BAC-WT - Bank of America Warrants

[xazp]

Example A:  Citigroup.

http://www.citigroup.com/citi/investor/data/p130307a.pdf?ieNocache=239

 

Based on the stress test results, C could have asked for a return in the vicinity of JPM's.  Say $10Bn or more. 

 

Instead, they asked for $1.2Bn. 

 

So they're either self-censoring, or someone told them not to ask for a big return, or something. 

 

I'm disappointed with C (it's not the first time!) 

 

It's a good question. 

 

The unknown part is whether BAC has been coerced into returning a lot less than what is implied by the stress test results. 

 

For example: JPM's results are basically the worst of the banks.  But, they will ask to return all the excess capital and that will amount to over $10Bn in capital returns.

 

BAC's results are better than JPM's and C's are much better.  But analysts currently anticipating them returning much less than JPM.  They believe there is some kind of invisible regulatory force which is telling BAC and C to ask for lower than what they could return according to what's been released today.  Because given today's results, if they asked for the "max" they should be returning something in-line with JPM. 

 

I don't know the answer. 

 

Is there a way to infer BAC's payout from the results?

[wescobrk]

I'm going to go out on a limb and bet against Sanjeev.

 

I'll take the under on the 7 billion return. I'm thinking no more than 5.

What's the bet Sanjeev? A burger? :)

[xazp]

BAC published this:  http://phx.corporate-ir.net/External.File?item=UGFyZW50SUQ9MTc0OTc5fENoaWxkSUQ9LTF8VHlwZT0z&t=1

 

which details their numbers (fed's numbers assume larger losses). 

 

unlike C they didn't publish what they are asking for.  I think that's because C asked for so much less than they could have. 

 

I'm going to go out on a limb and bet against Sanjeev.

 

I'll take the under on the 7 billion return. I'm thinking no more than 5.

What's the bet Sanjeev? A burger? :)

[redskin]

Is there a way to infer BAC's payout from the results?

 

BAC could return $20 billion and stay above the minimum Tier 1 common ratio of 5%.  Of course they will not be anywhere near that number.

 

[Parsad]

I'm going to go out on a limb and bet against Sanjeev.

 

I'll take the under on the 7 billion return. I'm thinking no more than 5.

What's the bet Sanjeev? A burger? :)

 

You take the bet now?  Once the results have come out. 

 

Why don't you wait till the payouts are announced by the government next week than bet me.  No soup for you!  Cheers!

[Kraven]

I'm going to go out on a limb and bet against Sanjeev.

 

I'll take the under on the 7 billion return. I'm thinking no more than 5.

What's the bet Sanjeev? A burger? :)

 

You take the bet now?  Once the results have come out. 

 

Why don't you wait till the payouts are announced by the government next week than bet me.  No soup for you!  Cheers!

 

Ha ha. My recollection is that he was quite bullish on a huge capital return until around this afternoon. It's not that easy to make yourself a dollar just like that. But I believe I just did.

[wescobrk]

I'm going to go out on a limb and bet against Sanjeev.

 

I'll take the under on the 7 billion return. I'm thinking no more than 5.

What's the bet Sanjeev? A burger?

 

You take the bet now?  Once the results have come out. 

 

Why don't you wait till the payouts are announced by the government next week than bet me.  No soup for you!  Cheers

 

Ha, good point and to kraven yes I thought 7 billion was reasonable but a lot of my posts are tongue in cheek like Parsad guaranteeing tbv by christmas. Just having some fun. I like this board is smart but don't take themselves too seriously.

[xazp]

Not sure why you guys are saying that.  BAC came in at 6.8% - 1.8% above the minimum level.  Multiply that 1.8% by current B1 RWA of $1.2 trillion suggests they can ask for $21.6 billion and remain over the 5% threshold. 

 

There may be reasons they don't ask for $21.6 billion which are opaque to us.  But $7Bn is still within the realm of possibility, IMO. 

