BAC-WT - Bank of America Warrants

[Cardboard]

I am coming up with similar earnings estimates as you guys. So based on that and the fact that JPM, WFC and C are not attracting multiples any higher than 9 to 12 at the moment, is a switch to C warranted (cheaper) or to FXI (more diversified but, not pure play on these) since it is becoming a bet on multiple expansion for the whole sector?

 

I own no position in any of them at the moment.

 

Cardboard

[vinod1]

I am coming up with similar earnings estimates as you guys. So based on that and the fact that JPM, WFC and C are not attracting multiples any higher than 9 to 12 at the moment, is a switch to C warranted (cheaper) or to FXI (more diversified but, not pure play on these) since it is becoming a bet on multiple expansion for the whole sector?

 

I own no position in any of them at the moment.

 

Cardboard

 

I see BAC, JPM, C all trading at just above 8x 2016 earnings. C is marginally a bit chepar than the other two. I recently moved a bit from BAC to C and JPM largely for above reasons.

 

WFC huge backs this year and likely going forward might be something to consider as well. It would finally start reducing share count. But I need to look into this some more.

 

Vinod

[xazp]

So I value these companies a little differently than you, but, it's a little unconventional. 

 

My first premise is that the Fed does not want the big banks to grow larger.  They're certainly not going to allow large acquisitions, they're going to frown on greater complexity.  Roughly speaking, this means that capital generated = capital returned to shareholders (minus some margin of safety). 

 

So, let's say BAC can earn $1.70, that implies capital generation (due to DTA) of $2.20.  So from there let's say they just return their earnings, or $1.70.  The remaining 50c/share goes to some modest organic growth.  What's the valuation of a stock that can return $1.70/year to shareholders, but whose earnings growth is small?  I'd say, 7%, or about $24/share. 

 

This is why I prefer BAC to JPM.  The big banks, after they get to normalized earnings, can only grow a little faster than GDP I think.  But because of the DTA issue, BAC can generate and return a lot more capital than JPM.  They may be similar on P/E terms, but that ignores the whole distinction of tax assets which I believe are meaningful in this situation. 

 

Right now, I'd pick C > BAC > JPM. 

 

I think C is the cheapest (self inflicted, though); it's got the tax benefits; it's got above-normalized expenses (via citi holdings); and its long-term growth is governed mostly by global GDP which I think will be faster than US GDP.

 

BAC is next, it has the same stuff as C, but it's a little more expensive.

 

JPM doesn't have the tax benefits and its earnings are pretty much normalized.  Dimon is a great CEO and the company is well run, but, he's not invincible and the company in fact has stumbled more than BAC in recent times. 

 

 

I am coming up with similar earnings estimates as you guys. So based on that and the fact that JPM, WFC and C are not attracting multiples any higher than 9 to 12 at the moment, is a switch to C warranted (cheaper) or to FXI (more diversified but, not pure play on these) since it is becoming a bet on multiple expansion for the whole sector?

 

I own no position in any of them at the moment.

 

Cardboard

 

I see BAC, JPM, C all trading at just above 8x 2016 earnings. C is marginally a bit chepar than the other two. I recently moved a bit from BAC to C and JPM largely for above reasons.

 

WFC huge backs this year and likely going forward might be something to consider as well. It would finally start reducing share count. But I need to look into this some more.

 

Vinod

[ERICOPOLY]

"So, let's say BAC can earn $1.70, that implies capital generation (due to DTA) of $2.20."

 

$2.42 if they earn $1.70 at 30% tax rate.  10% more than you wrote.

[ERICOPOLY]

However, the DTA value is a "one time" thing.  In two years, it will be all used up.

 

So you can't put a multiple on that.  I forget exactly where the DTA is these days, but I remember it to be somewhere around $12b (too lazy to look it up). 

 

So about $1.06 a share. 

 

I think the way to go about it is to either assume the DTA will go towards "unexpected" legal surprises, or it should just be added on top of your intrinsic fair market value that based on net income.

 

So if net income were $1.70 per share, you would say it's worth $20.40 per share at 12x multiple.  Then you might say it's $21.46 after adding in the DTA (pretending there will be no more legal surprises).

[xazp]

I value the DTA's more than you, but, I'm not sure if I'm making the mistake or if you are.  We can discuss. 

 

Their 10-K lists about $44 billion of deferred tax assets.  Maybe I'm making a mistake (where is your $12B coming from), but at a 35% tax rate, that implies it shield about $125Bn in pre-tax income, which let's say is 6-8 years.  It's finite, of course, but meaningful. 

