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BAC-WT - Bank of America Warrants

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ERICOPOLY Newbie

ERICOPOLY

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The article on Helocs is just alarmist at this point.  This is a company that has lost tens of billions over the last few years on bad debt.  We know the actual losses, if not already reserved, will come in at a minute fraction of face value.

 

They threw in "tip of the iceberg" for hype.  We're supposed to be imagining ships striking icebergs and thousands of sailors drowning in cold water.  It's retarded the way they presented that.

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vinod1 Newbie

vinod1

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I think the next couple of years would likely show extremely low loan losses. At this time around half of all consumer and more than half of all commercial loans on BAC (and other banks) portfolio are loans that have been originated after 2008. This is the period when bankers had a "come to Jesus moment". Anecdotally based on my own experience getting a home loan and from lots of friends experience, loan underwriting has been ridiculously strict. Capital One's CEO has mentioned in a recent conf call that the auto loan quality of the past few years are simply a "lifetime best".

 

So loan loss provisions are going to be pretty low for the next couple of years. I think this would more than offset any weakness in the remaining pre-2008 loan portfolio.

 

Vinod

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gary17 Newbie

gary17

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So I am still trying to get comfortable with this idea here.... I am wondering if those who has bought BAC could share your thoughts on this....

 

 

So it's pretty evident that a number of large US banks are trading at a discount to book - JPM, C, BAC and even Wells Fargo....  and at some point we all expect them to trade at a higher price as the bank gets better.....

 

I just noticed that a lot of people on this board are into BAC - I wonder what are the factors that made you decide BAC over say, Citigroup, which appears to be trading at similar discounts but have a larger global presence and brand name... 

 

One could invest in all these banks and probably do well.  But if we want to concentrate on one, what metrics are you guys looking at to make that decision... 

 

Thanks!

 

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xazp Newbie

xazp

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Well many people here I recognize from when BAC was in the single digits.  So if I were buying now, I wouldn't necessarily say BAC was the best buy.  But back then, yes, BAC got slammed the hardest.  And has recovered the most.  So yeah I think C is just as good of a deal right now.  One issue is that C may have gov't settlements to go, whereas BAC got through those early in the game.  But in many ways, C has the largest moat: it's probably harder to replicate their world-wide footprint than it would be to duplicate BAC's footprint. 

 

 

 

 

So I am still trying to get comfortable with this idea here.... I am wondering if those who has bought BAC could share your thoughts on this....

 

 

So it's pretty evident that a number of large US banks are trading at a discount to book - JPM, C, BAC and even Wells Fargo....  and at some point we all expect them to trade at a higher price as the bank gets better.....

 

I just noticed that a lot of people on this board are into BAC - I wonder what are the factors that made you decide BAC over say, Citigroup, which appears to be trading at similar discounts but have a larger global presence and brand name... 

 

One could invest in all these banks and probably do well.  But if we want to concentrate on one, what metrics are you guys looking at to make that decision... 

 

Thanks!

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wescobrk Newbie

wescobrk

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So it's pretty evident that a number of large US banks are trading at a discount to book - JPM, C, BAC and even Wells Fargo....  and at some point we all expect them to trade at a higher price as the bank gets better"

 

Wells has been at a premium to book and even Jpm now is trading at a slight premium to book,

C and bac are the only ones now at a discount.

 

For me, I'm more familiar with bac, it has buffets imprimatur, it seems to have slightly less risk to me as far as it appears to be a little easier to understand.

C may (or may not) have more growth prospects but it seems with their greater international focus could have a bit more risk.

 

I'm sure c shareholders will do pretty well too but I'm going to stay with bac.

Bac is about 9 billion more in market cap than C. For a long time they had the same market cap. Bac is probably a tad (very small tad) trading closer to IV.

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portfoolio Newbie

portfoolio

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The fact is Cramer/CNBC has joined the bandwagon on BAC with good timing in the past year. EVERYONE KNOWS BAC WILL TRADE ABOVE BOOK VALUE. People on Wall Street are not stupid. They know how banks have traded historically. They know there is nothing fundamentally wrong with BAC. The only open question is WHEN WILL THAT HAPPEN.

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UK Newbie

UK

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So I am still trying to get comfortable with this idea here.... I am wondering if those who has bought BAC could share your thoughts on this....

 

 

So it's pretty evident that a number of large US banks are trading at a discount to book - JPM, C, BAC and even Wells Fargo....  and at some point we all expect them to trade at a higher price as the bank gets better.....

 

I just noticed that a lot of people on this board are into BAC - I wonder what are the factors that made you decide BAC over say, Citigroup, which appears to be trading at similar discounts but have a larger global presence and brand name... 

 

One could invest in all these banks and probably do well.  But if we want to concentrate on one, what metrics are you guys looking at to make that decision... 

 

Thanks!

 

BUFFETT: Well, I would say that if I had to just own one bank, I would probably own Wells.

BECKY: OK. Wells Fargo is in the news today. There's a story in the Financial Times that says that the company is looking for acquisitions in terms of wealth management, that they're looking to get into some of that higher income gain. Is that a good move from your perspective?

