Rabbitisrich

I start with revenue to tangible assets and non-interest expenses to tangible assets.

According to the FDIC, loans to deposits rises with asset size until $10b+, where the ratio drops again.

Nice catch. Justice Kennedy's reasoning is very clear and persuasive. An advisory group for the development of FIRREA had noted the difference between limitation and repose, and had specifically advised to cover both periods. Yet the relevant section not only limits the language to "limitation", it refers to "period" singular, rather than to distinct time horizons. The burden is on the claimants to find that smoking gun that proves that Congress meant to include both statutes.

Floyd Mayweather is an interesting example to use because he exemplifies different expressions of arrogance. You are referring to the "Money" Mayweather cartoon that we see between fights. But in the ring, he is a more disciplined fighter than past talents like Sugar Ray Leonard and Roy Jones Jr. Every move he makes between the ropes in intended improve his odds of winning. And, of course, he is always in shape. So you see the practitioner's humility in knowing that he is only exceptional in so far as he behaves smartly, and not due to some inherent characteristic of being special just because.

This is a quote from the conference call transcript: I also want to remind you that our Tier 1 capital and supplemental leverage ratios will benefit by approximately $2.9 billion in the second quarter of '14 if we receive shareholder approval to amend our Series T, preferred stock. Buffett's $5 B probably references the amount of cash exchanged, but BAC recorded it at $2.9 B after discounting $2.1 B for the option value.

I wonder whether Moynihan and Buffett were even considering Basel at the point of transaction. Given the nature of the risks that would interrupt preferred dividends, the cumulative feature is probably a minor protection. And, correct me if I'm wrong, but the preferreds were issued after regulatory guidance that would describe how they would be written down and converted to equity according to regulatory discretion. Given that the preferreds can be used to exercise the call option, I'm (completely) guessing that Buffett may have just been seeking an additional discount to the call option plus a source of liquidity. But thinking about it from Buffett's view, why would he have the gall to just call up a CEO, who happens to be working on a major deal to exit CCB, and propose this plan? If not coincidence, then was Buffett selling his name? And, if so, why?

Another story could have to do with whatever negotiations were going on with regulators. A couple big things happened subsequent to the Buffett dilution: a series of ratings downgrades and the closing of the partial sale of CCB. Wholly speculative, but there might be something to the fact that Buffett initiated the deal. Historically, he has gone out of his way to accumulate intelligence.

Out of context, I can't be sure what he meant to say. But the out of context quote looks like he is double counting. If you have a 4.5% yielding asset, and you invest those proceeds in other 4.5% yielding assets, you wouldn't say that you returned 9%. The bank is using the retained 2/3 of earnings to repurchase a 4.5% payout on the shareholder's behalf. So the payout is actually 100%, or 13.5%. You have to distinguish between the return potential of an asset, and the return potential of yourself depending on what you do with your proceeds.

That worry applies if management fixes their RWA target, and then builds to ratio target. But if they lend the extra capital, even a 1 to 1 increase in Tier 1 CE and RWA improves their position. Something like a well secured home mortgage would add $1 RWA to every $2 of retained Tier 1 CE. In the near term, because BAC is in a hurry to reach the target ratios, they will probably make the most aggressive moves, which means building liquidity. Going forward, they will be able to make more economic decisions.

I don't see this error as being as meaningful as, for example, an earnings restatement. I may be biased as a current holder of the stock, but today's news looks like a contained error, followed by aggressive relationship management with the Fed. Moynihan is showing regulatrs that they will face investor anger to support capital levels.

There is also a deduction for amortization of intangible assets, which amounted to $1.1 B last year. It will take off about $938 MM for 2014. I think that Buffett argued that amortization schedules aren't sensible for such assets because their fair value with the value of BAC's service.

The market rewards/punishes behavior, not reasoning, so it is probably an overstatement to say that the market proved someone to be correct for a given "big picture" statement. Klarman described the market as being "greatly overextended" in November 1995. But the S&P 500 would go on to return 7.7% over the next 8 years.

His focus on household balance sheets makes sense from a business perspective, but he hugely overstated his case against monetary policy. His debt based argument not only presumed monetary inefficacy in real terms, which is defensible, but it also presumes impotency in nominal terms.

Otsog, the quotes supplied in the Michael Lewis piece are even more confusing. They look at one side of a transaction, the trader who enters an order that doesn't get filled, and somehow end up at "front-running". What happened to the order? Is the HFT now taking your place as the investor? Or, more likely, is the HFT flipping the stock to an investor who is willing to pay more? In the latter case, that is just price discovery! What the people in the article are complaining about is the allocation of the fee for matching buyers and sellers. The bid ask spread is not a right. It is just the information provided given the existing order flow.

