portfoolio Posted November 16, 2013 Share Posted November 16, 2013 There's a lot of naivete on here about the Article 77 Proceeding. The whole thing is just a ploy by AIG to try to squeeze a settlement out of BAC on other issues. It has nothing to do with the $8.5B settlement. AIG figured that if they played hardball on the 8.5B settlement, BAC would pay them to go away. But Moynihan doesn't roll over on these issues, he plays hardball back. So we have this farce of a proceeding. There have been some news outlets and commentators who have been parroting the AIG talking points. Obviously AIG has the money to hire fancy lawyers who can suggest all kinds of things that look plausible at first glance. But in reality, there is no legal basis to their objections and no facts behind them. All they have are a bunch of baseless accusations against BNYM and assertions that the settlement was somehow unfair, even though they don't demonstrate either of these things. The judge has two options. She can throw out the settlement or she can approve it. She asked the parties to mediate because, of course, this is a complete waste of everyone's time. But BAC is not going to be bullied into anything, so they refused. AIG has tried to drag out this trial even further asking for further discovery, but the judge quashed all of that. If you look at the actual testimony, what the analyst says who did the initial analysis for the settlement (Lin), is that the housing market has improved so much since the settlement in 2011 that actually the losses are coming in at the very low end of his range. The truth is, as Moynihan has said several times on conference calls, if the 8.5B settlement were thrown out, BAC might have to pay LESS in the end. Mike Mayo, fool of the century, got a lot of press for putting out nonsense about how BAC will have to pay 10s of billions. This was based on nothing other than his desire to get some media attention. Now that the trial is finishing, he got out ahead of his prediction being proved wrong with his latest stupid report criticizing Moynihan for building a bank ready to thrive for the next 50 years. Because, you know, sound management and good long-term decisions are somehow bad for shareholders. The question is when will the judge rule and how much of the ruling is already discounted into the stock. I think that most people expect the judge to approve the settlement, but that doesn't mean it's discounted into the stock price. These are two different issues. It's one thing to believe the judge will approve the settlement and it's another to get out ahead of it. I think a lot of people are waiting for the resolution of this issue before jumping in with both feet. Not the hedgies, we've seen they loaded up last month, but the more conservative institutional investors. In sum, just because someone can write a fancy blog post (subprimeshakeout.com) doesn't mean what they are writing is factual or well-reasoned. It's easy to parrot court filings and sound smart. AIG has expensive attorneys who tell a good story, and if you repeat that story, you can seem smart too. But if you actually read the recent filings (the ones in support of the settlement), it's quite obvious the objectors have no case whatsoever. The objectors who recently pulled out, asking for the judge to approve the settlement, provide further evidence of this. The judge HAD to go through this farce of a trial otherwise she'd be setting up ground for an appeal. So she had to go through the charade put on by AIG. That's the reality of what is going on here and EVERYONE involved with the trial knows it. Link to comment Share on other sites More sharing options...
xazp Posted November 16, 2013 Share Posted November 16, 2013 BAC should have accepted settlement talks and start by offering oh $6Bn. Then $6Bn and some ice cream. Wait a few weeks between offers. $5.9Bn but a lot of ice cream. Get a junior lawyer to waste as much time as possible. The time value of the $8.5Bn in cash sitting on BAC's balance sheet is pretty enormous - even at 2%/year, that's $160MM+. This has been dragging on for 2.5+ years, so BAC has probably already made $500MM from the settlement just because they still have the cash. Heck, buy back Buffett's preferreds, and reissue 3 years later, that's $1.5Bn in pre-tax profits. The fact that JPM just entered a settlement with Gibbs/Brun suggests to me that JPM and G/B both think the BAC settlement will pass. Otherwise what's the point of sitting in court for 2+ years only to have your work undone? There's a lot of naivete on here about the Article 77 Proceeding. The whole thing is just a ploy by AIG to try to squeeze a settlement out of BAC on other issues. It has nothing to do with the $8.5B settlement. AIG figured that if they played hardball on the 8.5B settlement, BAC would pay them to go away. But Moynihan doesn't roll over on these issues, he plays hardball back. So we have this farce of a proceeding. There have been some news outlets and commentators who have been parroting the AIG talking points. Obviously AIG has the money to hire fancy lawyers who can suggest all kinds of things that look plausible at first glance. But in reality, there is no legal basis to their objections and no facts behind them. All they have are a bunch of baseless accusations against BNYM and assertions that the settlement was somehow unfair, even though they don't demonstrate either of these things. The judge has two options. She can throw out the settlement