Rabbitisrich

I've got a blind spot with options. With BAC warrants, I'm trying to get away from a habit of thinking categorically and more towards Ericopoly's review of payouts and implied leverage.

I'm definitely going to buy Garnaut's book. Of course, the essay is doesn't elaborate on sources of information but the narrative sounds like something pulled from The Three Kingdoms.

Wells Fargo has 88 billion of loans to people with FICO scores below 640 on their books, compared to 80 billion with FICO below 620 for BAC (see pages 148 and 158 in the Wells annual report for details). Wells has Tier 1 capital of 114 billion. Doesn't look like BAC is that much worse off than Wells on this metric that Martin cites as a concern. The 80 billion for BAC and the 88 billion for WFC both include PCI loans -- option ARMs from Golden West in the case of Wells and mainly Countrywide loans in the case of BAC -- which I believe means that many of these loans are already written down significantly. On page 7 of the letter, Martin mentions that BAC has 2.7 trillion in assets. The latest annual report shows just over 2.1 trillion in assets. Any idea how he got the 2.7 trillion number? Given all the research that he says he has done on the company, it can't just be a mistake, can it? Only difference is Wells doesn't stuff everyones mail box with credit card offers, it's a cross sell. For everone else, this unsecured debt to below avg. fico scores is a risk. I think MCM referred specifically to < 620 FICO of residential mortgages (secured and unsecured). Ex-PCI and insured loans, BAC and WFC are pretty similar at around 15% below 620/640. The point he misses is the thing that Berkowitz keeps saying: what are likely losses relative to PPTP. The declining NIM and the presumably temporary non-interest expense level is still mitigated by estimating a conservative range of PPTP to likely losses relative to price.

That's true but the advantage of relatively more cautious managers is much greater during the optimistic periods than in the recovery stage. MCM management underestimates the significance of Moynihan's management, perhaps as a result of overstating the significance of the dividend screwup last year.

NO! Shortcuts lead to poor results or even worse...catastrophic decisions! Over time, all of the 10-K's you go through will create a significant base of knowledge for you to work with. You will get faster and faster, and out of habit, you will be able to go to exactly the areas you need to examine. But to put it as bluntly as I can, because it is for your own benefit and your future client's benefit: If you don't want to do the work, then it is not for you. Cheers! Also, in many cases the bull thesis is simple and, hopefully, rolls over nuance. The bulk of the work is finding the red flags and the questions for which you have no reasonable answers.

Holy crap, you were way ahead of the curve PlanMaestro! I didn't catch that post from 2010.

Does he really want to be anonymous? His attachment is still available in a recent thread. Nice chart and good summary, in any case.

He has some good tips and a warning about earn-out accounting: http://online.barrons.com/article_email/SB50001424053111904646704577295943317169860-lMyQjA1MTAyMDMwMTEzNDEyWj.html?mod=barrons_share_email

I like Breaking Bad and watched Sopranos all the time. Mad Men is one of the most boring shows on television! ;D The Walking Dead seems to be moving away from the grimace fest it was under the previous showrunner. Parsad probably saw the Mad Men episode where Don reads 3 chapters from The Alchemy of Finance. Mad Men starts slow and builds steam throughout the season.

http://newsandinsight.thomsonreuters.com/Legal/News/2011/07_-_July/Why_BofA_is_%28partly%29_to_blame_for_criticism_of_its_MBS_deals/ Alison Frankel, of Reuters' "On The Case", reports on developments in MBS class action damages. Deutsche Bank $12.80 per $1000 initial certificate value Wells Fargo $2.70 per $1000 initial certificate value Merrill Lynch $19.05 per $1000 initial certificate value Bank of America $2.00 per $1000 initial certificate value (The $8.5 settlement; not a class action; not settled)

Wow, amazing pictures. Thanks for sharing.

Benmosche is showing capital allocation and negotiation skills that Moynihan still has to show. Both are great. Well, Moynihan will have his chance. For now, I'm happy for him to build up to a fortress balance sheet. I just wish he were a bit more charismatic -- more Dimon-like. But that's a very small criticism. Charisma is overrated in banking. Moynihan is setting a tone that the culture shifts are permanent, unlike another big bank CEO who talks about culture change, and then announces a system-wide ROA target. Shareholders are lucky to have both, but Benmosche is overseeing a massive turnaround while battling cancer! Amazing guy.

If you think that Schroeder offers considered analysis of Buffett, then Jeff Matthews may destroy your mind.

His investor letters are a study in courteously recommending questioners to F OFF.

Nevermind, I just got the ambiguity. Your interpretation includes the possibility that the ordinary dividend definition reverts to a simple regular dividend as soon as cumulative dividends pass $0.34 in a quarter. In other words, all it takes is one quarter at $0.35, and all future dividends, of any size, adjust the strike and shares issuable. Another source of ambiguity results from the terminologies, "in" and "any" If the ordinary dividend definition is knocked out after outlaying $0.34 "in" "any" quarter, that could mean that cumulative dividends are measured from ALL quarters subsequent to 10/28/10. Certainly, $0.10 from 1Q10 and $0.10 from 2Q10 sum to $0.20 from quarters. One challenge to this interpretation might be in the definition of "would" from "would constitute and ordinary dividend." Unfortunately, the environment from which "would" is drawn has not been explicitly defined. Would, as if $0.34 had not been breached? If not, then why doesn't the prospectus simply say "does" to show that the ordinary dividend definition still exists and applies?

