ERICOPOLY

They can't so much as take a piss today without getting approval. Here we are waiting for "permission" to pay a dividend. Well, if you had to assign a probability to the fact that Mr. Fisher's proposal will truly be implemented, which would it be? ??? giofranchi Low probability. Why? I don't think "the people" even want it. For example, I bank with Wells Fargo. It's not because they have a gun to my head, it's because I've moved from Los Altos Hills, to Eugene, to Los Angeles, then on to Seattle, and now Montecito. Never have I had to open a new bank account. It's very convenient. Why would I want Mr. Fisher to create a law that says Wells Fargo can only be a small community bank? What a pain in the rear in today's world where you don't grow up, work, and die in your same small community. Eric, commercial banks can do business wherever they want, opening how many branches they want. What Mr. Fisher proposes is they cannot be commercial and investment banks at the same time. And only the assets of commercial banks should be guaranteed by the government. What’s wrong with that? giofranchi I didn't realize that he was an advocate of letting firms continue to control a trillion in deposits. Rather, I thought he was gunning for all banks over $250b in assets. They may be misquoting him, but here is what one author claims: He identified 12 "megabanks" with assets of over $250 billion as too big to fail. http://www.cnbc.com/id/100385916/Fed039s_Fisher_Break_up_banks_that_are_039too_big_to_fail039 It sounds like he wants to "down-size" the commercial banking operations, but maybe it's just a poorly worded sentence and I'm misunderstanding him: "Only the resulting down-sized commercial banking operations, and not shadow banking affiliates or the parent company, would benefit from the safety net of federal deposit insurance and access to the Federal Reserve's discount window," he said. I have posted his most recent speech on this thread. If you then look at the slide that follows the quoted paragraphs, I think it becomes very clear what he is advocating. Maybe, I misunderstood him, but I don’t think he is saying that “parent holding companies” should not exist, and he is not putting any limit either on the dimensions of a pure commercial bank. Am I missing something? giofranchi Unless there is another, here is the one you posted to this thread: http://www.cornerofberkshireandfairfax.ca/forum/general-discussion/'macro'-musings/?action=dlattach;attach=1306 On page two, under "Defining TBTF", he writes: The reduction of market discipline has been further eroded by implicit extensions of the federal safety net beyond commercial banks to their nonbank affiliates. Notice how he says "further eroded"? He thinks size alone is too big of a deal and must be curbed -- the ones with non-bank affiliate protection are not the only ones he is gunning for, they are merely icing on the cake. Then he goes on to say how big banks are a problem but not small ones when they "get into trouble" -- he is not talking here about non-bank affiliates enjoying protection, he is clearly saying that size alone of the commercial bank is enough to pose unacceptable risk: The 12 institutions that presently account for 69 percent of total industry assets are candidates to be considered TBTF because of the threat they could pose to the financial system and the economy should one or more of them get into trouble. By contrast, should any of the other 99.8 percent of banking institutions get into trouble, the matter most likely would be settled with private-sector ownership changes and minimal governmental intervention.

They can't so much as take a piss today without getting approval. Here we are waiting for "permission" to pay a dividend. Well, if you had to assign a probability to the fact that Mr. Fisher's proposal will truly be implemented, which would it be? ??? giofranchi Low probability. Why? I don't think "the people" even want it. For example, I bank with Wells Fargo. It's not because they have a gun to my head, it's because I've moved from Los Altos Hills, to Eugene, to Los Angeles, then on to Seattle, and now Montecito. Never have I had to open a new bank account. It's very convenient. Why would I want Mr. Fisher to create a law that says Wells Fargo can only be a small community bank? What a pain in the rear in today's world where you don't grow up, work, and die in your same small community. Eric, commercial banks can do business wherever they want, opening how many branches they want. What Mr. Fisher proposes is they cannot be commercial and investment banks at the same time. And only the assets of commercial banks should be guaranteed by the government. What’s wrong with that? giofranchi I didn't realize that he was an advocate of letting firms continue to control a trillion in deposits. Rather, I thought he was gunning for all banks over $250b in assets. They may be misquoting him, but here is what one author claims: He identified 12 "megabanks" with assets of over $250 billion as too big to fail. http://www.cnbc.com/id/100385916/Fed039s_Fisher_Break_up_banks_that_are_039too_big_to_fail039 It sounds like he wants to "down-size" the commercial banking operations, but maybe it's just a poorly worded sentence and I'm misunderstanding him: "Only the resulting down-sized commercial banking operations, and not shadow banking affiliates or the parent company, would benefit from the safety net of federal deposit insurance and access to the Federal Reserve's discount window," he said.