 

Now, maybe you are looking at  DTA which isn't being counted in capital calculations.  Against B3, that's about $18Bn, still shielding about $50Bn of pre-tax income.  Is that what you are referring to?  On a company whose market cap is $170Bn, $50Bn of earnings is still a pretty good chunk. 

 

But here's the thing.  The driver of capital returns is the CCAR process.  For a company with little or no DTAs, when they show a loss in CCAR, it's being offset by DTA "capital" being added back.  So WFC loses $20Bn, they get $7Bn in capital added back as a DTA.  BAC in the last stress test had a $50Bn loss.  Since they're over the DTA limit, they're not getting any DTA "capital" offsetting that loss.  So, until, BAC earns something like $100Bn in income, the DTAs are going to allow them to return more capital.  I hope that makes sense. 

 

Final point which may not be worth mentioning, but, DTAs are low quality capital, you don't earn a return out of them, you can't lend them out.  ROEs will naturally go up as they get rid of those DTAs and use that capital/cash to lend or invest. 

 

 

 

 

However, the DTA value is a "one time" thing.  In two years, it will be all used up.

 

So you can't put a multiple on that.  I forget exactly where the DTA is these days, but I remember it to be somewhere around $12b (too lazy to look it up). 

 

So about $1.06 a share. 

 

I think the way to go about it is to either assume the DTA will go towards "unexpected" legal surprises, or it should just be added on top of your intrinsic fair market value that based on net income.

 

So if net income were $1.70 per share, you would say it's worth $20.40 per share at 12x multiple.  Then you might say it's $21.46 after adding in the DTA (pretending there will be no more legal surprises).

[jay21]

 

Final point which may not be worth mentioning, but, DTAs are low quality capital, you don't earn a return out of them, you can't lend them out.  ROEs will naturally go up as they get rid of those DTAs and use that capital/cash to lend or invest. 

 

 

You can actually structure a transaction to sell your DTA benefit if you need to generate instant capital.  Albeit, you would probably need to sell it at a very high cost.

[ERICOPOLY]

Their 10-K lists about $44 billion of deferred tax assets.  Maybe I'm making a mistake (where is your $12B coming from), but at a 35% tax rate, that implies it shield about $125Bn in pre-tax income, which let's say is 6-8 years.  It's finite, of course, but meaningful. 

 

Here is a question from 10,000 ft level:

How can it shield $125B in pre-tax income if they only lost $2.2bn in 2009 (net income) and that was their only losing year?

 

Those are some pretty small losses compared to the value you are saying these things are worth.  Actually, they're small compared to how much I'm saying they're worth! 

 

My number came from one of their 10-Q reports from a year or so ago -- I wanted to know how much capital was being disallowed because of the DTA...  Somewhere in the report it showed how much capital was disallowed for the DTA portion -- it was something around $14billion or so worth of disallowed B3 capital.  Or it cost them roughly 100bps of B3 capital.    So I'm just guessing that they've used up about $2b or so since then and now it would only be ballpark around $12 billion.

 

My reasoning is the amount that is "disallowed" is the amount that can be returned to shareholders once it is unlocked. 

 

BTW:  I am rather an amateur, so don't take it as an insult if I'm way off base and you are dead-on right.  Please somebody explain it to me if you know better.

[ERICOPOLY]

I only see $10.967b of NOLs on page 253:

 

http://media.corporate-ir.net/media_files/IROL/71/71595/AR2013.pdf

 

It's $3.061b in the US and $7.417b in the UK, and 489 million elsewhere.  Combined, $10.967b.

 

It's my understanding that these NOLs are what shield their operating income from taxation.  Once they earn another $10b or so in the US (at 30% tax rate), they should be back to paying taxes in the US again, correct?  It seems that if the US NOL is worth $3.061b, then it shields roughly $10b of US operating income if tax rate is 30%.

 

[xazp]

To answer an earlier question, A) The Basel 1 disallowed is $14Bn, Basel 3 is $18Bn.  I think Basel 3 is more relevant. 

 

I don't know why their numbers are so big but I have a guess... embedded in Countrywide and Merrill Lynch purchases possibly.  That is, they bought those companies with big NOLs on their books, or that the acquisition created big NOLs on their books.  I am guessing Countrywide alone is a big chunk of this.  ML was on the brink of going under.  So that's what I think is generating NOLs (I know that WFC explicitly did this when acquiring Wamu - they either bought or created NOLs on the acquisition which basically paid for the deal).   

