BAC-WT - Bank of America Warrants

[redskin]

Judge puts approval of BofA's $8.5 billion mortgage settlement on hold

http://finance.yahoo.com/news/judge-puts-approval-bofas-8-005913843.html

 

--

 

I have a general question - when I hear BAC has a very low funding cost - I take it this means that its deposits (liabilities) are mostly low or no-interest bearing.... Where do I find this - is this in the annual report?  What should I look specifically in the report to check this?  I want to check this against a few other US banks I am thinking about.

 

Thanks

 

Gary

 

http://media.corporate-ir.net/Media_Files/IROL/71/71595/AR2012.pdf

 

Pg. 126

[xazp]

The legal fees are just a huge expense, right?  I own both these stocks, and it is just annoying.  >>

 

So technically the litigation is going on between AIG, BONY and the Gibbs Brun group.  In these proceedings, AIG is accusing BONY of mishandling the settlement while Gibbs Brun is saying the settlement is fair and correct.  BAC is a very interested party, but they aren't as involved as the other two.  So I'd think the legal expense weighs most heavily on AIG, BONY and Gibbs Brun.

 

As far as I'm concerned, BAC is the winner as this litigation drags on and on.  They've got the $8.5 billion of cash, and until it's spent, even if they only earn 1% on that cash, that's still an excess of $85MM in earnings a year until AIG finally throws in the towel.  That ought to pay for their litigation costs, and more, so ... dilly dally away y'all. 

 

 

AIG Seeks Delay in $8.5 Billion Bank of America Deal

 

 

http://www.bloomberg.com/news/2014-02-05/aig-seeks-delay-in-8-5-billion-bank-of-america-deal.html

 

I really don't understand why AIG is bothering with this lawsuit.  The legal fees are just a huge expense, right?  I own both these stocks, and it is just annoying.

[racemize]

I agree, I just don't know what AIG is doing (probably should have moved over to the AIG thread).

[xazp]

I agree, I just don't know what AIG is doing (probably should have moved over to the AIG thread).

 

I understood AIG to be trying to use this settlement as leverage in other negotiations with BAC ... but it doesn't make sense, because all AIG is doing, is hurting themselves - it's neutral

to positive for BAC (though it's probably annoying to some shareholders which would like to see a resolution).

[ERICOPOLY]

I agree, I just don't know what AIG is doing (probably should have moved over to the AIG thread).

 

I understood AIG to be trying to use this settlement as leverage in other negotiations with BAC ... but it doesn't make sense, because all AIG is doing, is hurting themselves - it's neutral

to positive for BAC (though it's probably annoying to some shareholders which would like to see a resolution).

 

 

Does outstanding litigation factor into CCAR?

[dutchman]

Probably does effect ccar. Judge's so called exception includes 30+billion in claims... Wont amount to anything, but i think until things are final, they'll factor in an exaggerated worst case.

[xazp]

I don't think it's highly material.  BAC started with about $1 trillion in mortgages (between all the various parties, including Freddie, private, etc).  Of those, $424Bn are under this settlement.  Even if the entire $30Bn is thrown into question, it's just not a big deal on the scale of BAC settlements. 

 

For CCAR a year ago, arguably, a relatively high percentage of that trillion was in flux.  Today, I dunno, 10, 20% maybe?  Last year they got $5 billion, and this year a lot more settlements are nailed down. 

 

 

Probably does effect ccar. Judge's so called exception includes 30+billion in claims... Wont amount to anything, but i think until things are final, they'll factor in an exaggerated worst case.

[vinod1]

Does outstanding litigation factor into CCAR?

 

Yes. I was specifically looking for this and I remember seeing it in the stress test results.

 

Vinod

[vinod1]

I did not realize that litigation could also result in higher risk weights and hence larger RWA. From Citi's 4Q conf call, they mentioned that RWA increased by $40 billion primarily due to higher operational risk.

 

GUY MOSZKOWSKI: Got it, that's helpful. And I think I heard John say that the linked-quarter increase in RWA density and I guess just RWA was pretty much all driven by operational risk. In turn would that just be the higher litigation costs over the last year?

 

JOHN GERSPACH: Yes, that's right, Guy, you did hear that correctly. And it's driven by the higher level of litigation-related activity throughout the industry. It's much more of an assessment of what's going on in the industry. When we take a look at operational risk in our various businesses, we have to look both at ourselves but also at the industry as far as measuring the type of operational risk that our businesses face. So it's very much our view as to what's happening not just with us, but with some of the other things that you've seen hit the press as far as the industry.

 

GUY MOSZKOWSKI: Got it. So if a couple of your very large competitors have some outsized issues, ultimately that does impact to some extent your own operational risk?

 

JOHN GERSPACH: That is correct, Guy.