or she can approve it. She asked the parties to mediate because, of course, this is a complete waste of everyone's time. But BAC is not going to be bullied into anything, so they refused. AIG has tried to drag out this trial even further asking for further discovery, but the judge quashed all of that. If you look at the actual testimony, what the analyst says who did the initial analysis for the settlement (Lin), is that the housing market has improved so much since the settlement in 2011 that actually the losses are coming in at the very low end of his range. The truth is, as Moynihan has said several times on conference calls, if the 8.5B settlement were thrown out, BAC might have to pay LESS in the end. Mike Mayo, fool of the century, got a lot of press for putting out nonsense about how BAC will have to pay 10s of billions. This was based on nothing other than his desire to get some media attention. Now that the trial is finishing, he got out ahead of his prediction being proved wrong with his latest stupid report criticizing Moynihan for building a bank ready to thrive for the next 50 years. Because, you know, sound management and good long-term decisions are somehow bad for shareholders. The question is when will the judge rule and how much of the ruling is already discounted into the stock. I think that most people expect the judge to approve the settlement, but that doesn't mean it's discounted into the stock price. These are two different issues. It's one thing to believe the judge will approve the settlement and it's another to get out ahead of it. I think a lot of people are waiting for the resolution of this issue before jumping in with both feet. Not the hedgies, we've seen they loaded up last month, but the more conservative institutional investors. In sum, just because someone can write a fancy blog post (subprimeshakeout.com) doesn't mean what they are writing is factual or well-reasoned. It's easy to parrot court filings and sound smart. AIG has expensive attorneys who tell a good story, and if you repeat that story, you can seem smart too. But if you actually read the recent filings (the ones in support of the settlement), it's quite obvious the objectors have no case whatsoever. The objectors who recently pulled out, asking for the judge to approve the settlement, provide further evidence of this. I put it at 99% probability the judge approves the settlement. She has no legal basis not to. She HAD to go through this farce of a trial otherwise she'd be setting up ground for an appeal. So she had to go through the charade put on by AIG. That's the reality of what is going on here and EVERYONE involved with the trial knows it. Link to comment Share on other sites More sharing options...
fareastwarriors Posted November 18, 2013 Share Posted November 18, 2013 BlackRock Set for Final Clash With AIG on BofA Deal http://www.bloomberg.com/news/2013-11-18/blackrock-set-for-final-clash-with-aig-on-bofa-deal.html Link to comment Share on other sites More sharing options...
blainehodder Posted November 18, 2013 Share Posted November 18, 2013 http://www.btigresearch.com/2013/11/18/bank-of-america-day-33-of-article-77-hearing-sees-conclusion-of-witness-phase-summations-begin-today/ Link to comment Share on other sites More sharing options...
vinod1 Posted November 18, 2013 Share Posted November 18, 2013 Vinod...maybe my figure was incorrect. I was using the sum total of the loan balances provided in Lin's RRMS report (last page): http://www.cwrmbssettlement.com/docs/Opinion%20Concerning%20Contemplated%20Settlement%20Amount%20For%20530%20Trusts.pdf It looks like the document you are referring to has a subset of the total loans. Basically it seems to be looking at the principal balance that has not been paid off at that particular point in time. This make sense but it would be difficult to compare with JPM. Vinod Link to comment Share on other sites More sharing options...
blainehodder Posted November 18, 2013 Share Posted November 18, 2013 Vinod...maybe my figure was incorrect. I was using the sum total of the loan balances provided in Lin's RRMS report (last page): http://www.cwrmbssettlement.com/docs/Opinion%20Concerning%20Contemplated%20Settlement%20Amount%20For%20530%20Trusts.pdf It looks like the document you are referring to has a subset of the total loans. Basically it seems to be looking at the principal balance that has not been paid off at that particular point in time. This make sense but it would be difficult to compare with JPM. Vinod http://blogs.wsj.com/moneybeat/2013/11/18/breaking-down-j-p-morgans-latest-settlement/?mod=WSJBlog&mod=MarketsMain At Bank of America, the original package of loans in the securities at issue had $424 billion in mortgages, meaning it paid about for about 2% in its settlement. J.P. Morgan had about $295 billion in the securities it was facing claims over, according to Bernstein analyst John McDonald, meaning it paid a slightly less 1.5%. The settlement talks are actually about how much the bank pays for the loans that have soured. By that metric, J.P. Morgan’s settlement also looks slightly cheaper than Bank of America’s. The investors in the settlements estimated lifetime losses at around $70 billion for the J.P. Morgan securities involved and $110 billion for Bank of America, according to a person familiar with the matter. That puts J.P. Morgan’s payment at about 6.2% of estimated lifetime losses and BofA at 7.9%. Link to comment Share on other sites More sharing options...