 

Moving along to the crux of my question.  First of all, the "disallowed tax asset, Basel 1" (pg 63) is $14Bn.  It doesn't make sense that you can disallow more tax assets than what you think the tax asset is.  And also, because I know the rules for disallowing tax assets, it's only going to trigger when you have very high levels of tax assets.  Like it's only happening to C and BAC.  I recall (but can not find) Bruce Berkowitz saying that BAC would not be paying any income taxes this decade. 

 

Now I'm pretty sure I asked IR about these tax things, and I didn't get a really clear answer - so let me say what I think is right and you pick at it.  Page 351 is where I'm looking at.

 

"Tax credit carryforwards"  -- I believe this is also a legitimate deduction, not from losses, but from credits they "earned" in the past but never spent.

"Allowance for credit losses" -- I believe this relates to credit reserves.  So, my guess is, when you say OK our credit cards are going to lose $1Bn in the future, the IRS doesn't fork over $350 million to you.  You have to actually realize that loss to get a tax rebate.  Said another way, as they release reserves which generate earnings, I believe this line item pays the "tax" on that reserve release. 

"Security, Loan, and debt valuations" -- Again, I believe these are securities they're holding on their books which is an unrealized loss.  When they realize it, it will turn into a NOL, or if they have an offsetting gain, it'll be "paid" with this asset. 

 

Basically if you go through that list, I think all these DTAs are legitimate, they're pointing at places where BAC has taken a loss on their earnings statement, but until that loss is actually realized, it's marked as a DTA. 

 

Now frankly I'm doing some guesswork here, so again, you guys tell me if I'm way off base.  Because my assumption is the majority of this $44Bn is actually a real DTA (as indicated by the name) and have real value as indicated on the balance sheet. 

 

 

 

I only see $10.967b of NOLs on page 253:

 

http://media.corporate-ir.net/media_files/IROL/71/71595/AR2013.pdf

 

It's $3.061b in the US and $7.417b in the UK, and 489 million elsewhere.  Combined, $10.967b.

 

It's my understanding that these NOLs are what shield their operating income from taxation.  Once they earn another $10b or so in the US (at 30% tax rate), they should be back to paying taxes in the US again, correct?

[xazp]

OK here is where, for example Berkowitz says that BAC has to blow through $80Bn of earnings before they pay taxes:

http://www.gurufocus.com/news/139711/bruce-berkowitz-details-his-thesis-on-bac

 

The DTAs have not come down much since then.  But, I'm not sure where he got that number, because at that point BAC has $40Bn+ of DTAs.  I'm not sure where his $80Bn comes from, but at least my feeling is, closer to $80Bn than to $12Bn that you are talking about. 

 

 

 

 

 

To answer an earlier question, A) The Basel 1 disallowed is $14Bn, Basel 3 is $18Bn.  I think Basel 3 is more relevant. 

 

I don't know why their numbers are so big but I have a guess... embedded in Countrywide and Merrill Lynch purchases possibly.  That is, they bought those companies with big NOLs on their books, or that the acquisition created big NOLs on their books.  I am guessing Countrywide alone is a big chunk of this.  ML was on the brink of going under.  So that's what I think is generating NOLs (I know that WFC explicitly did this when acquiring Wamu - they either bought or created NOLs on the acquisition which basically paid for the deal).   

 

Moving along to the crux of my question.  First of all, the "disallowed tax asset, Basel 1" (pg 63) is $14Bn.  It doesn't make sense that you can disallow more tax assets than what you think the tax asset is.  And also, because I know the rules for disallowing tax assets, it's only going to trigger when you have very high levels of tax assets.  Like it's only happening to C and BAC.  I recall (but can not find) Bruce Berkowitz saying that BAC would not be paying any income taxes this decade. 

 

Now I'm pretty sure I asked IR about these tax things, and I didn't get a really clear answer - so let me say what I think is right and you pick at it.  Page 351 is where I'm looking at.

 

"Tax credit carryforwards"  -- I believe this is also a legitimate deduction, not from losses, but from credits they "earned" in the past but never spent.

"Allowance for credit losses" -- I believe this relates to credit reserves.  So, my guess is, when you say OK our credit cards are going to lose $1Bn in the future, the IRS doesn't fork over $350 million to you.  You have to actually realize that loss to get a tax rebate.  Said another way, as they release reserves which generate earnings, I believe this line item pays the "tax" on that reserve release. 

