Parsad

Sanjeev, I sure hope you're right. Given elevated capital levels and reduced leverage, I tend to think that going forward performance will be more along the lines of say 0.80% ROA and 8-10% ROEs in general with banks trading in the 1-1.5x TBV range. Obviously stronger numbers will warrant a higher multiple of tangible book. Even with those numbers, based on current levels it's still around $1.60-2 a share in earning power. Also, remember we are at historical lows on spreads. Over time, spreads will trend closer back to the median. Conservatively, if banks return 1.5% on assets long-term, and you have 9 times leverage, you are looking at 13.5% ROE. 15% would be on the high side, but banks with low funding costs like WFC would be on that 15% side, and the other large-cap U.S. banks would be around 12.5-14% ROE. Cheers!

Sanjeev, I sure hope you're right. Given elevated capital levels and reduced leverage, I tend to think that going forward performance will be more along the lines of say 0.80% ROA and 8-10% ROEs in general with banks trading in the 1-1.5x TBV range. Obviously stronger numbers will warrant a higher multiple of tangible book. Even with those numbers, based on current levels it's still around $1.60-2 a share in earning power. I think 1% ROA is the worst case scenario for the large, well-capitalized banks not taking unnecessary risks. Legacy issues may interfere in the short-term, but as they get dealt with 1% is not going to be difficult at all with the cost-cutting most banks have done, and the type of business they are writing, as well as the credit quality of the borrowers. Cheers!

Yes, in the short-term. But like insurance, you are constantly running off older business and writing new business at the higher rates. So, it is a wash in the long-term as long as you stick to the basics and write good business, don't become overleveraged, and avoid stupid, greedy blowups. Cheers! I agree, but I think that a shock in rates (e.g. the 10 year goes to 5%) could be very problematic and potentially catastrophic to certain banks. When people are allowing for a more favorable interest rate environment in their analysis of the intermediate term, I am not sure how the bank can get there. Also, in terms of run-off, I think that people need to remember there is an embedded option in a lot of loans. If rates go up, it is more likely you will retain your low rate loans. If anyone has any experience working at banks, I'd love to hear how the manage interest rate risk and if they know what banks are better or worse at it. Rates in themselves won't have an effect. It will depend entirely on where along the duration the interest rates hit the most. As long as spreads stay relatively stable...deposit rates rise 1%, while long-term rates rise 1%...then banks will have little difficulty adjusting. Problems can happen if you have short-term rates rise dramatically...currency shock, inflation...while long-term rates rise less. Historically, spreads today have narrowed to historical lows. They were widest in 2008 after the Fed started pummeling rates, but they have narrowed dramatically since then. So, it is unlikely that interest rate increases could narrow the spread any more than they have. Cheers!

You are correct. And remember, a well-run bank will always have a better moat and greater longevity than most technology companies. Apple has to constantly reinvent itself and create a better product. In banking, the deposit base is relatively captive, as most people hate to switch banks, checking accounts, credit cards, etc. As long as a bank can provide basic savings, lending, business services and investments, with the innate leverage they have, they can return 12-15% ROE for decades, while returning the bulk of that capital back in dividends, share buybacks or expanding their business. Banking is simple, executives complicate it with their grandiose ideas. And BAC as you know has the best deposit base in the world. As long as they keep it simple, and Moynihan sure is walking the talk, BAC will prove to be a good investment for many years. I don't know what will happen after Moynihan, but as long as he is there, I think the culture has completely shifted and he won't forget these lean years. Cheers!

Yes, in the short-term. But like insurance, you are constantly running off older business and writing new business at the higher rates. So, it is a wash in the long-term as long as you stick to the basics and write good business, don't become overleveraged, and avoid stupid, greedy blowups. Cheers!

