BAC-WT - Bank of America Warrants

[mankap]

What surprised me in the Evercore report was that he is projecting $17 as 1.1XTBV at end of 2014.Which gives TBV at 15.45 at end of 2014. This is 13% higher than TBV at end of Q3'13.13% growth in 5 quarters is a really good growth after taking into account the buybacks also.

 

 

Evercore Partners analyst Andrew Marquardt bumped estimates up and his price target on Overweight-rated Bank of America (NYSE: BAC) from $16 to $17 following Q3 results.

 

Marquardt notes, "'13 to $1.00 (from $0.91), '14 to $1.36 (from $1.30) '15 to $1.63 (from $1.52) as we model credit costsremaining lower for longer, have incrementally higher confidence in expense saves falling to the bottom line and see ongoing stabilization in revenue trends. P/T goes to $17 (from $16) and implies 10.4x '15 EPS ests and 1.1x '14 TBV."

 

http://www.streetinsider.com/Analyst+Comments/Bank+of+America+%28BAC%29+Numbers+Tweaked+Higher+at+Evercore+Partners+Post+Q3/8784925.html

[Sunrider]

So ... whilst I listened to the call today I haven't had time to sit down and digest all of this into a more usable model. However (especially @Eric), if I read the information correctly (in release and here), then we're looking at 0.2 + 0.095 (UK) = 29c earnings, so about $1.18 annualised. Now, backing out the tax rate: 1.18/0.74 (seem to recall them saying something about the effective rate being in the vicinity of 26%) then we're looking at 1.59/share run-rate right now already.

 

What am I missing? Or rather, what's the market missing? Granted the reserve releases and low provisioning can't go on forever ...

 

How many of you are rolling your 10,12 and 15s out to 2016?

 

Cheers - C.

[racemize]

So ... whilst I listened to the call today I haven't had time to sit down and digest all of this into a more usable model. However (especially @Eric), if I read the information correctly (in release and here), then we're looking at 0.2 + 0.095 (UK) = 29c earnings, so about $1.18 annualised. Now, backing out the tax rate: 1.18/0.74 (seem to recall them saying something about the effective rate being in the vicinity of 26%) then we're looking at 1.59/share run-rate right now already.

 

What am I missing? Or rather, what's the market missing? Granted the reserve releases and low provisioning can't go on forever ...

 

How many of you are rolling your 10,12 and 15s out to 2016?

 

Cheers - C.

 

I have a general question regarding these tax assets--I have expected them to pay very little taxes, but every call they talk about the "effective tax rate" being 25% (this quarter) and high 20's going forward--shouldn't the effective tax rate be almost 0% now?  I've run into this issue routinely with companies having DTAs or NOLs, so it seems like the time to ask.

 

With respect to rolling, I switched my 2015 10s to 2016 12s the day before earnings.

[Sunrider]

I always thought banks actually performed better in a low NIM environment as they wind up making more loans. Can anyone comment on that?

 

Not quite - for two reasons (principally):

 

1. Endowment effect - in higher interest rate environments the NIM tends to expand as it is much easier to charge someone a 50bps margin when base rates are at 4% than when they are at 25bps. This effect tends to be very large for pretty much all (deposit-taking) banks.

2. Base rates tend to be low in times of economic distress and demand for loans may not be as strong (at least not by those the banks would like to lend to) ... this combined with the endowment effect that works against banks in low base rate environments makes for lower margins & earnings.

 

Cheers - C.

[Sunrider]

Indeed. I'd be very curious to hear from the accountants on the Board here. I always thought that perhaps the quarterly reports simply show the taxes as they would accrue (absent DTA/NOL) and that the whole thing would then be washed out with Q4/the annual report (since final taxes for the year are only determined annually). But this is a total guess and thus I'd very much appreciate anyone here who could explain/point to what's really going on.

 

Thank you - C.