They can't so much as take a piss today without getting approval. Here we are waiting for "permission" to pay a dividend. Well, if you had to assign a probability to the fact that Mr. Fisher's proposal will truly be implemented, which would it be? ??? giofranchi Low probability. Why? I don't think "the people" even want it. For example, I bank with Wells Fargo. It's not because they have a gun to my head, it's because I've moved from Los Altos Hills, to Eugene, to Los Angeles, then on to Seattle, and now Montecito. Never have I had to open a new bank account. It's very convenient. Why would I want Mr. Fisher to create a law that says Wells Fargo can only be a small community bank? What a pain in the rear in today's world where you don't grow up, work, and die in your same small community.

They can't so much as take a piss today without getting approval. Here we are waiting for "permission" to pay a dividend.

Japan had a much larger bubble and it's population is shrinking. Why is that a good example but 1929 is not? And besides, hasn't the US been quicker to face it's bad private sector debts, compared to Japan? I thought that was a result of having all these securitized loans in shadow banking that quickly went bad and were written off. Whereas Japan was (I'm told) slow to clear the bad debts.

There's nothing like history to see how deceptively simple approaches have worked out in the past.

Beware of geeks bearing spreadsheets - WEB. No offemce intended to the author of the report - just reminded me of that quote. Well just look at his picture. Geek. More: About, "I am currently enrolled as a student of finance and mathematics.". Again, Geek.

He could have done that without misrepresenting the motivations of others. For example, when QE is done it's not to create wealth as Mr. Paul claims. This is just a straw man so that Ron Paul can knock it down and have an easy victory (he never looks clever when he speaks directly with Mr. Bernanke, IMO).

I thought they were merely trying to offset the deflation that is otherwise going on, but Mr. Paul suggests they are trying to create wealth. Do I simply misunderstand our stimulus spending or does Mr. Paul misunderstand/misrepresent their intentions? But in just a few short sentences Professor Hans-Hermann Hoppe eviscerates the Krugmans of the world by pointing out the obvious: If governments or central banks really can create wealth simply by creating money, why does poverty exist anywhere on earth? Why haven’t successive rounds of quantitative easing by the US Fed solved our economic recession? And if Fed money creation really works, and doesn’t create inflation, why haven’t Americans gotten richer as the money supply has grown?

DC politicians must benefit from having a branch they can walk into pretty much anywhere when they are travelling the country. Most of them surely keep two homes -- one in DC and one back in the state they represent.

You accidentally discharge your gun and shoot a hole in the front window of a bus. Not that catastrophic. On a plane?

Unfortunately, BAC has provided us with a normalized run rate of $500m per quarter LAS expenses, but never gave us a normalized run rate of quarterly LAS revenue. So for example I'm expecting a $2.5b quarterly decline in LAS expenses, but this recent sale reduced quarterly revenue by $200m. Do they have plans to grow their total number of serviced loans from here, or further shrink them?