This is the part that makes no sense: Steve Kroft: What do you mean front run? Michael Lewis: Means they're able to identify your desire to, to buy shares in Microsoft and buy 'em in front of you and sell 'em back to you at a higher price. It all happens in infinitesimally small periods of time. There's speed advantage that the faster traders have is milliseconds, some of it is fractions of milliseconds. But it''s enough for them to identify what you're gonna do and do it before you do it at your expense. Notice that the above argument has little to do with investing. Lewis is describing how the "investor" can no longer clip the marginal value of mismatches between what people would pay and what they actually pay. So, in the pre-HFT days, did the generous market makers of lore pass along such bid-ask spreads to the buyer or to the seller?

I didn't think that Lewis' arguments made a ton of sense. In the 60 minutes interview, one of his descriptions of front-running included a scenario where you place an order, an HFT sweeps the bid, then you buy at a higher price from the HFT. What? Isn't that another way of describing your actual bid being exposed? From an investor's point of view, the danger of front-running is that someone diminishes the value of your more-efficient-than-market thesis. If Michael Burry explains his need for bespoke CDS, and the institutions step ahead of him to purchase their own CDS, then the institutions just occupied his place in line. But if an HFT bids a fraction ahead of you, then flips the share to another market participant who bids a fraction ahead of them, then that is nothing more than matching the share to the highest bidder. There may be a front-running aspect to HFT, but so far Lewis seems to be conflating liquidity services with front-running (I haven't read the book.)

Part of that process should be personal respect for Corbat and the people at headquarters. If foreign based officers view headquarters as an occasional disruption that otherwise leaves them alone as long as they fulfill certain metrics, then culture gaps get bigger. It's not like Banamex's are to be expected. But Banamex is a symptom that wasn't noticed until after local regulatory actions.

Strange response indeed. If the board paid management with cash today and required that management enter into forward contracts to purchase stock, then you would have similar dilution, assuming the performance targets are reached. So how does a buyback/dividend plan mitigate such dilution? Maybe the BOD misrepresented their views, but the response reads like they confuse a stable number of shares outstanding with a neutral economic impact to shareholders.

Yeah, there a quite a few anecdotes that depict Buffett as being extremely sensitive and prone to anxiety. Even fairly recently, he pulled out of a championship partners bridge tourney, right before the match, because of self-doubt.

Agreed, and the pushback from investors shows an underappreciation of the Banamex issue. It's great that the financial magnitude appears to be manageable, but it shows that management lost control of the struggle with information asymmetry that is inherent to the Citi model. How would headquarters handle rogue agents in Korea, where a business entity might be a hodgepodge of interests from Chaebol family members, and financing self-dealing is part of relationship management? Or Japan and Hong Kong where private lending might represent a significant off-balance sheet interest? Corbat has to go into Maurice Greenberg mode, checking up on foreign based executives and letting them know that he knows their numbers front to back, and that he is constantly assessing their performance.

http://www.newrepublic.com/article/117088/silicons-valleys-brutal-ageism My least favorite quote of the entire article, After making computer chips for 15yrs in silicon valley, and just generally getting older, I have found there is no substitute for experience. If you look closely at the world trend, I think you'll find the opposite phenomenon more accurate than what the article says. The world is harder and harder for young people to get ahead. They lack knowledge and experience and blue collar jobs are harder and harder to get and lower and lower paying. The established and experienced can get richer and more successful. The world favours the incumbent. Not necessarily for businesses that emphasize innovation. Young people are "smarter" than older people in specific ways. Think back to when you were 16 and you read something that kept your brain buzzing until you internalized the new thought process. That sensitivity and cognitive agility lessens over time. Of course you pick up other attributes, but those young attributes are especially useful for mold breaking.

That other column looks like the change in fair value for available for sale loans. My guess is that the weak projected PPNR, in the most adverse scenario, is mostly due to BAC's litigation and putback developments.

Looks like BAC PTPP is being impacted by adverse litigation and putback expenses in the most adverse scenario.

There is a big information asymmetry between local executives and the senior executives. Lots of local politics, relationships, and competitive dynamics. Tough to feel comfortable with the typical Pandit type who provides carte blanche authority as long as you meet the numbers. The Banamex issue might not be significant in itself, but it's tough to change that information asymmetry without a Maurice Greenberg type hardass.

It would still be better for taxable investors if FRFHF just repurchased shares. The WSJ writer is wrong in thinking that you have more certainty with a dividend. Watsa may lose out if he sells his excess % ownership, post-buyback, when the stock is cheap. But it is the same opportunity cost if he receives a dividend, and does not reinvest. There is no additional certainty. The economic position is the same before taxes.