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BAC-WT - Bank of America Warrants


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The most frustrating part of all of this...

 

The company previously announced that it was authorized to repurchase up to $5.0 billion of common stock. As of September 30, 2013, approximately 140 million common shares had been repurchased for approximately $1.9 billion at an average price of $13.38 per share.

 

 

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The most frustrating part of all of this...

 

The company previously announced that it was authorized to repurchase up to $5.0 billion of common stock. As of September 30, 2013, approximately 140 million common shares had been repurchased for approximately $1.9 billion at an average price of $13.38 per share.

 

 

 

Not to be rude, but we knew this was the plan when they didn't raise the dividend.  Buybacks offer too much wiggle room.  The dividend needs to be raised to 0.60 per year ASAP.  That's an appropriate payout ratio at this time, in keeping with the competition. 

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Can anyone please help me understand how you estimate the upside of BAC from current price?

From this presentation, the 3Q earning already has almost no provisions, so I would assume that it is already returned to a normalized environment.

In this case, the EPS is only $0.8 per share, which means that the P/E ratio is already 17.5.

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Can anyone please help me understand how you estimate the upside of BAC from current price?

From this presentation, the 3Q earning already has almost no provisions, so I would assume that it is already returned to a normalized environment.

In this case, the EPS is only $0.8 per share, which means that the P/E ratio is already 17.5.

 

Reduction in litigation expense (currently $1 billion per quarter), reduction in legacy assert costs (currently 2.1 billion per quarter), and reduction in other expenses via project BAC.  These should all combine to get the bank to earn a normal amount on assets or on tangible book (take your pick).  Earlier in this thread, we generally came to ~$2.00 a share, which should grow over time once we finally get to it.

 

There is also the fact that they have significant DTAs, so their earnings will have reduced taxes, and we haven't taken into account what might happen in a normalized interest rate environment (e.g., NII and NIM could be significantly better). 

 

I wouldn't mind if we started adjusting the current earnings a bit to confirm the $2.00/share again, though. 

 

Probably worth checking out the expense slides and reading the transcript for today's call, they went over several of these issues.

 

http://phx.corporate-ir.net/External.File?item=UGFyZW50SUQ9MjA2MTU3fENoaWxkSUQ9LTF8VHlwZT0z&t=1

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Also consider they have $40b in debt coming due over the next year and they mentioned on the cc that at least half of that won't be rolled over. They have also aggressively retired preferreds. Because of their huge deposit base and strong balance sheet, they should be able to continue to pay down a lot of debt, and then begin more aggressively tackling common shares. When interest rates rise, their deposit base will give them more of an advantage to increase NIM than their peers.

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As the economy grows, the growth in Bank of America's "sales" benefits from scale economics given that:

 

1) They already have the low-cost deposit base

2) They already have the client relationships. Many are just carrying around cash balances / untapped revolvers

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Can anyone please help me understand how you estimate the upside of BAC from current price?

From this presentation, the 3Q earning already has almost no provisions, so I would assume that it is already returned to a normalized environment.

In this case, the EPS is only $0.8 per share, which means that the P/E ratio is already 17.5.

 

A mediocre bank should earn 1% on assets.  A large bank should grow at about the same pace as the overall economy.  Anything else is gravy.

 

Also, read PlanMaestro's series on banking.

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Can anyone please help me understand how you estimate the upside of BAC from current price?

From this presentation, the 3Q earning already has almost no provisions, so I would assume that it is already returned to a normalized environment.

In this case, the EPS is only $0.8 per share, which means that the P/E ratio is already 17.5.

 

Reduction in litigation expense (currently $1 billion per quarter), reduction in legacy assert costs (currently 2.1 billion per quarter), and reduction in other expenses via project BAC.  These should all combine to get the bank to earn a normal amount on assets or on tangible book (take your pick).  Earlier in this thread, we generally came to ~$2.00 a share, which should grow over time once we finally get to it.

 

There is also the fact that they have significant DTAs, so their earnings will have reduced taxes, and we haven't taken into account what might happen in a normalized interest rate environment (e.g., NII and NIM could be significantly better). 

 

I wouldn't mind if we started adjusting the current earnings a bit to confirm the $2.00/share again, though. 

 

Probably worth checking out the expense slides and reading the transcript for today's call, they went over several of these issues.

 

http://phx.corporate-ir.net/External.File?item=UGFyZW50SUQ9MjA2MTU3fENoaWxkSUQ9LTF8VHlwZT0z&t=1

 

I think they are good for at least $2.00, probably next year.  There is quite a lag between the actions going on and the bottom line.  Closing a branch, or servicing office involves all sorts of costs such as lease buyouts, brokers, severance, telecom, and IT costs. 

 

You have mentioned the other drag costs. 

 

As to NIM, anyones guess is as good as mine.  They say they are well positioned for a rising interest rate environment, whatever that means, if/when it happens. 

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It's not too complicated.  First of all Q3 earnings were hit by a -$.10/share for lower taxes in the UK.  Lower taxes of course is either neutral or a benefit to the company, but, that's the way the accounting works.  So I think Q3 earnings were about $0.28, or annualized a little over a dollar. 

 

Look at the expense slides.  LAS at $2.2Bn (says management) should be at $0.5Bn in 2015.  So $1.7Bn/quarter or about $7Bn/year. 

Litigation is $1.1Bn and should float down to $0.5Bn (timing unknown).  That's another $2.4Bn/year. 

Misc cost cuts gets you to a total of about $10Bn/year. 

 

BAC will probably buy back around $5-$15Bn in stock per year from 2013-2015.  Between all these factors, I think eps will be about $2/share in 2015 or 2016. 

 

 

 

 

 

Can anyone please help me understand how you estimate the upside of BAC from current price?

From this presentation, the 3Q earning already has almost no provisions, so I would assume that it is already returned to a normalized environment.

In this case, the EPS is only $0.8 per share, which means that the P/E ratio is already 17.5.

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It's not too complicated.  First of all Q3 earnings were hit by a -$.10/share for lower taxes in the UK.  Lower taxes of course is either neutral or a benefit to the company, but, that's the way the accounting works.  So I think Q3 earnings were about $0.28, or annualized a little over a dollar. 

 

Why is lower taxes a negative in accounting terms?

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BAC has considerable tax loss assets, which are valued at their total losses * the tax rate.  So when the tax rate goes down, that tax loss asset also goes down in value.  It's neutral to BAC in the short term (they wouldn't be paying cash taxes either way) and positive in the long term (once they resume paying taxes, they'll pay at a lower rate). 

 

It's not too complicated.  First of all Q3 earnings were hit by a -$.10/share for lower taxes in the UK.  Lower taxes of course is either neutral or a benefit to the company, but, that's the way the accounting works.  So I think Q3 earnings were about $0.28, or annualized a little over a dollar. 

 

Why is lower taxes a negative in accounting terms?

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BAC has considerable tax loss assets, which are valued at their total losses * the tax rate.  So when the tax rate goes down, that tax loss asset also goes down in value.  It's neutral to BAC in the short term (they wouldn't be paying cash taxes either way) and positive in the long term (once they resume paying taxes, they'll pay at a lower rate). 

 

It's not too complicated.  First of all Q3 earnings were hit by a -$.10/share for lower taxes in the UK.  Lower taxes of course is either neutral or a benefit to the company, but, that's the way the accounting works.  So I think Q3 earnings were about $0.28, or annualized a little over a dollar. 

 

Why is lower taxes a negative in accounting terms?

 

Ah thanks!

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