I agree--perhaps they had to sell some that were still going to be profitable to get them to take the nasty ones. In the call, I remember them implying or saying there would be two batches of transfers, with the second batch having the larger impact on the 60+ days del. First, they transfer 1,768,000 current loan MSRs early on Second, they later transfer 232,000 non-performing loan MSRs. Meanwhile, their fees from servicing these loans offset their expenses such that the delta is expected to be "negligible for the year" That suggests that overall this transfer is going to cost us profits. So it's no wonder there was an interested buyer, it represents a profitable chunk of business that they sold. To clarify in differnet words, if you collect a ton of fees for only a short while, and yet this substantially offsets a ton of expenses that you incur for a long while, then one would tend to believe that BAC would have made an overall profit on these serviced loans were they to all be transferred at the exact same time. Quoting from the CC transcript: We've referenced our January 7 announcement of agreements to sell MSRs totaling $306 billion aggregate unpaid principal balance. This represents 2 million loans of which 232,000 are 60 plus day delinquent. The transfers of these servicing rights are scheduled to occur in stages over the course of 2013 with the delinquent loans scheduled to be transferred after the current loans. Currently, we recognized approximately $200 million in servicing fees per quarter associated with these loans, which is expected to decrease throughout the year, as we actually transferred the servicing. However, the impact on earnings from lower revenue is expected to be negligible for the year, as we expect expenses to also decrease as we transfer the servicing, especially, the 60 plus day delinquent loans.

Wow! Not very PC of Mauldin to write this to the Japanese: Rots of ruck, guys.

The messy Countrywide-originated loan files in the servicing portfolio run off and gradually get replaced with BAC in-house retail originated mortgages that are properly documented, files are fully in order, etc... Thus, in the future the average mortgage that goes bad will be cheaper to foreclose on than the average mortgage in today's pipeline. Part of the explanation maybe.

So is $500m still the normalized quarterly LAS cost level even after selling such a huge chunk of the servicing portfolio?

I saw that too in the CC transcript. In other words, 400k caseload is 60% larger than normal caseload, yet expenses will be running 300% above normal? Perhaps the type of costs incurred in pushing poorly documented cases through judicial foreclosure proceedings is vastly more expensive than what they expect to be doing in the "normalized" cases. The last cases to be resolved may be the most expensive ones in the deck (which is why it will be taking them the longest to resolve those cases)?

The analysts in the Q&A seemed to have higher future growth expectations. For example, 1) they asked about the growth in total earning assets and were told that loan growth would replace securities already on the balance sheet (a wash in total earning assets). 2) another one seemed to not understand that the spat with Fannie (severed business relationship) was unrelated to the concurrent drop in mortgage business. She seemed to believe it would just rebound up to the prior levels now that the Fannie settlement has been done.

At the start of the Q&A they indicated that they are currently saving $900 million per quarter from New BAC. They are 45% done with that phase-in of expense reduction. Had they been 100% complete, there would have been $1.1b less expense in the quarter, or 6.5 cents after taxes (35% tax rate). Add that to the 21 cents of core earnings and it's 27.5 cents for the quarter (after-tax). We can hope to cut another $2.5b quarter expense from LAS runoff but I believe we lose $200m of quarterly servicing revenue from the MSR sales. After taxes (35% tax rate) I believe we pick up another 13.5 cents per share from LAS. So all put together, it's 41 cents after-tax for the quarter if you were to close your eyes and pretend that the expenses were already run off. That comes out to $1.64 annualized. This is lower return on tangible equity than the 13% lower-bound that Moynihan talked about by 2015 in the current rate environment. I think it also benefits from some net reserve releases that may be exhausted by 2015. Thoughts on where things get better to the 13% to 15% level from here?

I come up short with 21 cents for the quarter. 16 + 6 + 5 + 4 + 3 - 2 - 2 - 12 = 18 18 cents of adjustments. Direct from the horse's mouth: Previously Announced Selected Items Impact Pretax Earnings Representations and Warranties, Compensatory Fees Settlements with Fannie Mae, $2.7 Billion or $0.16 EPS Provision for Independent Foreclosure Review Acceleration Agreement, $1.1 Billion or $0.06 EPS Total Litigation Expense, $0.9 Billion or $0.05 EPS Negative Valuation Adjustments for Improved Credit Spreads, $0.7 Billion or $0.04 EPS Provision for Obligations Related to Mortgage Insurance Rescissions, $0.5 Billion or $0.03 EPS Gain on Sale of Japan Brokerage Joint Venture, $0.4 Billion or $0.02 EPS Positive MSR Valuation Adjustment Related to Servicing Sales, $0.3 Billion or $0.02 EPS Net Tax Benefit Primarily From Recognition of Foreign Tax Credits of Certain Non-U.S. Subsidiaries, $1.3 Billion or $0.12 EPS

