Uccmal Posted February 27, 2014 Share Posted February 27, 2014 The funny thing about JPM's trading results is some of the analysts think it's because of "weather". http://www.bloomberg.com/news/2014-02-27/dimon-quip-leads-analysts-to-blame-trading-slump-on-polar-vortex.html I dont know about investment banking but there is certainly some merit in the drop off in mortgage lending due to the weather. I expect we will see some pent up demand coming out in the next few weeks. We could even see a reversal in layoffs if the pick up is strong enough. Its about as predictable as the weather.... Link to comment Share on other sites More sharing options...
Uccmal Posted February 27, 2014 Share Posted February 27, 2014 Not true. From Bloomberg: "The amendment would force Bank of America to wait at least five years from its approval to redeem the preferred stock. Under the 2011 deal, the bank was able to redeem the preferred stake at any time as long as it paid a 5 percent premium." "Berkshire gets 6 percent annual interest on the securities. Under the revised deal, Buffett agreed to give up a dividend provision that gave him the right to recover missed payments." BofA gave up the call option to redeem the 6% preferred stock at 5% premium (excluding the warrants) for 5 years in order to get the Tier 1 capital treatment. The call option itself is not free, but the bank seems to think the benefit of Tier 1 capital treatment outweighs the cost of giving up the call option. Though dividends are now non-cumulative, which benefits the bank, I don't think it matters much now since the bank is much healthier. Nice catch. So they can't redeem the prefs earlier than 2018, so BRK continues to collect the dividends. This is interesting in a couple of ways. It says that Buffett has confidence BAC will pay the dividends. At the same time it frees up 2.9 billion in Tier 1 capital from the balance sheet, which they can sit on, write business against or pay back to the shareholders. It also raises the base case for their CCAR scenarios. Link to comment Share on other sites More sharing options...
ourkid8 Posted February 27, 2014 Share Posted February 27, 2014 It's a shame this change was not performed for the 2014 CCAR submission. It will now be counted towards the 2015... :-( Tks, S It also raises the base case for their CCAR scenarios. Link to comment Share on other sites More sharing options...
Uccmal Posted March 4, 2014 Share Posted March 4, 2014 So, We have the CCAR results coming out sometime soon. In an ode to Kraven: How will the stock behave if a 20 cent annual dividend is installed? Is this in the price now? If the dividend is not increased I see the stock getting killed... another year of waiting wont bode well. I am thinking the buybacks (10 b) are assumed in today's quote. I know this is all meaningless short term BS.... Link to comment Share on other sites More sharing options...
portfoolio Posted March 5, 2014 Share Posted March 5, 2014 How will the stock behave if a 20 cent annual dividend is installed? Is this in the price now? Yes. If the dividend is not increased I see the stock getting killed... another year of waiting wont bode well. Depends on the amount of buyback. I am thinking the buybacks (10 b) are assumed in today's quote. I don't think so. I think the current stock price reflects VERY conservative estimate for capital return. Link to comment Share on other sites More sharing options...
ERICOPOLY Posted March 5, 2014 Share Posted March 5, 2014 A part of me today feels like Congress has the CCAR results in their hands. Link to comment Share on other sites More sharing options...
racemize Posted March 5, 2014 Share Posted March 5, 2014 A part of me today feels like Congress has the CCAR results in their hands. I was having similar feelings. All the banks seem to be moving up significantly (BAC and C moreso though). Link to comment Share on other sites More sharing options...
rpadebet Posted March 5, 2014 Share Posted March 5, 2014 AIG is moving big too without any "public" news. Think it is something more than the CCAR Link to comment Share on other sites More sharing options...
gary17 Posted March 5, 2014 Share Posted March 5, 2014 Is it not simply the market getting ahead of itself? People like to speculate. Link to comment Share on other sites More sharing options...
BRK7 Posted March 5, 2014 Share Posted March 5, 2014 Dick Bove was on CNBC last night, saying bank stocks will double. Maybe this could be a factor as well. http://www.cnbc.com/id/101465447 Link to comment Share on other sites More sharing options...