[Grenville]

Vinod1,

 

Appreciate the color on RWA and CCAR with respect to litigation. I guess the 8.5bln settlement will continue to drag on.

[ERICOPOLY]

I have a lot at stake with BAC.

 

I don't really mind if they have to retain a lot more money -- has very little impact on IV per share if they are forced to hold it for another year or two.  Meanwhile, the shares are less risky because of it.  Thicker fortress walls.

 

I had a thought regarding the 2008 bailouts today.  Over the prior decade+, the banks had returned all of these earnings as dividends.  The US government (and taxpayers) benefited from all of those taxes collected on the dividends.

 

Had the banks instead retained all of those earnings for that decade+, the government would never have collected all the taxes, and the banks would never have needed the bailout.

 

So... the bailout actually may have been less than the total tax collected on dividends paid out -- well, probably not on the biggest bailout recipients, but across the entire industry.  Really, who subsidizes whom?

 

Berkshire never needed a bailout, but never distributed any taxable dividends either  ;)  They do no favors for the Treasury, and get none in return.  In fact, they need none in return because all of those retained earnings serve as a fortress of diversified earnings to protect itself.

 

[gary17]

I wonder if anyone has thought of how much these big banks could be worth in a decade.  If nothing blows up, and yes given they are more regulated now, what percent can they grow the earnings and or book value. Thanks.

[dutchman]

BofA Shares Zoom Ahead of Other Big Banks'

 

http://online.wsj.com/news/articles/SB10001424052702304181204579368983349885194

 

 

 

[fareastwarriors]

BofA Shares Zoom Ahead of Other Big Banks'

 

http://online.wsj.com/news/articles/SB10001424052702304181204579368983349885194

 

 

positive press for BAC?

that is the real news.

 

 

[wescobrk]

"I wonder if anyone has thought of how much these big banks could be worth in a decade.  If nothing blows up, and yes given they are more regulated now, what percent can they grow the earnings and or book value. Thanks."

 

I think any more than GDP would be excessive (using book value).

[ERICOPOLY]

"I wonder if anyone has thought of how much these big banks could be worth in a decade.  If nothing blows up, and yes given they are more regulated now, what percent can they grow the earnings and or book value. Thanks."

 

I think any more than GDP would be excessive (using book value).

 

They can probably only grow their assets at the rate of GDP.

 

But per share earnings and per share book values can grow much more rapidly.  Per share earnings can grow 10% a year if they exclusively focus on buying shares back at 10x earnings.  (but first they need permission from their mommy, so it's not realistic).

 

[wescobrk]

Good point.

I found a press release they will announce before march 31st.

Seven more weeks to go.

Bac is 150 basis points ahead and citi is 100 basis points ahead of regulations 5 years from now.

Bac is starting to shrink shares.

I like that citi doesn't have any 800 million warrants to worry about.

Bac will probably get another 6 billion roughly to buyback over the next 4 quarters which means Moynihan can cancel his Buffett warrants out but it took two years of buybacks to get there.

I think Buffett will make at least 11 billion by next year off of these suckers.

[gary17]

"I wonder if anyone has thought of how much these big banks could be worth in a decade.  If nothing blows up, and yes given they are more regulated now, what percent can they grow the earnings and or book value. Thanks."

 

I think any more than GDP would be excessive (using book value).

 

They can probably only grow their assets at the rate of GDP.

 

But per share earnings and per share book values can grow much more rapidly.  Per share earnings can grow 10% a year if they exclusively focus on buying shares back at 10x earnings.  (but first they need permission from their mommy, so it's not realistic).

 

so if 2014 is 1.34 - 10 years later (2024) id's be 3.47.......  let's use 10 multiple so the price tag would be $35...  but if 15 multiple then $52    hmmmmm

 

[ERICOPOLY]

"I wonder if anyone has thought of how much these big banks could be worth in a decade.  If nothing blows up, and yes given they are more regulated now, what percent can they grow the earnings and or book value. Thanks."

 

I think any more than GDP would be excessive (using book value).

 

They can probably only grow their assets at the rate of GDP.

 

But per share earnings and per share book values can grow much more rapidly.  Per share earnings can grow 10% a year if they exclusively focus on buying shares back at 10x earnings.  (but first they need permission from their mommy, so it's not realistic).

 

so if 2014 is 1.34 - 10 years later (2024) id's be 3.47.......  let's use 10 multiple so the price tag would be $35...  but if 15 multiple then $52    hmmmmm

 

I wouldn't start at $1.34.  I would use $1.90 -- that's 14% return on tangible equity, and we're already at that level today really (on a cash earnings basis, you know... including the DTA).  They claim it's what they should be able to earn from their current assets (after getting some work done to reposition the business).