 

So ... whilst I listened to the call today I haven't had time to sit down and digest all of this into a more usable model. However (especially @Eric), if I read the information correctly (in release and here), then we're looking at 0.2 + 0.095 (UK) = 29c earnings, so about $1.18 annualised. Now, backing out the tax rate: 1.18/0.74 (seem to recall them saying something about the effective rate being in the vicinity of 26%) then we're looking at 1.59/share run-rate right now already.

 

What am I missing? Or rather, what's the market missing? Granted the reserve releases and low provisioning can't go on forever ...

 

How many of you are rolling your 10,12 and 15s out to 2016?

 

Cheers - C.

 

I have a general question regarding these tax assets--I have expected them to pay very little taxes, but every call they talk about the "effective tax rate" being 25% (this quarter) and high 20's going forward--shouldn't the effective tax rate be almost 0% now?  I've run into this issue routinely with companies having DTAs or NOLs, so it seems like the time to ask.

 

With respect to rolling, I switched my 2015 10s to 2016 12s the day before earnings.

[jay21]

So ... whilst I listened to the call today I haven't had time to sit down and digest all of this into a more usable model. However (especially @Eric), if I read the information correctly (in release and here), then we're looking at 0.2 + 0.095 (UK) = 29c earnings, so about $1.18 annualised. Now, backing out the tax rate: 1.18/0.74 (seem to recall them saying something about the effective rate being in the vicinity of 26%) then we're looking at 1.59/share run-rate right now already.

 

What am I missing? Or rather, what's the market missing? Granted the reserve releases and low provisioning can't go on forever ...

 

How many of you are rolling your 10,12 and 15s out to 2016?

 

Cheers - C.

 

I have a general question regarding these tax assets--I have expected them to pay very little taxes, but every call they talk about the "effective tax rate" being 25% (this quarter) and high 20's going forward--shouldn't the effective tax rate be almost 0% now?  I've run into this issue routinely with companies having DTAs or NOLs, so it seems like the time to ask.

 

With respect to rolling, I switched my 2015 10s to 2016 12s the day before earnings.

 

It's a GAAP thing.  For GAAP, once you have your pre-tax income you must recognize a tax expense irrespective of any NOLs.  This is what the effective tax rate is.  Their cash tax rate is probably closer to 0 as you have pointed out.

[racemize]

It's a GAAP thing.  For GAAP, once you have your pre-tax income you must recognize a tax expense irrespective of any NOLs.  This is what the effective tax rate is.  Their cash tax rate is probably closer to 0 as you have pointed out.

 

Thanks, I've noticed that with other companies, there is a huge GAAP boost in Q4, presumably where the reserved taxes get added back (since they weren't charged).  Is that a normal occurrence, or just dependent on the company?

 

Is there a place where cash tax rates are reported?  I guess we can always just watched the balance sheet.  With BAC, it is easy to see the difference as their capital ratios keep jumping.

[jay21]

It's a GAAP thing.  For GAAP, once you have your pre-tax income you must recognize a tax expense irrespective of any NOLs.  This is what the effective tax rate is.  Their cash tax rate is probably closer to 0 as you have pointed out.

 

Thanks, I've noticed that with other companies, there is a huge GAAP boost in Q4, presumably where the reserved taxes get added back (since they weren't charged).  Is that a normal occurrence, or just dependent on the company?

 

Is there a place where cash tax rates are reported?  I guess we can always just watched the balance sheet.  With BAC, it is easy to see the difference as their capital ratios keep jumping.

 

There should be a supplemental cash flow disclosure outlining actual cash taxes paid. 

 

I have discussed some of this before in the BRK subforum and one of the easier conceptual examples is in deferred taxes that WEB likes to talk about.  When a security gets marked up, GAAP requires you to record a tax expense on the gain/pre-tax profit, consistent with what I said earlier.  However, we know that this is a non-taxable gain.  What happens is that a deferred liability gets credited to match the expense debit.