The loan growth helps them improve the mix of earning assets, but does not increase the total earning assets. They can ditch some securities if loan opportunities arise. Getting better instead of getting bigger. Paul Miller - FBR Capital Markets: Guys, on your guidance for NII which was really good, you talked about a steady, I mean, you can maintain that net interest margin at current levels, what about average earning assets? Do you think you can maintain your average earning assets at these levels or grow them? Bruce R. Thompson - CFO: I think the average earnings asset levels that you're probably at a level that you're not going to see an enormous amount of growth. What we do hope that happens though is that the composition of those earning assets change so that we can look at and particularly in the institutional businesses that I mentioned, as well as in GWIM, there was very strong loan growth during the fourth quarter. We are focused on continuing to drive that forward and that obviously reduces the need to invest in securities and other things and we think ultimately it has a positive impact on the NII and it's also quite frankly consistent with managing OCI risk going forward.

He has mentioned this before. I tried to explain it once with the machine gun analogy. You've got a trench defended by multiple machine gunes. Trouble is, they're jammed. Instead, you've got lots of barbed wire and sand bags (capital) to defend your trench. Should the shooting get really thick, you'll sleep much better with fully functioning machine guns. I would if I was in that trench. So even if their capital levels are high and a bit excessive, without that machine gun the trench is just nowhere near as well defended. So I believe the Fed wants that LAS expense to come down so their trench is better defended. Once the Great Depression 2 hits and we're in the thick of it, the capital cushion only lasts so long perhaps -- the rate at which you can augment it with earnings matters considerably. Maybe you can capitalize the power of the earnings and think of that like a capital buffer, so to speak. Until then, the Fed might just tell them that more sand bags and barbed wire are needed.

This sounds contradictory: http://www.reuters.com/article/2013/01/17/mbia-notes-idUSL1E9CH9O320130117?type=companyNews Compare this statement where they deny any liquidity problems: The decision "does not reflect MBIA Insurance's current solvency or ability to pay claims to policyholders," Marc Kasowitz, a lawyer for the insurer, wrote in a letter to a New York state judge. To this one where they blame any liquidity problems (hrm???) on BofA: In its reply on Thursday, MBIA said the regulator's action was irrelevant to the court proceeding and blamed any liquidity issues at MBIA on Bank of America Corp's refusal to pay $5 billion in obligations it says the bank owes MBIA.

I saw quite a few articles about the revenue coming down (e.g., lowest revenue in Q4 since 2008). Also, no guidance on the dividend/buyback ask, unlike most of the other banks. The revenue coming down was expected though at the time the settlements were announced. All the analysts learned about this (who didn't already know) in the Q&A of the Q2 2011 conference call when Mike Mayo asked Moynihan where the revenue went. Moynihan informed him that it was destroyed by the R&W provisioning (counts as a subtraction from revenue). From today's release: Fourth-quarter 2012 revenue, net of interest expense, on an FTE basis, excluding $0.7 billion of debit valuation and fair value option adjustments, was $19.6 billion; excluding $3.0 billion of provisions for representations and warranties and obligations related to mortgage insurance rescissions related to settlement agreements with the Federal National Mortgage Association (Fannie Mae) revenue net of interest expense, on an FTE basis, was $22.6 billion

There was confusion on the conference call as well given the large size -- so I expect this will be replayed by more retards like Tyler Durden before we've heard the end of it: Edward Najarian - ISI Group: Then I guess my second question is just fairly technical, but when I look at what you've outlined in terms of reserve recapture, it looks like about $900 million in terms of the loan loss reserve, a $2.2 provision and $ 3.1billion charge-offs, but it looks like the loan loss reserve itself dropped by about $2 billion from the third quarter. Can you reconcile that for me? Bruce R. Thompson - CFO: The reason it dropped by that amount is that – and you saw it in the third as well as the fourth quarter, that some of the DOJ/AG Settlement modification and other things, that is, as you disposed get repaid of write off the purchased credit impaired portfolio, it reduces your loan loss reserve. Edward Najarian - ISI Group: Then that's not coming through the charge off line? Bruce R. Thompson - CFO: That's correct.