 

 

 

I'm going to go out on a limb and bet against Sanjeev.

 

I'll take the under on the 7 billion return. I'm thinking no more than 5.

What's the bet Sanjeev? A burger? :)

 

You take the bet now?  Once the results have come out. 

 

Why don't you wait till the payouts are announced by the government next week than bet me.  No soup for you!  Cheers!

 

Ha ha. My recollection is that he was quite bullish on a huge capital return until around this afternoon. It's not that easy to make yourself a dollar just like that. But I believe I just did.

[Uccmal]

Did BAC really just rally more than $1 on hopes that the dividend will be raised to 4 or 5 cents?

 

Apparently, Thats why I have sold some of my higher strike options.  If there is a significant retreat I can reload.  If not, we'll call it the cost of good risk management.

 

Appreciate all the Buffett quotes gang.  I have survived the FFH shorts, 2008/2009, BAC going to 5$, Rimm imploding.  I think the patient will make it.  The RRSPs and TFSAs even have some excess cash.  I dont use any formulas but do appreciate when others use Black Scholes. 

 

I think we see a retreat, at least a small one. 

 

 

[Parsad]

I'm going to go out on a limb and bet against Sanjeev.

 

I'll take the under on the 7 billion return. I'm thinking no more than 5.

What's the bet Sanjeev? A burger? :)

 

You take the bet now?  Once the results have come out. 

 

Why don't you wait till the payouts are announced by the government next week than bet me.  No soup for you!  Cheers!

 

Ha ha. My recollection is that he was quite bullish on a huge capital return until around this afternoon. It's not that easy to make yourself a dollar just like that. But I believe I just did.

 

Not so fast dollar-meister!  Let's wait for the results...you're going to have to work for this buck...like an ugly stripper, giving a bad lapdance...wrong analogy.  ;D

 

I still think they can do $7B.  What did Moynihan say over and over.  Every dollar they make after they reached their capital ratios was going back to shareholders.  You don't think they can afford $7B from their cash flow this year to buyback stock below or at tangible book, and increase their dividend to 4 or 5 cents? 

 

If they payout Citi's $1.2B, Moynihan gets in trouble from shareholders.  They will pay out far bigger than most people expect this year.  Cheers!

[MYDemaray]

Not sure why you guys are saying that.  BAC came in at 6.8% - 1.8% above the minimum level.  Multiply that 1.8% by current B1 RWA of $1.2 trillion suggests they can ask for $21.6 billion and remain over the 5% threshold. 

 

There may be reasons they don't ask for $21.6 billion which are opaque to us.  But $7Bn is still within the realm of possibility, IMO. 

 

I think a lot of people, myself included, found themselves anchoring to the relative results pf each bank vs. the required minimum and I believe the after hours market action reflects that.  Another error, I think these results induced is to ignore the right tail of the implied risks in each bank.  In other words, those that fare worse under a stress scenario may also perform better in a benign environment.

[plato1976]

rimm can still collapse very quickly I guess

it's not out of the woods, yet

 

Did BAC really just rally more than $1 on hopes that the dividend will be raised to 4 or 5 cents?

 

Apparently, Thats why I have sold some of my higher strike options.  If there is a significant retreat I can reload.  If not, we'll call it the cost of good risk management.

 

Appreciate all the Buffett quotes gang.  I have survived the FFH shorts, 2008/2009, BAC going to 5$, Rimm imploding.  I think the patient will make it.  The RRSPs and TFSAs even have some excess cash.  I dont use any formulas but do appreciate when others use Black Scholes. 

 

I think we see a retreat, at least a small one.

[Aberhound]

If you look at p. 31 of the Fed report you will see that the so called adverse scenario assumes a 10 year treasury rate of 1.2% risking to 2.2%. What a joke. The adverse scenario I fear is a rise in treasury rates to normal. What would the derivative losses be if there is a sudden and unexpected rise in interest rates? That is the reason why WFC can pay out more than BAC.