 

For NOLs, you would credit the asset (i.e. reduce the asset) when you debit the tax expense.

[xazp]

Jay is right, and an easy way to "adjust" BAC's earnings is to take their income before tax number.  That number is much more relevant to Basel 3 capital (and future capital returns), cash flow, etc. 

 

That number was $5.1Bn this past quarter.  So in some ways you are paying $150Bn for a company that is economically generating ~$20Bn in capital a year (and likely growing). 

 

BAC's additional point, which I've tried to make before, is their old, bad mortgages are consuming a lot of capital.  So a delinquent mortgage today is probably going to cost the bank money (foreclosing it, selling it, and no interest payments).  When they complete that, however, they reuse the capital for performing loans.  From a capital perspective, they're using the same capital to turn something that was losing money into something which is making money.  This is why BAC can grow earnings even if they return the entire capital growth to shareholders. 

 

 

 

It's a GAAP thing.  For GAAP, once you have your pre-tax income you must recognize a tax expense irrespective of any NOLs.  This is what the effective tax rate is.  Their cash tax rate is probably closer to 0 as you have pointed out.

 

Thanks, I've noticed that with other companies, there is a huge GAAP boost in Q4, presumably where the reserved taxes get added back (since they weren't charged).  Is that a normal occurrence, or just dependent on the company?

 

Is there a place where cash tax rates are reported?  I guess we can always just watched the balance sheet.  With BAC, it is easy to see the difference as their capital ratios keep jumping.

 

There should be a supplemental cash flow disclosure outlining actual cash taxes paid. 

 

I have discussed some of this before in the BRK subforum and one of the easier conceptual examples is in deferred taxes that WEB likes to talk about.  When a security gets marked up, GAAP requires you to record a tax expense on the gain/pre-tax profit, consistent with what I said earlier.  However, we know that this is a non-taxable gain.  What happens is that a deferred liability gets credited to match the expense debit.

 

For NOLs, you would credit the asset (i.e. reduce the asset) when you debit the tax expense.

[nkp007]

Jay is right, and an easy way to "adjust" BAC's earnings is to take their income before tax number.  That number is much more relevant to Basel 3 capital (and future capital returns), cash flow, etc. 

 

That number was $5.1Bn this past quarter.  So in some ways you are paying $150Bn for a company that is economically generating ~$20Bn in capital a year (and likely growing). 

 

BAC's additional point, which I've tried to make before, is their old, bad mortgages are consuming a lot of capital.  So a delinquent mortgage today is probably going to cost the bank money (foreclosing it, selling it, and no interest payments).  When they complete that, however, they reuse the capital for performing loans.  From a capital perspective, they're using the same capital to turn something that was losing money into something which is making money.  This is why BAC can grow earnings even if they return the entire capital growth to shareholders. 

 

 

 

It's a GAAP thing.  For GAAP, once you have your pre-tax income you must recognize a tax expense irrespective of any NOLs.  This is what the effective tax rate is.  Their cash tax rate is probably closer to 0 as you have pointed out.

 

Thanks, I've noticed that with other companies, there is a huge GAAP boost in Q4, presumably where the reserved taxes get added back (since they weren't charged).  Is that a normal occurrence, or just dependent on the company?

 

Is there a place where cash tax rates are reported?  I guess we can always just watched the balance sheet.  With BAC, it is easy to see the difference as their capital ratios keep jumping.

 

There should be a supplemental cash flow disclosure outlining actual cash taxes paid. 

 

I have discussed some of this before in the BRK subforum and one of the easier conceptual examples is in deferred taxes that WEB likes to talk about.  When a security gets marked up, GAAP requires you to record a tax expense on the gain/pre-tax profit, consistent with what I said earlier.  However, we know that this is a non-taxable gain.  What happens is that a deferred liability gets credited to match the expense debit.

 

For NOLs, you would credit the asset (i.e. reduce the asset) when you debit the tax expense.