fareastwarriors Posted November 19, 2013 Share Posted November 19, 2013 http://video.cnbc.com/gallery/?play=1&video=3000217845 Mayo on CNBC a few days ago... Link to comment Share on other sites More sharing options...
fareastwarriors Posted November 19, 2013 Share Posted November 19, 2013 Moynihan Brings BofA Shares Back to Where He Started as CEO http://www.bloomberg.com/news/2013-11-19/moynihan-brings-bofa-shares-back-to-where-he-started-as-ceo.html yay... Link to comment Share on other sites More sharing options...
fareastwarriors Posted November 19, 2013 Share Posted November 19, 2013 Bernstein notes with CFO attached. Bernstein_BAC_CFO_Meeting_Highlights.pdf Link to comment Share on other sites More sharing options...
wescobrk Posted November 20, 2013 Share Posted November 20, 2013 Thanks for posting. I find the projection of it earning 78 basis points roa for 2015 oddly low. It's basically there now. It should earn at least 90 basis points in 2015 and probably 1 percent in the second half. Link to comment Share on other sites More sharing options...
portfoolio Posted November 20, 2013 Share Posted November 20, 2013 Finally, the press starts reporting the real story behind the Article 77 proceeding: http://online.wsj.com/news/articles/SB10001424052702303755504579208400799952842 But behind the scenes is a larger legal dispute between the second-largest bank by assets and AIG. The insurance giant, which argues the $8.5 billion pact is flawed, has separately sued Bank of America for $9 billion over other mortgage-backed securities. During months of negotiations, representatives for AIG have said they would drop their objections to the settlement if Bank of America agreed to settle the $9 billion lawsuit, according to people familiar with the matter. The two sides were negotiating until just days before closing arguments, one of the people said. The talks fell apart when the sides couldn't agree on a settlement amount, the person added. A representative for Bank of America told an AIG representative that the bank had "zero chance" of losing the case, people familiar with the matter said. Link to comment Share on other sites More sharing options...
ERICOPOLY Posted November 20, 2013 Share Posted November 20, 2013 Bernstein notes with CFO attached. Interesting. They expect $1.40 per share in 2014. Utilizing the DTA, it comes out to $2 per share. They expect $1.60 per share in 2015. Utilizing the DTA, it comes out to $2.28 per share. They put a price target of $15 on it. That part I can't figure out given the above. By their own admission it's only 9.4x their 2015 estimate... in a market trading at P/E of 19x? I would think you would begin somewhere around 12x earnings, or $19.20. Link to comment Share on other sites More sharing options...
gary17 Posted November 20, 2013 Share Posted November 20, 2013 they got 9.2 - 11 multiple for the big banks - why should it be more than Wells? Link to comment Share on other sites More sharing options...
ERICOPOLY Posted November 20, 2013 Share Posted November 20, 2013 they got 9.2 - 11 multiple for the big banks - why should it be more than Wells? What does Wells have anything to do with it? I don't understand. Link to comment Share on other sites More sharing options...
gary17 Posted November 20, 2013 Share Posted November 20, 2013 BAC & WFC are the two banks I like and would invest if I want to put some money in a US financial stock... just looking at this report , they have WFC priced at 10.1x 2015 earnings... BAC is at 9.2... Is that unreasonable? Should BAC be valued at a greater multiple than WFC? We are either saying the market is inefficient about one company or about an entire sector... Link to comment Share on other sites More sharing options...
ERICOPOLY Posted November 20, 2013 Share Posted November 20, 2013 BAC & WFC are the two banks I like and would invest if I want to put some money in a US financial stock... just looking at this report , they have WFC priced at 10.1x 2015 earnings... BAC is at 9.2... Is that unreasonable? Should BAC be valued at a greater multiple than WFC? We are either saying the market is inefficient about one company or about an entire sector... Why is WFC priced at 10.1x 2015 earnings? It shouldn't be that easy to make double-digit returns when the market as a whole trades at 19x earnings. WFC is not a risky company. Link to comment Share on other sites More sharing options...
gary17 Posted November 20, 2013 Share Posted November 20, 2013 That's a question for Bernstein Research, they wrote the report. I'm just pointing out the consensus estimate for the major US banks are in the 9.2 to 10.1. You indicated it should be 12x earnings.... so that means all the other banks should deserve a higher earnings multiple..... so the question i have is ... is BAC undervalued or the entire banking industry undervalued , if we are using P/E as the metrics here. Link to comment Share on other sites More sharing options...
