitment to Safeway. In the end, I have a few things I really want to buy regularly, and most purchases thereafter are opportunistic. The site provides a list of personalized sales. You browse and add your selections to your card (which makes you feel obligated to purchase), and then go about your normal shopping process. The store will also provide a print out of sales that you have added to the card. Unlike some competitors, which provide you with a card and tell you to create an account when you get home, Safeway provided management with tablets and a laptop stand. They created a profile for me while I was standing in line.

As a customer, it's pretty fantastic. The discounts are steep, and they are updated on a weekly basis, which makes the website a regular destination. I noticed some interesting package discounts utilizing store brands. For example, the purchase of 1 OREO package includes another package as well as one of the Refreshe brand (Safeway owned) 12 packs.

Something is clearly funky, but it US banks aren't necessarily at huge risk. Quantifying exact damages will be a problem. Look at daily 3 month libor in USD compared to 3 month AA commercial paper (fin + non-fin, it doesn't make a huge difference) and to effective fed funds. It matches pretty closely. Because banks lend to each other in various ways, it would be difficult to lock down one ask and say that's the "real" LIBOR.

EBITDA can be useful in those circumstances, particularly if you don't limit yourself to equity. But even if you do, companies with similar EBITDA potential but different tax/interest schedules might have much closer private market than public market values.

http://alephblog.com/2012/07/06/an-analysis-of-three-month-libor-2005-2008/