MYDemaray Posted March 5, 2014 Share Posted March 5, 2014 my guess is that it's "risk on" with hedge funds, and these are all basically well-known hedge fund plays at this point...just my guess Link to comment Share on other sites More sharing options...
fareastwarriors Posted March 5, 2014 Share Posted March 5, 2014 A part of me today feels like Congress has the CCAR results in their hands. I was having similar feelings. All the banks seem to be moving up significantly (BAC and C moreso though). Wow nice morning surprise... Link to comment Share on other sites More sharing options...
Liberty Posted March 5, 2014 Share Posted March 5, 2014 The warrants are up 7% :o Link to comment Share on other sites More sharing options...
wescobrk Posted March 5, 2014 Share Posted March 5, 2014 Citigroup is still a big disappointment. Bac is 13x this year earnings and c is 10x yet they have the same earnings estimates for this year, next year and 2016. Ill stipulate bac is less risky but a thirty percent difference? Wtf? Plus citi was approved for the advanced Basel and bac wasn't. Link to comment Share on other sites More sharing options...
damianolive Posted March 5, 2014 Share Posted March 5, 2014 wescobrk, Agree that C seems appealing, though the difference vs. BAC might not be that great if you look at the current price as multiple to earnings power (7.9x for C vs. 8.2x for BAC per my own $6.3 and $2.1 guesstimates for earnings power). Also if you look at the price to basel 3 capital per share of BAC vs. that ratio on the basel 3 capital allocated to Citicorp (Citigroup's productive capital) they are both at 1.5x. What the market might be missing is the pace of growth of Citicorp's basel 3 capital, which will be driven not just by earnings, but also by the use of DTA and the reduction in Citi Holding's assets, which will free up regulatory capital (and allows for repurchases and dividends). Link to comment Share on other sites More sharing options...
wescobrk Posted March 5, 2014 Share Posted March 5, 2014 Ill quit complaining and wait for March 26th. The board for Citigroup should fire corbat if it remains below tbv for the rest of the year. Tbv should be 56.60 on April 14th when they report earnings. 14 percent discount to tbv while it earned 8 percent last year on tbv, 9 percent this year and expected to grow esp almost 15 percent a year for the next 3 years yet trading single digit multiple. Link to comment Share on other sites More sharing options...
wescobrk Posted March 5, 2014 Share Posted March 5, 2014 Ok, so I mean that was my last complaint. Congrats to bac shareholders. Link to comment Share on other sites More sharing options...
ourkid8 Posted March 5, 2014 Share Posted March 5, 2014 I totally disagree as Mr. Corbat is doing a good job with the company he was handed. I love the fact there is a huge discount compared to TBV as it allows value investors an opportunity to load up! Lets hope the majority of the capital return is skewed towards buybacks. Tks, S Ill quit complaining and wait for March 26th. The board for Citigroup should fire corbat if it remains below tbv for the rest of the year. Tbv should be 56.60 on April 14th when they report earnings. 14 percent discount to tbv while it earned 8 percent last year on tbv, 9 percent this year and expected to grow esp almost 15 percent a year for the next 3 years yet trading single digit multiple. Link to comment Share on other sites More sharing options...