 

Illuminating. Very useful information. Thanks!

[Sunrider]

Hello all

 

After having gone back to some of my notes and going over the last two calls again, I compiled the following quick view of potential performance going forward. Please critique/add/debate.

 

N.B.: I'm only covering 'core' items, i.e. excl. OCI, etc. (figures at top of paragraph = Q4 2014)

 

Income - 22.15bn

NII: Working off this Q's 10.5bn and with reference to the 700m benefit they expect to flow through from higher rates over the next 12 months, I'd model this as increasing by 100m every Q until Q4 2014 (10.9bn by then). Note that this is before impact of market related items, which have generally been positive.

NIR: This one I've struggled with - if the economy continues to get better I would expect that they will be able to maintain at least current levels, or about 11.25bn per quarter.

 

Expenses - 14bn

Core: This quarter's 13.1bn included about 100m in severance payments and they noted that they have 100m in new BAC to be done for Q4 (so that puts it at about 12.9bn). With another 500m in new BAC now targeted for completion by end of next year, that would put core expenses at 12.5bn. Originally I had hoped for more but it's been hard to tie back statements to the actual numbers (which themselves obviously move ... e.g. note on marketing expenses from Q4 pulled forward into this quarter).

LAS: Expected below 2bn by Q 2013 and at around 1bn by Q4 2014; management noted that reductions in staff, 60+ delinquents take a quarter or two to show up in expense reductions. If you look at the cost per loan and apply a cost from three quarters ago when they were in full swing (so presumably most efficient) to the current loan count of 60+ delinquents you get to a figure of 1.5bn already.

Litigation: Lumpy - I've maintained it at current levels to than taper to 0.5bn by Q4 next year.

 

Provisions - 1.5bn

Credit costs have been very low due to reserve releases but management has stated that 1.5bn/quarter is closer to the normal run-rate they'd expect. Thus, I assume that provisions will go back to 1.2bn next quarter and then upwards to 1.5bn by Q4 2014.

 

Core earnings - pre tax

Q4 13: 4.65bn -->> Q4 14: 6.65bn

Given the NOLs and as noted by management, the next few quarters should see most of the profits fall to the bottom line on a pre-tax basis.

 

The major drivers for the improvement in this model are still the cost reductions that management appears to be delivering on - roughly 2bn over the next year (or about 20c/share, depending on buybacks). So another way to get at this result would be:

Q3 2013: 20c/share + 10c (UK tax won't recur) = 30c, which grossed up for tax is about 40c; add an additional 20c from cost savings and we're in the same ballpark as the calculation of core income figures above.

 

What can go wrong?

- Management unable to maintain NII (balance growth insufficient, margins compress further)

- Management unable to maintain NIR (trading profits, fees, etc.)

- Cost reductions are not delivered or smaller than planned

- DVA and other OTI items continue to obscure the earnings power (e.g. further upward move of rates will help NII but also lead to fair value losses on their debt security portfolio)

- Litigation expense does not come down again

- Gibbs&Bruns not approved, creating more uncertainty (even though the outcome in monetary terms may be similar)

 

Any comments/criticism/help/suggestions for improvement very welcome!

 

Cheers - C.

[Kraven]

Hello all

 

After having gone back to some of my notes and going over the last two calls again, I compiled the following quick view of potential performance going forward. Please critique/add/debate.

 

N.B.: I'm only covering 'core' items, i.e. excl. OCI, etc. (figures at top of paragraph = Q4 2014)

 

Income - 22.15bn

NII: Working off this Q's 10.5bn and with reference to the 700m benefit they expect to flow through from higher rates over the next 12 months, I'd model this as increasing by 100m every Q until Q4 2014 (10.9bn by then). Note that this is before impact of market related items, which have generally been positive.

NIR: This one I've struggled with - if the economy continues to get better I would expect that they will be able to maintain at least current levels, or about 11.25bn per quarter.