For all that people complain about TBTF banks (read the recent Dallas Fed annual), the government's handling of its senior cumulative preferred stake remains inexplicably generous to shareholders.

Yeah, the prospectus is not vague on this point regarding cash dividends. It explicitly guides readers through the ordinary dividend impact of the numerator of the strike adjustment multiple. If we fix a record date for making a distribution to all holders of our common stock of securities, evidences of indebtedness, assets, cash, rights or warrants (excluding ordinary cash dividends (as defined below), dividends of our common stock and other dividends or distributions referred to in the preceding bullet point) such subtracted amount and/or fair market value, the “per share fair market value” In the case of adjustment for a cash dividend that is, or is coincident with, a regular quarterly cash dividend, the per share fair market value would be reduced only by the per share amount of the portion of the cash dividend that would constitute an ordinary cash dividend. “ordinary cash dividends” means a regular quarterly cash dividend on shares of our common stock out of surplus or net profits legally available therefor (determined in accordance with generally accepted accounting principles in effect from time to time). Ordinary cash dividends will not include any cash dividends paid subsequent to October 28, 2008 to the extent the aggregate per share dividends paid on our outstanding common stock in any quarter exceed $0.34, as adjusted for any stock split, stock dividend, reverse stock split, reclassification or similar transaction. Where is the ambiguity? To the extent that regular dividends don't exceed $0.34, the strike adjustment multiple is 1.

What is the confusion? It's pretty clearly laid out in the definitions of ordinary cash dividend and fair market values of securities.

Looks like those guys even made money in 2009. The fair value measure is questionable given the premium over estimated forclosure sale proceeds. Foreclosure sales are much less annoying than short sales. What is the major advantage over the bank reducing principal? Perhaps the repurchase loan is at below market rates and terms. Maybe the bank accepts bids through the short sale process and only agrees to this project when conditions look poor.

Look at the last two sentences of your first quote.

http://www.newyorkfed.org/newsevents/speeches/2012/dud120319.html Moreover, the United States has experienced unusually mild weather over the past few months, with the number of heating degree days in January and February about 17 percent below the average of the preceding five years. While this reduces the amount that households and businesses must spend for heating, I suspect that it temporarily boosts economic activity overall. For example, the mild weather is certainly conducive to higher than normal levels of construction activity, and we did see a surge in hours worked in that sector over the past few months. Growth of final sales was actually quite weak. Historically, a quarter in which inventory investment makes a significant growth contribution is typically followed by a quarter in which that growth contribution is modest or even negative. To put the recent pace of growth into perspective, we believe that the economy's long-run sustainable growth rate (what economists call the potential growth rate) is around a 2 1/4 percent annual rate. We need sustained growth above that rate to absorb the substantial amount of unused productive capacity. While the underlying core inflation rate, that strips out volatile food and energy prices, has been somewhat higher than expected a few months back, it appears that the annual rate of core inflation2 has peaked and we expect it to begin to decline later this year.

The prospectus addresses your question in the section devoted to cash dividend adjustments. It says that "per share fair market value", or the amount deducted from the strike in the numerator of the adjustment, is reduced by the value of the ordinary cash dividend. When you calculate the numerator for a dividend that shares the record date with a "regular" dividend, the "per share fair market value" is reduced by the ordinary cash dividend.

Peter Burke, what say you? Why do you think only the excess matters? i think it's been vetted by many people. the language is confusing. but I believe it's the excess. It is the excess above 0.34/q. if it was the total dividend the warrants would be worth $8-9 more than they are trading to account for the cumulative dividend. What kind of argument is that? Are you assuming the market understands the prospectus better? Where in the prospectus do you see the adjusment is only on the excess. It doesn't seem that way to me, since the formula for adjusment says nothing regarding any excess. The way it seems to be adjusted, as I quoted above from the prospectus, is multiplying the strike price by the stock price after the ex date divided by the stock price before the ex date. if a forum of value guys who read prospectuses aren't sure how the adjustment is made, it seems to me we just might have a serious edge in solving this. To me it seems the adjustment if for the entire amount, any idea how we can resolve this? It indeed seems quite significant - about 60-80 percent increase on today's price depends on the understanding of this thing. Arden, I'm not sure what market opinion has to do with the prospectus, but "ordinary cash dividends" is defined as up to $0.34 and it is explicitly excluded from triggering anti-dilutive measures.

Did Hussman ever write an editorial explaining his use of technicals? I've also heard Gundlach referring to chart patternss when discussing commodities.

For WFC, ordinary cash dividends only include up to $0.34 after adjustments prior to the dividend, and the anti-dilutive provision excludes ordinary cash dividends. It's basically invisible so far as the dilution adjustments are concerned.