[ERICOPOLY]

Bac will probably get another 6 billion roughly to buyback over the next 4 quarters which means Moynihan can cancel his Buffett warrants out but it took two years of buybacks to get there.

 

I am wondering how much it will be.  They should be building about $22.8 billion this year of new capital from earnings.  This number I get from using $1.40 estimated per share net income for 2014 and assuming a 30% tax rate (70% of $2 = $1.40).  Then there are 11.4 billion shares (multiplied by $2), so $22.8 billion is my number.

 

So let's say they get approved for $6b of buybacks.  That leaves $16.8 billion to spend on dividends and retiring preferred stock. 

 

They could put $5b towards a dividend, and it would be 44 cents a year for 2.8% yield.  They must be feeling pressure to bring the dividend up near that of it's peers, and this would accomplish that.

 

So $6b for buybacks, $5b for dividend... and that still leaves $11.8 billion excess.

 

[investor-man]

Bac will probably get another 6 billion roughly to buyback over the next 4 quarters which means Moynihan can cancel his Buffett warrants out but it took two years of buybacks to get there.

 

I am wondering how much it will be.  They should be building about $22.8 billion this year of new capital from earnings.  This number I get from using $1.40 estimated per share net income for 2014 and assuming a 30% tax rate (70% of $2 = $1.40).  Then there are 11.4 billion shares (multiplied by $2), so $22.8 billion is my number.

 

So let's say they get approved for $6b of buybacks.  That leaves $16.8 billion to spend on dividends and retiring preferred stock. 

 

They could put $5b towards a dividend, and it would be 44 cents a year for 2.8% yield.  They must be feeling pressure to bring the dividend up near that of it's peers, and this would accomplish that.

 

So $6b for buybacks, $5b for dividend... and that still leaves $11.8 billion excess.

 

And with the excess: sharks with frickin' laser beams! OMG there really needs to be an Austin Powers / Sharknado crossover!

 

On a serious notes, yeah that sounds totally reasonable. I'm glad I own shares

[fareastwarriors]

Big Banks' Vanity Unfair for Their Investors

 

http://online.wsj.com/news/articles/SB10001424052702303874504579377092246660108?mod=WSJ_Heard_LEFTTopNews

 

 

 

Most banks, though, don't seem to link buybacks to valuation. They are simply eager for them as a means to return excess capital and boost returns on equity.

 

And the Federal Reserve, which signs off on the banks' capital-return plans, has tended to give them greater leeway in terms of buybacks than dividends. This is largely a response to a crisis experience: Banks were loath to cut dividends, even when their financial condition was deteriorating, for fear of spooking investors.

 

But this only reinforces inflexibility when it comes to dividends. So investors are led to once again believe that such payouts are sacrosanct, even as it prompts banks to possibly overpay for their own stock.

 

Buybacks can also prove ineffective in reducing shares outstanding—which should boost earnings per share—due to stock issuance to employees. Over the past three years, for example, Wells Fargo WFC +0.15% has bought back about $11.7 billion of its own stock. That is equal to nearly 5% of its current market value. Yet the bank's average shares outstanding have declined by less than half of 1% from the first quarter of 2011 through the end of 2013.

[wescobrk]

m wondering how much it will be.  They should be building about $22.8 billion this year of new capital from earnings.  This number I get from using $1.40 estimated per share net income for 2014 and assuming a 30% tax rate (70% of $2 = $1.40).  Then there are 11.4 billion shares (multiplied by $2), so $22.8 billion is my number.

 

So let's say they get approved for $6b of buybacks.  That leaves $16.8 billion to spend on dividends and retiring preferred stock. 

 

They could put $5b towards a dividend, and it would be 44 cents a year for 2.8% yield.  They must be feeling pressure to bring the dividend up near that of it's peers, and this would accomplish that.

 

So $6b for buybacks, $5b for dividend... and that still leaves $11.8 billion excess"

 

The math makes sense but I think regulators will largely look at last year's earnings instead of prospective.

The monster capital return will probably be delayed until March of 2015 for bac and citi

[ERICOPOLY]

The math makes sense but I think regulators will largely look at last year's earnings instead of prospective.

The monster capital return will probably be delayed until March of 2015 for bac and citi

 

Last years's capital return was based on 2012 earnings?

[wescobrk]

The balance sheet is certainly part of it but I just don't see them getting a big lift compared to approval from year.

The preferreds I wouldn't count as much as they were paying over 8% and coiled easily issue new at a lower rate.

Their capital return was 5 billion if you just look at the common.

I'm certainly no banking expert but after raising the dividend I wouldn't expect much more than 6 billion for share buyback.

We'll see in about 4 weeks if I'm wrong. Maybe 7 billion tops.