[ERICOPOLY]

If you look at p. 31 of the Fed report you will see that the so called adverse scenario assumes a 10 year treasury rate of 1.2% risking to 2.2%. What a joke. The adverse scenario I fear is a rise in treasury rates to normal. What would the derivative losses be if there is a sudden and unexpected rise in interest rates? That is the reason why WFC can pay out more than BAC.

 

Also, think of how much faster WFC can rebuild with that earnings power.

[stahleyp]

Did BAC really just rally more than $1 on hopes that the dividend will be raised to 4 or 5 cents?

 

alright....Perhaps I am an idiot but I don't see it rallying after hours. It looks like it's down a little bit?

[Parsad]

Did BAC really just rally more than $1 on hopes that the dividend will be raised to 4 or 5 cents?

 

alright....Perhaps I am an idiot but I don't see it rallying after hours. It looks like it's down a little bit?

 

Hi Paul,

 

I think Eric was talking about the run-up in the last week before the results.  Cheers!

[Uccmal]

Did BAC really just rally more than $1 on hopes that the dividend will be raised to 4 or 5 cents?

 

alright....Perhaps I am an idiot but I don't see it rallying after hours. It looks like it's down a little bit?

 

Indeed, not much.  Sell on rumour, buy on news....

 

rimm can still collapse very quickly I guess

it's not out of the woods, yet

 

 

Yes, Different thread.  I haven't owned it since it was north of $20. 

[stahleyp]

Did BAC really just rally more than $1 on hopes that the dividend will be raised to 4 or 5 cents?

 

alright....Perhaps I am an idiot but I don't see it rallying after hours. It looks like it's down a little bit?

 

Hi Paul,

 

I think Eric was talking about the run-up in the last week before the results.  Cheers!

 

Thanks, Sanj. I was kinda thinking that a bit but wasn't sure (I'm serious!) :P

[MrB]

Last year's results.

http://www.federalreserve.gov/newsevents/press/bcreg/bcreg20120313a1.pdf

Revisions

http://www.federalreserve.gov/newsevents/press/bcreg/bcreg20120316a1.pdf

 

What seems to be the comps...

BAC 5.9 then to 6.8 now (common ratio, incl cap actions)

C    4.9 then to 8.3 now !

 

 

Pages of pdf; 27 then and 23 now

[Kraven]

I'm going to go out on a limb and bet against Sanjeev.

 

I'll take the under on the 7 billion return. I'm thinking no more than 5.

What's the bet Sanjeev? A burger? :)

 

You take the bet now?  Once the results have come out. 

 

Why don't you wait till the payouts are announced by the government next week than bet me.  No soup for you!  Cheers!

 

Ha ha. My recollection is that he was quite bullish on a huge capital return until around this afternoon. It's not that easy to make yourself a dollar just like that. But I believe I just did.

 

Not so fast dollar-meister!  Let's wait for the results...you're going to have to work for this buck...like an ugly stripper, giving a bad lapdance...wrong analogy.  ;D

 

I still think they can do $7B.  What did Moynihan say over and over.  Every dollar they make after they reached their capital ratios was going back to shareholders.  You don't think they can afford $7B from their cash flow this year to buyback stock below or at tangible book, and increase their dividend to 4 or 5 cents? 

 

If they payout Citi's $1.2B, Moynihan gets in trouble from shareholders.  They will pay out far bigger than most people expect this year.  Cheers!

 

Hey now, that's uncalled for.  Don't call me ugly.  Who am I kidding?  Maybe don't call me a stripper?

 

My view on what BAC will return has always been based on perceptions and my understanding of regulators.  They are risk averse to the extreme and if they are uncomfortable with a situation will take the easiest path possible.  In this case "everyone" knows BAC has "tons" of litigation risk that is unquantifiable (their view), so what is the upside to them in allowing some kind of sweetheart return of capital?  What do they get?  If they allow a bunch of capital to be returned and god forbid something bad happens to BAC either because of a macro situation or something specific to BAC they will be filleted.  My prediction is that BAC won't be able to return a lot of capital until not only the all clear signal has been seen, but there's fireworks and a celebration to bring attention to it.  Maybe next year.