 

Expenses - 14bn

Core: This quarter's 13.1bn included about 100m in severance payments and they noted that they have 100m in new BAC to be done for Q4 (so that puts it at about 12.9bn). With another 500m in new BAC now targeted for completion by end of next year, that would put core expenses at 12.5bn. Originally I had hoped for more but it's been hard to tie back statements to the actual numbers (which themselves obviously move ... e.g. note on marketing expenses from Q4 pulled forward into this quarter).

LAS: Expected below 2bn by Q 2013 and at around 1bn by Q4 2014; management noted that reductions in staff, 60+ delinquents take a quarter or two to show up in expense reductions. If you look at the cost per loan and apply a cost from three quarters ago when they were in full swing (so presumably most efficient) to the current loan count of 60+ delinquents you get to a figure of 1.5bn already.

Litigation: Lumpy - I've maintained it at current levels to than taper to 0.5bn by Q4 next year.

 

Provisions - 1.5bn

Credit costs have been very low due to reserve releases but management has stated that 1.5bn/quarter is closer to the normal run-rate they'd expect. Thus, I assume that provisions will go back to 1.2bn next quarter and then upwards to 1.5bn by Q4 2014.

 

Core earnings - pre tax

Q4 13: 4.65bn -->> Q4 14: 6.65bn

Given the NOLs and as noted by management, the next few quarters should see most of the profits fall to the bottom line on a pre-tax basis.

 

The major drivers for the improvement in this model are still the cost reductions that management appears to be delivering on - roughly 2bn over the next year (or about 20c/share, depending on buybacks). So another way to get at this result would be:

Q3 2013: 20c/share + 10c (UK tax won't recur) = 30c, which grossed up for tax is about 40c; add an additional 20c from cost savings and we're in the same ballpark as the calculation of core income figures above.

 

What can go wrong?

- Management unable to maintain NII (balance growth insufficient, margins compress further)

- Management unable to maintain NIR (trading profits, fees, etc.)

- Cost reductions are not delivered or smaller than planned

- DVA and other OTI items continue to obscure the earnings power (e.g. further upward move of rates will help NII but also lead to fair value losses on their debt security portfolio)

- Litigation expense does not come down again

- Gibbs&Bruns not approved, creating more uncertainty (even though the outcome in monetary terms may be similar)

 

Any comments/criticism/help/suggestions for improvement very welcome!

 

Cheers - C.

 

If it was me I would probably be conservative on the litigation expenses and model them to remain where they are for the foreseeable future. They are a very deep pocket and an extremely easy target for government and non-government plaintiffs alike. If it comes down, great, but it wouldn't surprise me if it doesn't.

[onyx1]

Hello all

 

After having gone back to some of my notes and going over the last two calls again, I compiled the following quick view of potential performance going forward. Please critique/add/debate.

 

N.B.: I'm only covering 'core' items, i.e. excl. OCI, etc. (figures at top of paragraph = Q4 2014)

 

Income - 22.15bn

NII: Working off this Q's 10.5bn and with reference to the 700m benefit they expect to flow through from higher rates over the next 12 months, I'd model this as increasing by 100m every Q until Q4 2014 (10.9bn by then). Note that this is before impact of market related items, which have generally been positive.

NIR: This one I've struggled with - if the economy continues to get better I would expect that they will be able to maintain at least current levels, or about 11.25bn per quarter.

 

Expenses - 14bn

Core: This quarter's 13.1bn included about 100m in severance payments and they noted that they have 100m in new BAC to be done for Q4 (so that puts it at about 12.9bn). With another 500m in new BAC now targeted for completion by end of next year, that would put core expenses at 12.5bn. Originally I had hoped for more but it's been hard to tie back statements to the actual numbers (which themselves obviously move ... e.g. note on marketing expenses from Q4 pulled forward into this quarter).