ERICOPOLY Posted November 20, 2013 Share Posted November 20, 2013 That's a question for Bernstein Research, they wrote the report. I'm just pointing out the consensus estimate for the major US banks are in the 9.2 to 10.1. You indicated it should be 12x earnings.... so that means all the other banks should deserve a higher earnings multiple..... so the question i have is ... is BAC undervalued or the entire banking industry undervalued , if we are using P/E as the metrics here. Is undervaluation really in question? You don't normally have conservative, low-risk companies like WFC and BAC trading at double-digit earnings yields. Link to comment Share on other sites More sharing options...
ERICOPOLY Posted November 20, 2013 Share Posted November 20, 2013 They would be trading at roughly 1/2 the P/E of the S&P500. Why? Link to comment Share on other sites More sharing options...
Liberty Posted November 20, 2013 Share Posted November 20, 2013 BAC & WFC are the two banks I like and would invest if I want to put some money in a US financial stock... just looking at this report , they have WFC priced at 10.1x 2015 earnings... BAC is at 9.2... Is that unreasonable? Should BAC be valued at a greater multiple than WFC? We are either saying the market is inefficient about one company or about an entire sector... Why is WFC priced at 10.1x 2015 earnings? It shouldn't be that easy to make double-digit returns when the market as a whole trades at 19x earnings. WFC is not a risky company. The real reason is probably that analysts don't want target prices that are too far from where stocks are trading right now, up or down. If they had given higher multiples that are more in line with the rest of the market, they would've taken career risk. If they stay close to where things sell right now and the price overshoots their target, they can still say they were right, but if they aim higher, they look wrong today, and if the market undershoots (even in the short term), they look wrong a second time. Link to comment Share on other sites More sharing options...
gary17 Posted November 20, 2013 Share Posted November 20, 2013 1 - Fear of the US government - it is quite unpredictable 2 - Fear of tapering - no one knows what will happen 3 - Fear of rising interest rate - bank will earn more, but there's fear economy will slow down and We have not had a financial melt down like the one in 09 in recent memory and a lot of people are probably not comfortable with banks, etc. They may be trading at these valuations for quite awhile. Link to comment Share on other sites More sharing options...
gary17 Posted November 20, 2013 Share Posted November 20, 2013 interesting wells fargo is at 1.8x tangible book but 10.1x earnings BAC is at 1x tangible book but 9.2 earnings the market has a lot of faith in the quality of Wells' asset but not so much in its earning power... is that what these figures say? Link to comment Share on other sites More sharing options...
hyten1 Posted November 20, 2013 Share Posted November 20, 2013 gary there are many ways to look at it, my opinion are - market is trading on earnings (multiple is lower due to all the issues that we are aware of, justify or not its your call) - bac's book value etc are prob overstated and/or wfc's is understated due to one was a serial acquirer - nim jmho hy interesting wells fargo is at 1.8x tangible book but 10.1x earnings BAC is at 1x tangible book but 9.2 earnings the market has a lot of faith in the quality of Wells' asset but not so much in its earning power... is that what these figures say? Link to comment Share on other sites More sharing options...
gary17 Posted November 20, 2013 Share Posted November 20, 2013 i too think it's trading based on earnings - yah, what you said is basically what i'm thinking - people have more faith in what wells has stated as its asset - it's conservative so they are willing to pay more for it... (or they've understated) valuation is interesting... i guess that's why we are here. i look at BoI - I got in after Prem bought, thinking it can't go under so it'll worth more some day... so right now it's trading at 1x book but hasn't earned a dime yet. so the 'catalyst' if that's what people call this - is Ireland exiting the bailout ... etc, etc, what would be BAC's 'catalyst' - what needs to happen so the market will change its thesis on BAC? Link to comment Share on other sites More sharing options...
Uccmal Posted November 20, 2013 Share Posted November 20, 2013 I think BACs next catalyst is any day now. Once Judge Kapnik rules on this case that clears off the supposed successor liability angle. I think BAC is undervalued as compared to itself, the general market, and Wells Fargo. Just look at the list of comparables in that report. BAC is the cheapest on nearly every metric - look at the whole list - some of those mid size banks are the size of the big five in Canada. BAC is on its way to becoming the kind of bank WFC is, with the added caveat of Merrill Lynch in the fold. There is no reason to suggest this wont happen. Recall that Wells was once scorned just like BAC has been. Companies with good management in a turn around situation often over compensate. This is what happened at Wells into the 1990s and was fresh in the existing managements mind when 2007/2008 rolled around. This is happening at BAC. A whole generation of bankers there are going to always be more careful. Eventually this should show up in earnings. Link to comment Share on other sites More sharing options...
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