 

 

[MYDemaray]

most of you may have seen this over at the MBIA board, but just in case you missed it...

http://www.nytimes.com/2013/03/08/business/court-ruling-against-banks-lets-mbia-benefit-from-splitting-up.html?ref=business

[wescobrk]

Anyone familiar with earnings power for C? The gap keeps expanding with BAC. I know the ccar contributed a little but past few weeks have shown at least a 7 billion gap with BAC.

[racemize]

Any thoughts on why the PPNR was so much lower this year than last (down from ~40 billion to ~20 billion)?  and why it is different from BAC's own stress results from this year?

 

Discussed some in this article:

http://www.fool.com/investing/general/2013/03/08/why-bank-of-americas-shares-are-struggling-today.aspx

 

And second, B of A's internal evaluation turned out a considerably different result. While the Fed estimated its pre-provision net revenue to be only $24.1 billion over the relevant time period, B of A's estimate came in at $38.5 billion. The net effect was an increase of $8 billion in the bank's nine-quarter earnings. Suffice it to say, this still resulted in a loss, but the loss was considerably smaller than that estimated by the Fed.

 

[vinod1]

Any thoughts on why the PPNR was so much lower this year than last (down from ~40 billion to ~20 billion)?  and why it is different from BAC's own stress results from this year?

 

Discussed some in this article:

http://www.fool.com/investing/general/2013/03/08/why-bank-of-americas-shares-are-struggling-today.aspx

 

And second, B of A's internal evaluation turned out a considerably different result. While the Fed estimated its pre-provision net revenue to be only $24.1 billion over the relevant time period, B of A's estimate came in at $38.5 billion. The net effect was an increase of $8 billion in the bank's nine-quarter earnings. Suffice it to say, this still resulted in a loss, but the loss was considerably smaller than that estimated by the Fed.

 

Their expenses are projected to go down by $9 billion on a run rate basis this year compared to 2012. I can understand why Fed would not count on those savings while BAC would be inclined to include these savings in their estimates. This does not account for the entire difference but I think would account for the major chunk.

 

Vinod

[xazp]

That's a good question.  So I compared the two numbers, and the major deltas are:

 

1)  PPNR.  BAC assumes $38Bn, Fed assumes $24Bn.  Since this is over two years, I find it believable this is mostly due to the Fed assuming a historical level of profits, while BAC is assuming cost cuts and (for example) fewer R&W, legal, etc costs. 

 

2)  Credit losses seem to be similar between the two.

 

3)  Curiously, BAC assumes $6Bn more in trading/counterparty losses vs the Fed. 

 

4)  But, BAC assumes $6Bn less in "other" losses vs the Fed. 

 

It is possible the Fed is assuming negative litigation outcomes versus BAC.  But the big delta appears to be PPNR and I think the Fed is adopting a "we'll wait until we see it" approach. 

 

 

Any thoughts on why the PPNR was so much lower this year than last (down from ~40 billion to ~20 billion)?  and why it is different from BAC's own stress results from this year?

 

Discussed some in this article:

http://www.fool.com/investing/general/2013/03/08/why-bank-of-americas-shares-are-struggling-today.aspx

 

And second, B of A's internal evaluation turned out a considerably different result. While the Fed estimated its pre-provision net revenue to be only $24.1 billion over the relevant time period, B of A's estimate came in at $38.5 billion. The net effect was an increase of $8 billion in the bank's nine-quarter earnings. Suffice it to say, this still resulted in a loss, but the loss was considerably smaller than that estimated by the Fed.

 

Their expenses are projected to go down by $9 billion on a run rate basis this year compared to 2012. I can understand why Fed would not count on those savings while BAC would be inclined to include these savings in their estimates. This does not account for the entire difference but I think would account for the major chunk.

 

Vinod