LAS: Expected below 2bn by Q 2013 and at around 1bn by Q4 2014; management noted that reductions in staff, 60+ delinquents take a quarter or two to show up in expense reductions. If you look at the cost per loan and apply a cost from three quarters ago when they were in full swing (so presumably most efficient) to the current loan count of 60+ delinquents you get to a figure of 1.5bn already.

Litigation: Lumpy - I've maintained it at current levels to than taper to 0.5bn by Q4 next year.

 

Provisions - 1.5bn

Credit costs have been very low due to reserve releases but management has stated that 1.5bn/quarter is closer to the normal run-rate they'd expect. Thus, I assume that provisions will go back to 1.2bn next quarter and then upwards to 1.5bn by Q4 2014.

 

Core earnings - pre tax

Q4 13: 4.65bn -->> Q4 14: 6.65bn

Given the NOLs and as noted by management, the next few quarters should see most of the profits fall to the bottom line on a pre-tax basis.

 

The major drivers for the improvement in this model are still the cost reductions that management appears to be delivering on - roughly 2bn over the next year (or about 20c/share, depending on buybacks). So another way to get at this result would be:

Q3 2013: 20c/share + 10c (UK tax won't recur) = 30c, which grossed up for tax is about 40c; add an additional 20c from cost savings and we're in the same ballpark as the calculation of core income figures above.

 

What can go wrong?

- Management unable to maintain NII (balance growth insufficient, margins compress further)

- Management unable to maintain NIR (trading profits, fees, etc.)

- Cost reductions are not delivered or smaller than planned

- DVA and other OTI items continue to obscure the earnings power (e.g. further upward move of rates will help NII but also lead to fair value losses on their debt security portfolio)

- Litigation expense does not come down again

- Gibbs&Bruns not approved, creating more uncertainty (even though the outcome in monetary terms may be similar)

 

Any comments/criticism/help/suggestions for improvement very welcome!

 

Cheers - C.

 

If you haven't already done so, it's safe to add the savings from the $40bln of LT debt rolling off in 2014, and $5bln+ of high coupon preferred likely to be retired 2014. 

[treasurehunt]

Provisions - 1.5bn

Credit costs have been very low due to reserve releases but management has stated that 1.5bn/quarter is closer to the normal run-rate they'd expect. Thus, I assume that provisions will go back to 1.2bn next quarter and then upwards to 1.5bn by Q4 2014.

 

1.5 billion seems low for normalized quarterly provisions. Doesn't BofA have over 900 billion in loans on its books? An annual provision of 1% of loans is pretty reasonable, I think. This amounts to over 2.25 billion per quarter. 1.5 billion for Q4 2014 is probably a good number though, given that charge-offs are likely to be below normalized levels for a while.

 

Wells, JP Morgan and USB have all indicated that they expect normalized charge-offs to be around 1% of loans. BofA's loan composition might be different, but I doubt their charge-offs will be substantially better.

[MYDemaray]

They keep hitting the piñata: http://www.ft.com/intl/cms/s/0/c8cd9abc-39ad-11e3-a3a4-00144feab7de.html#axzz2iIGQXRqZ

[Uccmal]

They keep hitting the piñata: http://www.ft.com/intl/cms/s/0/c8cd9abc-39ad-11e3-a3a4-00144feab7de.html#axzz2iIGQXRqZ

 

BM needs to get the cash off the balance sheet to make the honey pot less enticing. 

 

Thanks for all the colour above from the various contributors.  I was kind of thinking the UK loss due to taxes was a loss from Tax credits but wasn't sure. 

 

The other part I always need to remind myself is about the tax charges under GAAP.  This is only an estimate, not a cash charge.  The money coming in is closer to the Pre-tax number.  This gives them more cash to use, than GAAP projects, at this time. 

 

Given the existing climate I dont see litigation expenses dropping as dramatically as predicted.  Settlement costs may be lower in the end, but the cost of getting them down is going to stay high for a long time.  Its politically very safe to sue the banks right now.  This reminds me of the climate around P&C insurers, around 2004/05.  JPMs arrogance hasn't really endeared banks to the public, either.  Look for more for everyone going forward. 