"Security, Loan, and debt valuations" -- Again, I believe these are securities they're holding on their books which is an unrealized loss.  When they realize it, it will turn into a NOL, or if they have an offsetting gain, it'll be "paid" with this asset. 

 

Basically if you go through that list, I think all these DTAs are legitimate, they're pointing at places where BAC has taken a loss on their earnings statement, but until that loss is actually realized, it's marked as a DTA. 

 

Now frankly I'm doing some guesswork here, so again, you guys tell me if I'm way off base.  Because my assumption is the majority of this $44Bn is actually a real DTA (as indicated by the name) and have real value as indicated on the balance sheet. 

 

 

 

I only see $10.967b of NOLs on page 253:

 

http://media.corporate-ir.net/media_files/IROL/71/71595/AR2013.pdf

 

It's $3.061b in the US and $7.417b in the UK, and 489 million elsewhere.  Combined, $10.967b.

 

It's my understanding that these NOLs are what shield their operating income from taxation.  Once they earn another $10b or so in the US (at 30% tax rate), they should be back to paying taxes in the US again, correct?

[ERICOPOLY]

But, I'm not sure where he got that number, because at that point BAC has $40Bn+ of DTAs.  I'm not sure where his $80Bn comes from, but at least my feeling is, closer to $80Bn than to $12Bn that you are talking about. 

 

Today, the 2013 AR says they have $32.356b net deferred tax assets (net of deferred tax liabilities).  I'm on page 251:  http://media.corporate-ir.net/media_files/IROL/71/71595/AR2013.pdf

 

Also note that page 251 claims that the tax credits are in part comprised of $5.384b in foreign tax credit.  I believe that foreign tax credit just recognizes things like taxes already paid in the UK and elsewhere -- it will just offset US tax income if that already-taxed money is brought onshore into the US.  So it's a pretty worthless exercise to put a value on that -- because if the money is ever brought onshore it will create additional tax payments since the US tax rate is higher.  My bet is that the money never comes back onshore unless the US lowers it's tax rates.

 

So, I think at the very least you need to strip out the foreign tax credit of $5.384b.

 

That would leave you with $26.972b in net deferred tax assets after ignoring the $5.384b of foreign tax credit.  That's almost getting it down to (but not quite) 30% of $80b  (getting close to Bruce's number that you cited although I take it the data point is now 3 years old).

 

[xazp]

Thanks - this seems reasonable. 

 

But, I'm not sure where he got that number, because at that point BAC has $40Bn+ of DTAs.  I'm not sure where his $80Bn comes from, but at least my feeling is, closer to $80Bn than to $12Bn that you are talking about. 

 

Today, the 2013 AR says they have $32.356b net deferred tax assets (net of deferred tax liabilities).  I'm on page 251:  http://media.corporate-ir.net/media_files/IROL/71/71595/AR2013.pdf

 

Also note that page 251 claims that the tax credits are in part comprised of $5.384b in foreign tax credit.  I believe that foreign tax credit just recognizes things like taxes already paid in the UK and elsewhere -- it will just offset US tax income if that already-taxed money is brought onshore into the US.  So it's a pretty worthless exercise to put a value on that -- because if the money is ever brought onshore it will create additional tax payments since the US tax rate is higher.  My bet is that the money never comes back onshore unless the US lowers it's tax rates.

 

So, I think at the very least you need to strip out the foreign tax credit of $5.384b.

 

That would leave you with $26.972b in net deferred tax assets after ignoring the $5.384b of foreign tax credit.  That's almost getting it down to (but not quite) 30% of $80b  (getting close to Bruce's number that you cited although I take it the data point is now 3 years old).

[Grenville]

OK here is where, for example Berkowitz says that BAC has to blow through $80Bn of earnings before they pay taxes:

http://www.gurufocus.com/news/139711/bruce-berkowitz-details-his-thesis-on-bac

 

Does anyone have a copy of Bruce Berkowitz's speech they are referring to? The Fairholme link no longer works.

 

This is supposed to be the link:

http://www.fairholmefunds.com/pdf/amaii2011.pdf

 

AAII 2011 Speech where he talks about BAC

[gokou3]

OK here is where, for example Berkowitz says that BAC has to blow through $80Bn of earnings before they pay taxes:

http://www.gurufocus.com/news/139711/bruce-berkowitz-details-his-thesis-on-bac

 

Does anyone have a copy of Bruce Berkowitz's speech they are referring to? The Fairholme link no longer works.

