ERICOPOLY

30% dividend payout ratio if still building capital. But look if they're already at 9% by then... well then 30% should be the floor of what they can do. Given that Moynihan only wants to do about 30% anyhow, then my personal expectation is for a 30% dividend payout. And if 30% is the dividend payout ratio, then 40% for a buyback ratio seems like a reasonable floor if they're already at 9%. The more they let them payout while still maintaining 9%, the less TBTF they get. One way to solve TBTF over the long term is to penalize TBTF with 9% ratios so that it makes best economic sense to payout the earnings, meanwhile the smaller firms retain and grow with their 7% ratios and thus better economics. The growth occurs in the less risky firms, thus the system in theory becomes less concentrated over time. http://www.bloomberg.com/news/2011-03-18/jpmorgan-leads-22-billion-increase-in-payouts-buybacks-after-fed-review.html The Fed told banks in November to consider conservative payouts that would still allow for a significant build-up of capital. Firms are “generally expected” to limit 2011 dividends to 30 percent of expected earnings, the Fed said yesterday.

That's the optimistic projection. The pessimistic projection is that Basel III type requirements will constrain a lot of their holdings to Sovereign debt with low yield that will limit profits if the economy is stagnant without robust margins on loans. This includes the potential loss of principal if interest rates increase a lot. Cheers. :) A few weeks ago your pessimistic projection was that they still need to raise more equity, so it feels to me like you are actually getting more bullish.

Regarding the comparison of stock vs warrant: The breakeven point changes when the dividend from the common is reinvested in more shares. The warrant's dividend just reduces it's strike price... in other words, the dividend get's allocated to 0% return. Lets say you for example own the common and collect a lot of dividends with the stock hovering around $10-$15 and you buy more common with it. Once you've accumulated a lot of extra stock, then the share price heads to $30. Calculation changes... you can calculate the worst case performance of the stock vs the warrant, but you cannot calculate the best case.

JPM is currently approved to return roughly a 10% yield on tangible equity -- before they cancelled their own buyback over the Whale tempest/teapot thingy. BAC returns 10% of tangible equity under a similar approval and that translates to nearly a 20% yield on the current market price.

So if they are at 9% will the Fed let them, in theory, return 100% of earnings to shareholders? Moynihan previously said about 1/3 retention, 1/3 buyback, and 1/3 dividend. But if the economy is in doldrums and there's no loan growth, then why not return it all?

I have common, $3 strike calls, and "A" warrants. Very few $10 calls. Hoping for no dividends ever. Better to just use that cash to buy shares that I can in turn sell and come out way ahead by not paying taxes on my cost basis. I might find only 48 cents on the dollar left of my dividend very soon here (dividends taxed at top income rate + ObamaCare investment tax + California state income tax). I mean jeeze... can't the BAC's of the world just get rational and stop talking about raising dividends? What a waste of my shareholder capital.

The warrants and common are now both up roughly 40% from their respective December lows.

They expect to realize about $1.18 per share in additional pre-tax expense reduction over the next 2.5 years. $6b from LAS and $7b from NewBAC. The stock is presently priced at a 12% earnings yield to those expense savings on an after-tax basis. And it's priced at a 14% yield to the current $1 earnings expectation. So it's a 26% yield to the combination. Personally I think the stock will do well in the next few years for this reason.

I am glad on more than one level that Klarman isn't going to make a profit here. It's one thing if you were harmed and you use the courts to defend your rights, it's another thing entirely to buy at a discount (harm priced in) and then sue as if you were harmed. I thought the whole thing was slimy.

They moved the delivery timeline of the $5b in "new bac" phase 1 cost cuts out by a year. Now expected by end of 2014 (not end of 2013).

It would be best to hold the mayo.

Ericopoly might be the man to ask! Hmm... at the absolute market bottom it is a good idea to take on a huge margin position. I think the AIG warrants look better than using margin to buy AIG.

Gary Shilling argues that home ownership rates are mean reverting. I do too, only I look further into the data than he does -- I recognize that the new blended (all age groups) home ownership rate will be higher than in the past because of the shifting age demographic (more top heavy because of the boomers).

Seattle nearly led the nation in unemployment that year. Rents were higher in 2000 vs 2002. The tech bust was especially painful in Seattle. I was a landlord of two single family homes at that time (Kirkland and West Seattle) -- I remember it well.

If you look at any age category under 55 (census data), home ownership rates are lower at the end of 2011 than at any point in history going back 50 years (as far as the data goes). So, if historical trends per age category hold, then home ownership rates will CLIMB from here.

Same story here, Seattle region. My house is being listed for sale tomorrow.

It would be a first if an economic clairvoyant were always to be correct in every call they've ever made. So, no, I don't think they lose any credibility. You have to question why anyone believes a forecaster will be infallible, and then for them to "lose faith" in that person if they finally make a bad call.

Thanks!

What is the meaning of this 2/3 of residual profits? Is that "profit" the excess above the $5.7B on AIG's balance sheet? What constitutes a "residual profit" that the Fed will take 2/3 of? proceeds from future sales in ML III LLC will be used to repay the equity contribution extended by AIG, after which the New York Fed will receive two-thirds of residual profits

Would we have fewer tobacco users without advertising?

It looks like a director, Charles Gifford, purchased 526,000 shares of BAC yesterday.

Al, I'll bet you $5K that coal will still be terrific 100 years from now for barbecuing! It won't matter...ribs will still taste good, even if there are other ways of cooking them. That competitive advantage will never dissipate even if GE comes up with a better way to nuke food. ;D Are you man enough to take my bet? I'll let you and Ericopoly go halfsies on that offer, because I know neither one of you are man enough to take me on alone. Heck, add Stone19 to the list too, because I've had pulled pork on his Green Egg and he uses two types of wood along with his special Green Egg coal. He won't use normal coal by itself! ;D And he uses those sissy Carolina BBQ sauces too...no tomato base! Now Matt and Joe are probably gonna jump on me, because they're from North Carolina and they're used to those sauces...any way, I digress...back to coal being the energy source of the future and natural gas will never replace it...just never will happen and I've got $5K riding on it...because as we all know, objects moving in a straight line will never, ever deviate, will they? Cheers! I too have a Big Green Egg. It doesn't get as much use these days for two reasons: 1) I'm still stuck in the Seattle region and, yes, it was Winter once again today!. 2) I tried to cut meat out of my diet. I will make pulled pork again this year, but only a couple of times. I will experiment with roasted veggies. Nine more days until I'm burning rubber out of my driveway headed for Santa Barbara.

Plan this is North American data, right? Assuming it is then it is a big deal because... 70% of AIG's core business value is made up of Chartis. 52% of Chartis revenue made up of the Americas. 62% of Chartis revenue made up of Commercial However that is still less than a quarter of the business. .7 x .52 x .62 = .225

How much are the settlement opponents going to be happy with? $20b more? Has it been reported anywhere?

I thought that there is (was?) a limit on income w.r.t Roth conversion -- i.e., you can't convert if your incoming is over certain limit, you have to roll over to a traditional IRA. There was no income limit on Roth IRA conversions for 2010, 2011, and 2012. Not sure about the future. I converted 1/2 of mine in 2008 -- a big mistake not converting the whole thing that year. Then I converted the second 1/2 of it in early 2009 but had to abort later in the year and push the conversion out to 2010. Then I had the taxable amount from the 2010 conversion split into 2011 and 2012 tax years. They don't let you split them out to future years anymore (at least not on 2012 conversions). The ORH buyout by Fairfax stuffed up my plans of not taking any gains in 2009 -- that was why I wound up blowing through the income limits. Otherwise it was the perfect plan.