Don't get carried away guys. We know that based on everything happening at BAC, even if the U.S. and global markets fell into a recession, that BAC should be able to earn $18-20B net profit in 2014...1% on assets...very conservative. That's with a number of loan and legacy issues settled, capital ratios at least 50 basis points above Basel III, and much of their expense cutting and loan servicing completed. Two ways to value it simply and conservatively at that point: - Using 11B shares outstanding and assuming no buybacks, you get $1.64-1.83 in earnings per share with all the bad things in the past. Give it a simple 10 times multiple for a good bank, with reduced risk and better capital ratios than most of their peers and you get $16.40 to $18.30 as the worst case scenario...unless the world blows up...I think 12 times is more reasonable, but I'm assuming banks are priced the same way as they are today! The A warrants would trade between around $6-8...with four years left on them. So your return would be anywhere between 75% to 110% depending on where you bought your equity and warrants. Pretty damn good over 2 years, with very little downside risk. - Using book value, at a bare minimum a decent bank with good ratios and operating profits should trade at 1.5 times tangible equity. That gives you a price of $19.50. And that's very conservative considering their liquidity, remaining legacy issues, cash flows, capital ratios, expense reduction and the mortgage industry in the U.S. today. I think it will overshoot both of those estimates, but that is what the worst case scenario in my mind (again, assuming the world doesn't spiral downwards into another depression) is for BAC within two years. I suspect as the world muddles its way through the requisite deleveraging, you will probably see BAC trade at 1.25 times book...that may happen quicker than the above estimates, but I'm giving you a relatively pessimistic view of things. Cheers!

I've thought that Hostess brands would be a terrific buy at the right price for Berkshire or a number of other companies, like Weston Foods. I was never a fan of Twinkies, but I sure like the occasional Ho Ho or Zinger...especially the Zinger. That pink, syrupy cake, covered in shredded coconut and the same Twinkie's vanilla filling inside...mmmmm! Gonna miss them unless Berkshire saves the day! Cheers!

Actually, I had to rescue him that night just before midnight. The ballroom was completely empty, even the tables were bare, and there were 50 people still in a circle around Francis. He would have stood there till 3 am if no one came to get him. That once-in-a-lifetime CDS investment was also Francis and Brian Bradstreet's idea. He had to get regulatory approval to buy them for the Chou Funds and then amend the fund bylaws. By the time he received approval, prices had started to rise and he could never buy them for his fund. Otherwise, the Chou Funds may have been up 100% that year too! Cheers!

Yeah, that is pretty clear...thanks! Maybe he reads this board already, as that is pretty much what many of us have been saying for a while. Cheers!

He said it in an interview when somebody asked him about capital return. But I've since tried to find it again a month or two ago and I couldn't come up with it. He didn't say it this year. I guarantee I heard him say it though -- it struck me as very rigid. He did say it in the past. I don't think it was rigid though. His main point was that the business was going to grow organically and the bulk of the earnings would go back to shareholders in dividends and buybacks. Even in the CNN/Money article from July 2011, he says: When BofA has built up a sufficient capital cushion, probably two to three years from now, Moynihan plans to return all earnings to investors in dividends or share buybacks -- we're talking about $25 billion a year, all stuffing shareholders' pockets. "We need to get back most of the shares we issued in the crisis, that caused all the dilution," says Moynihan. It's a classic value strategy of growing modestly without plowing profits back into the business. Cheers!

The other thing I found in that webcast is Moynihan directly stated that he thinks they will earn 13%,14%,15% returns on tangible equity. Tangible equity being $13.50 today, and already at 9% B3 including a 50 bps buffer, this would indicate typical earnings of between $1.75 - $2.025 per share. I need to watch the webcast again, but I believe that Moynihan was talking about 13%,14%,15% returns on tangible equity after the planned expense reductions and LAS expense runoff. So they'd be doing better than that if interest rates get more favorable. Yes that is correct. That was what he was saying. Cheers!

He's also the nicest person you will ever meet. It's why Prem and everyone at Fairfax views him so highly. There is no ego around Francis whatsoever, and he has all the time in the world for people. As many of you who surrounded him at last year's dinner till nearly midnight know! ;D Honestly, not only a great investor, but the nicest person I know in the industry. Cheers!

Go directly to BAC's Investor page and look up presentations. That link wasn't working for me either, but when I went to their website myself, it worked after registering. Cheers!

My numbers were what I thought the bare minimum would be. I don't want to get expectations too high because the Fed does what the Fed does. If they treat BAC like the other banks then the payout will be higher. But if they treat BAC based on legacy issues, then my numbers are what I think they will be around. Many of you thought they would be able to return capital last year and I said I didn't think so...another year. Well, that year has past and they've overshot my expectations. Let's hope the Fed sees it that way too! Cheers!

I think you are right. A settlement will be made before the month is out. Cheers!

Well that's pretty much it. Why is MBIA going to get anything different than the precedents set. I think they want considerably more, and BAC isn't going to give them more. At some point, buyer beware comes into play and individuals have to take responsibilities for the decisions they made during the credit crisis. Bank of America has...they've paid $108B in the last two years to clean up books and settle claims. MBIA is in the mess they are in because they were just as reckless and greedy as everyone else. And by the way, when in the world are we going to fry the hell out of Mozillo? He walks away because of the indemnity clause that he had with Countrywide...what a friggin' joke. That guy should be hanged by his balls! Cheers!