 

This is supposed to be the link:

http://www.fairholmefunds.com/pdf/amaii2011.pdf

 

AAII 2011 Speech where he talks about BAC

amaii2011.pdf

[ERICOPOLY]

Bruce's comments from 2011 are fun to read three years after the fact:

 

Given the fact that they’re not going to pay taxes, they’ll probably buy back all the stock in five years.

 

 

Great, by the time the 2016 LEAPS expire, there won't be any shares left.  So how do we exercise the options for shares in that case?  Is that why he likes the warrants instead?

[Grenville]

OK here is where, for example Berkowitz says that BAC has to blow through $80Bn of earnings before they pay taxes:

http://www.gurufocus.com/news/139711/bruce-berkowitz-details-his-thesis-on-bac

 

Does anyone have a copy of Bruce Berkowitz's speech they are referring to? The Fairholme link no longer works.

 

This is supposed to be the link:

http://www.fairholmefunds.com/pdf/amaii2011.pdf

 

AAII 2011 Speech where he talks about BAC

 

Awesome! Thank you!

[ERICOPOLY]

This was from the conference call.  Can anyone explain this better in plain English?  It sounds like they have an operational risk penalty to their risk weighted assets, and in some cases it's for business activities that they no longer engage in -- they are included in a time series and you sort of have to wait for the data from those past activities to run off (out of the time series).  Pretty lame way to get penalized.

 

 

Marty Mosby - Guggenheim: Three questions, one is operational risk, you talked about that now represents about 25% of your risk-weighted asset, and doing that in the past, that is very sticky. How do you think you can manage around that amount of capital just being trapped and in fact of all of these past settlements that you've had to kind of live through?

 

Bruce R. Thompson - CFO: Your point Marty is a good one, which is that the operational risk models are based on a fairly long time period as we look at it. One of the things that we do continue to try to discuss and stress is that a lot of those operational risk losses are with respect to activities that we no longer engage and have no intention to engage. So, there are some of that dialogs that continue, but your point which is a fair one, is that the time series are fairly long and it will remain out there until the data runs out. I wish there was more that I can say, but your point is a fair one.

 

 

[peter1234]

Sounds like if your time series is 10 years long and you stop doing something today then it takes 10 years for it to (completely) disappear from your time series.

 

What about after 5 years? Is it still counted 100% or only 50% since it is in only half of your time series? Maybe these are some of the discussions they are having.

[ERICOPOLY]

But here's the thing.  The driver of capital returns is the CCAR process.  For a company with little or no DTAs, when they show a loss in CCAR, it's being offset by DTA "capital" being added back.  So WFC loses $20Bn, they get $7Bn in capital added back as a DTA.  BAC in the last stress test had a $50Bn loss.  Since they're over the DTA limit, they're not getting any DTA "capital" offsetting that loss.  So, until, BAC earns something like $100Bn in income, the DTAs are going to allow them to return more capital.  I hope that makes sense. 

 

This is pretty cool the way you explained it.  I guess I've heard this sort of explanation in chunks before but hadn't made the full connection with the CCAR process and how it affects capital return.  This has (obviously) led them to the situation where they have to hold more capital upfront if they can't get credit for an expanding DTA under simulated stress. 

 

So in summary if they really can offset all of their income with the DTA then we've got perhaps about 3 years of tax-free earnings ahead.  To sweeten it, towards the end of that period they start getting that "disallowed DTA" penalty lifted during CCAR.  So the capital returned over 3 years in theory could be at least as high as all of their pre-tax income, plus another $18b on top of that as the DTA penalty is lifted.

 

[ERICOPOLY]

However...

 

Let's suppose hypothetically that the DTA penalty were to be immediately lifted today (rules changed overnight).

 

Could they really return $18b or would that throw a wrench into the new leverage ratio rules?  Do they have an opportunity to return $18b and still keep the leverage ratio from slipping below the 6% and 5% thresholds?  Is that just an easy matter of shuffling some assets around to keep the total leverage in check?  For example, selling down some low-yield assets?

[ERICOPOLY]

$18b released from getting the "disallowed DTA" lifted

+$27b of tax asset benefits

=$45b total in "extras"

 

That's a total of $4 per share (based on 11.3 billion shares).

 

So BAC could in theory (based on $1.80 EPS) be valued at 10x-12x $1.80 (plus $4 on top of that).  Or $22-$25.60.