 

 

[Sunrider]

Agreed - it's only about 65bps I think. Management did say though that they expect to be more in the 1.5bn charge off range next year (so I assumed that they'll provision as much, ignoring the benefits from any further reserve releases).

 

Re LT debt - replacing about half of the 40bn rolling off next year - I ignored that and assumed that this would simply allow them to keep their NIM and NII steady (this may be a little conservative as they keep talking about re-investment at better rates as the books roll off).

 

Thanks for the input - C.

 

Provisions - 1.5bn

Credit costs have been very low due to reserve releases but management has stated that 1.5bn/quarter is closer to the normal run-rate they'd expect. Thus, I assume that provisions will go back to 1.2bn next quarter and then upwards to 1.5bn by Q4 2014.

 

1.5 billion seems low for normalized quarterly provisions. Doesn't BofA have over 900 billion in loans on its books? An annual provision of 1% of loans is pretty reasonable, I think. This amounts to over 2.25 billion per quarter. 1.5 billion for Q4 2014 is probably a good number though, given that charge-offs are likely to be below normalized levels for a while.

 

Wells, JP Morgan and USB have all indicated that they expect normalized charge-offs to be around 1% of loans. BofA's loan composition might be different, but I doubt their charge-offs will be substantially better.

[Liberty]

http://www.reuters.com/article/2013/10/23/us-bankofamerica-hustle-idUSBRE99M14B20131023

 

(Reuters) - Bank of America Corp was found liable for fraud on Wednesday on claims related to defective mortgages sold by its Countrywide unit, a major win for the U.S. government in one of the few big trials stemming from the financial crisis.

 

Following a four-week trial, a federal jury in Manhattan found the Charlotte, North Carolina bank liable on one civil fraud charge. Countrywide originated shoddy home loans in a process called "Hustle" and sold them to government mortgage giants Fannie Mae and Freddie Mac, the government said.

 

The four men and six women on the jury also found former Countrywide executive, Rebecca Mairone, liable on the one fraud charge facing her.

 

A decision on how much to penalize the bank would be left to U.S. District Judge Jed Rakoff. The U.S. Department of Justice has said it would ask Rakoff to award up to $848.2 million, the gross loss it said Fannie and Freddie suffered on the loans.

 

Bank of America bought Countrywide in July 2008. Two months later, the government took over Fannie and Freddie.

 

"The jury's decision concerned a single Countrywide program that lasted several months and ended before Bank of America's acquisition of the company," Bank of America spokesman Lawrence Grayson said. "We will evaluate our options for appeal."

 

Wednesday's verdict marked a major victory for the Justice Department, which has come under criticism for failing to hold banks and executives accountable for their roles in the events leading up to the financial crisis.

[hyten1]

i do wonder, when will all these lawsuits end or become inconsequential (there will always be lawsuits)?

[ERICOPOLY]

That's strange.  The Justice Department wants Countrywide/BAC to pay $845 million even though the government says that only $131.2 million of loans were materially defective.

 

The Injustice Department?

 

http://wallstcheatsheet.com/stocks/the-jurys-in-bank-of-america-is-guilty.html/?ref=YF

 

The Justice Department has said it is seeking a penalty equal to either Fannie Mae and Freddie Mac’s losses or the defendants’ gain — whichever amount was greater — and it has estimated the “gross loss” on the toxic loans was $848.2 million while the “net loss,” or the amount due to the portion of the loans that the government said were materially defective, amounted to $131.2 million.

[wescobrk]

I'm generally neutral with respect to Obama, but his push in his second term to stick it to the banks may serve him some political points but it looks like another example of a lack of leadership.

[MYDemaray]

That's strange.  The Justice Department wants Countrywide/BAC to pay $845 million even though the government says that only $131.2 million of loans were materially defective.