BUFFETT: Well, if they execute it well, it's good. And what Wells has done very well is to sell a wide variety of services to a huge deposit base. The biggest single asset that Wells has is its deposit banks, as is true with the Bank of America.

BECKY: Mm-hmm.

BUFFETT: They have a consumer-based small business type base that's just huge, more so than will be the case with Morgan or Citigroup. So that's a terrific asset. It really isn't a big value now because you can't put money on it at any rate. But over time, it's a terrific asset. And they sell other products to that group, and the more products they have that they effectively can deliver to those clients, the better.

 

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hyten1 Newbie

hyten1

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gary here was my train of thought back when BAC was around $5

 

- Banking sector getting killed (time to take a look if there is value, when there is blood, take a look)

- I am not a banking expert who i trust a lot are investing in banks in big a way and which ones (WEB --> BAC and WFC)

- Ahhh BAC and WFC (maybe C), lets see which one is getting killed the most and lets do some research on these

  (this cannot be ignore, i remember WEB explicitly stated back in 2008 or was it 2009, he would PUT ALL his money into WFC, this was when WFC was trading at around $10, if he could, now that was extreme rare event if you ask me)

- lots of reading etc etc., reading many comments and post from folks on this forum

- BAC hmm also C, massive deposit base, low cost of capital, all the problem will eventually go away, good place to start

- worry about litigation cost, what are some worst case scenario and what would that look like

- what will it look like when everything goes back to normal -----> litigation cost no more, massive cost cutting, large asset base (cheap capital), trading at extreme low value to book/tangible etc., added benefit and insurance that some of the best investors are in on it big

- massive earnings potential when things just goes back to or close to "normal" (you don't need hyper growth or growth at all, just some cost cutting, running off the litigation)

 

 

hy

 

EDIT: it obviously wasn't that simple. I first invested in WFC in a small way (due to WEB's comment, stupid me, when the best say he will put all his money into something you should do it too :) ) and my lack of understanding/comfort with banks. but wit that investment i started to read more and more and gradually over months got more comfortable with the sector the issues as well as BAC. When i first invested in BAC it was around $8 or $9. but overtime as i got more comfortable it just so happen that was when the stock kept falling. when it hit around $5 or $6 i got a lot more comfortable.

 

 

 

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kevin4u2 Newbie

kevin4u2

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Price to tangible book value is most important metric. IMO. Return on Tangible common equity is next. Regards.

 

 

So I am still trying to get comfortable with this idea here.... I am wondering if those who has bought BAC could share your thoughts on this....

 

 

So it's pretty evident that a number of large US banks are trading at a discount to book - JPM, C, BAC and even Wells Fargo....  and at some point we all expect them to trade at a higher price as the bank gets better.....

 

I just noticed that a lot of people on this board are into BAC - I wonder what are the factors that made you decide BAC over say, Citigroup, which appears to be trading at similar discounts but have a larger global presence and brand name... 

 

One could invest in all these banks and probably do well.  But if we want to concentrate on one, what metrics are you guys looking at to make that decision... 

 

Thanks!

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SharperDingaan Newbie

SharperDingaan

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For a valid comparative each bank has to have similar capital ratios, & using the same accounting basis (IFRS). US GAAP is not IFRS, & much more 'flexible'. Obviously, none of this is popular in some circles .....

 

Not standard, but ((ROA x Total Assets)/Total Share Count) x 1.1-1.6 is a reasonable long term metric. Bank operations should at least be making the average asset spread for that region. Higher multiples for better quality earnings, better loan quality, & the ability to grow the loan book.

 

Notable is that if it is primarily a trading bank with a related loan book, & a #3 market position or lower - you would not pay up for it; as the business risk isn't worth it.  But if it is primarily a straight loan book, with a #1 or #2 market position, you would (ie: GSIB's). Then remind yourself that you live in a Basel III World .... using IFRS as its accounting basis.   

 

The good, but evil, bastard of a trading bank (ie: vampire squid) is worth the price ... the wanna-be; not so much.

Same thing for the regionally dominant plain-vanilla retail/commercial bank.

 

SD

 

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kevin4u2 Newbie

kevin4u2

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BAC and C averaged 30% from 2003-2006, WFC 26%, and JPM and some bad years in there but I would say they were around 24-25% excluding. 

 

Now those weren't exact normal times.  BAC was earning 1.5% on assets.  They were also more leveraged so thus the higher returns on equity. 

 

Most are saying BAC can earn $2 on 13 and change in tangible equity which is 15%, so around 18% may be the new "normal".  The income statement math easily supports $2 per share in earnings.  The banks should sell for 2-3x tangible common equity.  Returns on equity will be lower due to the higher capital requirements but it also means they are much "safer" relatively speaking to pre recession times. 

 

Thanks all for your insights.

 

Kevin

Do you by chance know the rotce for Bac during "normal" times? I think it's around 4% right now vs 8% for C and 18% ish for JPM and WFC

 

Thanks

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