rpadebet Posted March 5, 2014 Share Posted March 5, 2014 Citigroup is still a big disappointment. Bac is 13x this year earnings and c is 10x yet they have the same earnings estimates for this year, next year and 2016. Ill stipulate bac is less risky but a thirty percent difference? Wtf? Plus citi was approved for the advanced Basel and bac wasn't. I agree Citi is relatively cheap compared to BAC. However BAC has lot of cost leverage and Citi doesn't have that or hasn't articulated that. To some extent BAC's issues were identifiable given that majority of it was bought from Countrywide and ML acquisitions during the crisis. Citi's issues on the other hand were mostly inbred and were result of acquisitions poorly integrated years ago. I would argue that BAC being more US focused has potentially less administrative overhead compared to Citi with its empire spread across the globe. It takes more overhead to manage a global footprint. Also since the crisis, BAC has improved year after year methodically without any major f'kups. Citi on the other hand has had the CCAR issue and an additional management change. The new management has yet to gain the credentials of the BAC management. To put it simply I think investors can see with some certainty how BAC progresses ahead whereas with citi the scenarios of outcomes are many more. In someways it is like Citi is a step behind BAC. Having said that, I am long Citi. (I wish they had attractive TARP warrants) I liked the below TBV valuation. I think current management is better than the past managements they have had and isn't being given the credit yet (maybe this years CCAR will change some of it). Though I would like to see them articulate their cost savings strategy in more concrete terms. I would like them to articulate Citi's business strategy and focus a few years from now once they are past all these operational issues. I would like for them to explain why being a global commercial bank is better for the RoE. Link to comment Share on other sites More sharing options...
Redskin212 Posted March 5, 2014 Share Posted March 5, 2014 Price action of the warrants relative to the stock is not consistent compared to the last time BAC was around $17. I think Ericopoly is right - congress has the CCAR results and information is leaking everywhere. I am guessing that there will be a nice dividend for BAC which may explain the warrants large move. Link to comment Share on other sites More sharing options...
Rabbitisrich Posted March 5, 2014 Share Posted March 5, 2014 Let's hope that the FRB is employing a counter-intelligence scheme to weed out leakers. The dividend addicts may, or may not, increase market valuation of retained assets, but they do so (or not!) in exchange for issuing funds regardless of opportunity costs. That dividend investing is considered to be a subset of value investing shows how much misunderstanding, or flexible usage, pervades the marketing term. Link to comment Share on other sites More sharing options...
wescobrk Posted March 5, 2014 Share Posted March 5, 2014 "I totally disagree as Mr. Corbat is doing a good job with the company he was handed. I love the fact there is a huge discount compared to TBV as it allows value investors an opportunity to load up! Lets hope the majority of the capital return is skewed towards buybacks." We do disagree. The sooner the stock goes up the better the return. Time value of money. I don't understand why someone would want a stock to stay down unless you have more money coming in the future. The stock buyback isn't going to add a lot of value, at least not this year. I've seen estimates for 7.5 billion buyback. That is only about five percent of the market cap. Not exactly big numbers. I do think it will cause the multiple investors are willing to pay to get us to 55-57 which would lock in a 10-12 percent return. Why would you want the stock to stay down for 2-3 years? I think one year is enough for acrobat to deliver some credibility. I would agree with you it's good to stay below the if you add to your position if you have to wait for the money to come in. Link to comment Share on other sites More sharing options...
finetrader Posted March 6, 2014 Share Posted March 6, 2014 Why would you want the stock to stay down for 2-3 years? -To let the company do the buyback at lower than IV -To let you buy more shares :with additional money in your account, or by selling a stock in your portfolio that has reached IV in the meantime to buy more shares Link to comment Share on other sites More sharing options...
wescobrk Posted March 6, 2014 Share Posted March 6, 2014 "-To let the company do the buyback at lower than IV -To let you buy more shares :with additional money in your account, or by selling a stock in your portfolio that has reached IV in the meantime to buy more shares" The second one makes sense but the first one doesn't. Inflation will be equal or greater than the deminimus increase on a 5 percent buyback at a company selling at roughly 75 percent of intrinsic value. Link to comment Share on other sites More sharing options...
Uccmal Posted March 6, 2014 Share Posted March 6, 2014 Something certainly seems fishy. How many dozens, or hundreds, of people would have prior access to the CCAR conclusions? Re: buyback argument: I have held BAC continuously for nearly 4 years. People have had lots of time to buy the shares they want. Buybacks at C and BAC are a waste of good cash that could be going into my pocket. They just allow management to hide the stock dilution from options from those less aware. I know the tax scheme favours buybacks, but I favour getting paid dividends. Besides, the government needs the income ;) Link to comment Share on other sites More sharing options...
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