 

The Injustice Department?

 

http://wallstcheatsheet.com/stocks/the-jurys-in-bank-of-america-is-guilty.html/?ref=YF

 

The Justice Department has said it is seeking a penalty equal to either Fannie Mae and Freddie Mac’s losses or the defendants’ gain — whichever amount was greater — and it has estimated the “gross loss” on the toxic loans was $848.2 million while the “net loss,” or the amount due to the portion of the loans that the government said were materially defective, amounted to $131.2 million.

 

I thought the same thing when I first read that.  My guess is that the $850M amount is the face value of the RMBS.  The original Justice Department press release headline is Department of Justice Sues Bank of America for Defrauding Investors in Connection with Sale of Over $850 Million of Residential Mortgage-Backed Securities.  My guess is actual losses are $131M or even less.  Justice probably wants a repurchase of the bonds, so that their headline can read that they extracted $850 from BAC.....it's all optics.

[mankap]

The amount is not material to BAC.But it will encourage other states to file cases against BAC.

This means that the legal expenses are not going down anytime sooner.

Lawyers are the winners in all this.

[ERICOPOLY]

That's strange.  The Justice Department wants Countrywide/BAC to pay $845 million even though the government says that only $131.2 million of loans were materially defective.

 

The Injustice Department?

 

http://wallstcheatsheet.com/stocks/the-jurys-in-bank-of-america-is-guilty.html/?ref=YF

 

The Justice Department has said it is seeking a penalty equal to either Fannie Mae and Freddie Mac’s losses or the defendants’ gain — whichever amount was greater — and it has estimated the “gross loss” on the toxic loans was $848.2 million while the “net loss,” or the amount due to the portion of the loans that the government said were materially defective, amounted to $131.2 million.

 

I thought the same thing when I first read that.  My guess is that the $850M amount is the face value of the RMBS.  The original Justice Department press release headline is Department of Justice Sues Bank of America for Defrauding Investors in Connection with Sale of Over $850 Million of Residential Mortgage-Backed Securities.  My guess is actual losses are $131M or even less.  Justice probably wants a repurchase of the bonds, so that their headline can read that they extracted $850 from BAC.....it's all optics.

 

They lost $131M on the portion of the bonds that were deemed "materially defective".

 

The also lost money on the rest of the bonds.

 

So if the bank is to compensate them for losses on even the "good" bonds (without material defects), then (in my opinion) they are seeking excess damages.

 

It seems like more than just optics in terms of the losses that BofA is being asked to incur, although optics do play an additional role if they are asking for all of the bonds to be repurchased and not solely looking for compensation on losses.

[ERICOPOLY]

Something else which may be making large banks less exciting this morning.  Although, I personally welcome it if it reduces the chance of banks (any banks) getting themselves into a liquidity pinch... when that happens it tends to drag the whole sector down.

 

 

Fed Proposes Stricter Liquidity Rules:

 

http://online.wsj.com/news/articles/SB10001424052702304682504579155373347681400?mod=WSJ_hps_LEFTTopStories

 

Thursday's proposal is just one of several requirements the Fed is considering to improve the ability of large banks to withstand market shocks. Fed officials signaled they are considering some form of regulatory charge tied to a bank's reliance on short-term wholesale funding, an issue Mr. Tarullo and others have raised repeatedly in speeches and other presentations.

 

Under the proposal, the Fed wants banks to be holding enough assets to meet 80% of the so-called "liquidity coverage ratio" by Jan. 1, 2015 and to fully implement the requirement by 2017. That's a faster timeline than outlined in Basel, which wouldn't require banks to meet the full requirement until 2019.

 

For banks that rely on short-term borrowing to fund their operations, such requirements could force them to keep more safe assets on hand that could serve as sources of cash if the short-term funding sources dried up, Mr. Sweet said. For banks that rely more on traditional deposits, the requirement may be less onerous.