Yeah, my point too. It basically means this issue needs to be resolved via the litigation process and only that. Settlement would be more on the table, but there could be a decision sooner rather than later (not predicting, just saying). However, BAC is almost certainly telegraphing that they will appeal until the end of eternity, or as long as they can, and MBIA can't survive that long. So . . . settlement it likely is. I think Moynihan came up with this one himself. With his background on structuring deals, etc, this seems like something he came up with. Cheers! Could be. It's a very aggressive move and surprising to me. Usually the big boys don't want to do this kind of thing. It makes other counterparties wary of working with them. Like "ok, if we work with you and we have a disagreement, are you going to try and buy up our debt and force us to do something too?" Granted, this is an incredibly adversarial relationship between BAC and MBIA, but still. I can almost guarantee that there will be some parties that think well, I can work with BAC or I can work with C, for example. BAC has shown a lot of aggressiveness, so I'll pass this time around and see how it plays out. Just my view. Possibly, but at the same time, I agree with Moynihan that they can't take responsibility for every single transaction that went bad. So at some point, you draw the line in the sand...if you plan on suing us, we are going to make it very uncomfortable, because we've pretty much paid out every ninnie that has come to our door for the last two years! They've approached MBIA to settle on several attempts, and they've been brushed aside. So, I think BAC wants to get more of the litigation settled before the January 13 stress tests. We've tried to settle, but you're now dragging our name through the mud, so you've left us no choice...settle or we become your largest creditor and drive you into settling through insolvency. Cheers!

Yeah, my point too. It basically means this issue needs to be resolved via the litigation process and only that. Settlement would be more on the table, but there could be a decision sooner rather than later (not predicting, just saying). However, BAC is almost certainly telegraphing that they will appeal until the end of eternity, or as long as they can, and MBIA can't survive that long. So . . . settlement it likely is. I think Moynihan came up with this one himself. With his background on structuring deals, etc, this seems like something he came up with. Cheers!

http://www.slate.com/blogs/future_tense/2012/11/12/elon_musk_s_tesla_model_s_is_first_all_electric_car_to_win_motor_trend_car.html Well actually, Romney was the loser...both objectively and subjectively. ;D Cheers!

Read the full press release. They pretty much say, they want to buy the debt in the open market, so that MBIA could not use bankruptcy or Chapter 11 as any sort of protection. In other words, we are going to force these guys to settle by becoming their largest creditor. Cheers! This was my read on it too. I don't see this as really changing anything. I think the consent is a sideshow and is distracting from the real issues. From MBIA's standpoint that's not to say it wasn't prudent to do, but it doesn't really change anything. I always thought MBIA threw this out there as a way of bringing the issues to the public if you will. BAC is simply firing back in the same way. Unless I am missing something, whatever happens, it doesn't change the fact that there is either a settlement that needs to occur or a decision from the judge. What it does is prevent the ring fence around the parent. MBIA was using the ring fence to prevent insolvency, and then using the putbacks to maintain liquidity. If BAC buys the debt, they can call the loan directly...you aren't going to get any ring fence, because those assets are ours. MBIA is forced to settle, as there is nothing else they can do other than litigation to see if there is any way to stop BAC, and they will not have the liquidity to make it through 2013 without some settlement. Cheers!

Read the full press release. They pretty much say, they want to buy the debt in the open market, so that MBIA could not use bankruptcy or Chapter 11 as any sort of protection. In other words, we are going to force these guys to settle by becoming their largest creditor. Cheers!

Also now named Motortrend Car of the Year. Cheers! http://money.cnn.com/2012/11/12/autos/tesla-model-s-motor-trend-car-of-the-year/index.html?source=cnn_bin

Cummings and Steinberg aren't going anywhere. Cummings is just removing himself from day to day duties, but he will be on the board. As far as I know, Justin Wheeler isn't going anywhere either. So, you've got the best of Leucadia and the best of Jefferies working for Leucadia shareholders now...with twice as many ideas to share and make money from. Remember, it was Handler who brought Fortescue to Leucadia, and that may have been the best large investment ever made by LUK. Cheers!

It will probably be around 5-7 cents a quarter. Big jump, but only about 2-2.5% yield. I would think they would try to buy back $3-5B of stock as well. Cheers!

No I think the show is much longer...maybe half an hour. This was just their promo clip. Cheers!