 

The $4 in "extras" need to be discounted somewhat to account for the time value of money (you don't get all of that tax benefit immediately, you have to wait for it to come in with earnings).  So perhaps knock as much as $1 off that perhaps and only count it as $3 in extra goodies. 

[xazp]

So I compiled some current B3 ratios vs targets.  Kind of interesting.  Note that there is a new "Advanced B3 method" which caused some of the reported numbers to jump. 

 

BAC - 9.9% vs 8.5% target

JPM - 9.5% vs. 9.5% target

C - 10.4% vs 9.5% target.

 

I think I earlier said $24 through some other method, so we're kind of converging on price targets. 

 

Onto leverage ratio.  I don't think it's an obstacle.  BAC says only they're above the threshold today.  If you generate $18Bn in capital, then release it to shareholders, your leverage ratio should go up.  You're basically holding capital constant, while decreasing assets. 

 

 

 

 

 

 

$18b released from getting the "disallowed DTA" lifted

+$27b of tax asset benefits

=$45b total in "extras"

 

That's a total of $4 per share (based on 11.3 billion shares).

 

So BAC could in theory (based on $1.80 EPS) be valued at 10x-12x $1.80 (plus $4 on top of that).  Or $22-$25.60.

 

The $4 in "extras" need to be discounted somewhat to account for the time value of money (you don't get all of that tax benefit immediately, you have to wait for it to come in with earnings).  So perhaps knock as much as $1 off that perhaps and only count it as $3 in extra goodies.

[ERICOPOLY]

So I compiled some current B3 ratios vs targets.  Kind of interesting.  Note that there is a new "Advanced B3 method" which caused some of the reported numbers to jump. 

 

BAC - 9.9% vs 8.5% target

JPM - 9.5% vs. 9.5% target

C - 10.4% vs 9.5% target.

 

I think I earlier said $24 through some other method, so we're kind of converging on price targets. 

 

Onto leverage ratio.  I don't think it's an obstacle.  BAC says only they're above the threshold today.  If you generate $18Bn in capital, then release it to shareholders, your leverage ratio should go up.  You're basically holding capital constant, while decreasing assets. 

 

 

 

 

 

 

$18b released from getting the "disallowed DTA" lifted

+$27b of tax asset benefits

=$45b total in "extras"

 

That's a total of $4 per share (based on 11.3 billion shares).

 

So BAC could in theory (based on $1.80 EPS) be valued at 10x-12x $1.80 (plus $4 on top of that).  Or $22-$25.60.

 

The $4 in "extras" need to be discounted somewhat to account for the time value of money (you don't get all of that tax benefit immediately, you have to wait for it to come in with earnings).  So perhaps knock as much as $1 off that perhaps and only count it as $3 in extra goodies.

 

I think it was on the Q4 conference call that they stated the number produced under the "standard" method would converge with that of the "advanced" method over time (so the "standard" figure will improve at a rate in excess of what you get merely by retaining earnings).  BAC is relatively unique among their peers with regards to the size of the gap...

 

Said differently, over time the normalized figure produced under the "standard" method will move closer to the number produced under the "advanced" method.  Meanwhile, they are being held to the 9.3% level produced by the "standard" method.  Some of their peers are allowed to use the "advanced" method presently.  It's a 60 basis point penalty versus the 9.9%, so that's roughly $8.5 billion of capital tied up for the moment until they either get permission to use the "advanced" method, or until the two naturally converge over time.

 

[ERICOPOLY]

Here is the exchange from the Q4 conference call:

 

James Mitchel - Buckingham Research: Just a couple of quick follow-up on your Basel 3 Tier 1 common, the standardized versus advanced, you have I guess almost a 90 basis point difference. Some of your large bank peers are closer to a 10 basis point difference. Can you help us think about why you have such a large gap between the standardized and advanced?

 

Bruce R. Thompson - CFO: The first think I would say is that generally we would expect that gap to narrow over time, but as you look at the actual content of it I think that the biggest reason that you have is just given the percentage in some of our commercial loan balances that we have relative to our peers that under Basel 3 advanced get impacted significantly based on the actual credit quality where when you got to standardized that's just 100%. So I think you've got the first thing is you do have some of that activity or difference between the two metrics. And then I would say that the second thing is that we still do have some assets that under Basel 3 standardized do get some fairly heavy risk weightings that we will continue to work off over the next couple of years. So there's no question relative to what we've seen out we're a little bit wider. I think those are a couple of the differences and as I say I'd expect over the course of the next 12 to 18 months you'll see that gap tighten.