BAC-WT - Bank of America Warrants

[redskin]

Another question:

 

Why did they reserve such a small amount in Q1 when they knew they would be offering north of $12b in a settlement?  They made the leap from thinking it would only be $2.5b to then offering $12b just two months later?  It sounds like lying to me.

 

BAC must have felt they weren't able to reasonably estimate the loss.

 

http://www.perkinscoie.com/news/pubs_detail.aspx?op=updates&publication=1323

[fareastwarriors]

Revealed: Brian Moynihan's Grand Plan For Bank Of America

 

 

 

http://www.forbes.com/sites/halahtouryalai/2014/05/28/revealed-brian-moynihans-grand-plan-for-bank-of-america/

 

 

 

some good notes on Moynihan.

[xazp]

Read this article:

http://dealbook.nytimes.com/2014/04/28/doing-the-math-of-a-bank-of-america-settlement/

which has a lot of information on why a $13Bn settlement is not bad for BAC.

 

Also realize that BAC may have reserved for this settlement in the past; indeed, since these numbers were being floated around the same time as quarterly earnings I would guess they are mostly reserved already (but ... we will see, could be wrong!)

 

Another question:

 

Why did they reserve such a small amount in Q1 when they knew they would be offering north of $12b in a settlement?  They made the leap from thinking it would only be $2.5b to then offering $12b just two months later?  It sounds like lying to me.

[ni-co]

Read this article:

http://dealbook.nytimes.com/2014/04/28/doing-the-math-of-a-bank-of-america-settlement/

which has a lot of information on why a $13Bn settlement is not bad for BAC.

 

Also realize that BAC may have reserved for this settlement in the past; indeed, since these numbers were being floated around the same time as quarterly earnings I would guess they are mostly reserved already (but ... we will see, could be wrong!)

 

Another question:

 

Why did they reserve such a small amount in Q1 when they knew they would be offering north of $12b in a settlement?  They made the leap from thinking it would only be $2.5b to then offering $12b just two months later?  It sounds like lying to me.

 

Do I understand this right that, if true, the scary headline figure could actually come down to $5bn of which $2.5bn have already been reserved for? It would be kind of amazing if this was "really the one that's left out there."

[xazp]

You don't know how much they've reserved for this issue.  The minimum is $2.5Bn, because that was fairly explicit last quarter.  But you don't know if they've reserved for more in the past.  There just isn't enough information out there.  There are cases where at settlement time BAC says "fully reserved" and others where they take many billions of additional charges.  You don't know, but, I think $2.5Bn of reserves is the worst case. 

 

It depends when the DOJ discussions heated up.  Because their last earnings report was a "kitchen sink" quarter, if they knew about the DOJ's demands at that point, I think they'd be close to fully reserved already.  This too we won't know  until they settle and announce if they were fully reserved or not at that point.

 

Read this article:

http://dealbook.nytimes.com/2014/04/28/doing-the-math-of-a-bank-of-america-settlement/

which has a lot of information on why a $13Bn settlement is not bad for BAC.

 

Also realize that BAC may have reserved for this settlement in the past; indeed, since these numbers were being floated around the same time as quarterly earnings I would guess they are mostly reserved already (but ... we will see, could be wrong!)

 

Another question:

 

Why did they reserve such a small amount in Q1 when they knew they would be offering north of $12b in a settlement?  They made the leap from thinking it would only be $2.5b to then offering $12b just two months later?  It sounds like lying to me.

 

Do I understand this right that, if true, the scary headline figure could actually come down to $5bn of which $2.5bn have already been reserved for? It would be kind of amazing if this was "really the one that's left out there."

[OracleofCarolina]

http://mobile.nytimes.com/blogs/dealbook/2014/06/10/bank-of-america-mortgage-settlement-is-said-to-be-deadlocked/?partner=yahoofinance

 

Not looking good..Feds looking for $17 billion

[alertmeipp]

US better not runs into another financial crisis, no bank will do what JPM, BAC and WFC do again.

[ERICOPOLY]

$17 billion will ensure that the government gets Oct, Nov, and Dec pre-tax earnings too.

[gary17]

it'll be a wonderful Xmas for USA !

[xazp]

No it won't :).  If the government decides to litigate, they'll get paid in 5-10 years after endless appeals... the current administration and attorney general will be long gone. 

 

The government actually has more incentive to settle than BAC in the sense that if there is a victory, it will be claimed by the current administrations successors. 

 

it'll be a wonderful Xmas for USA !

[fareastwarriors]

http://mobile.nytimes.com/blogs/dealbook/2014/06/10/bank-of-america-mortgage-settlement-is-said-to-be-deadlocked/?partner=yahoofinance

 

Not looking good..Feds looking for $17 billion

 

sigh

[alertmeipp]

if 17 is what they want, just get it done

[blainehodder]

The final deal is likely already negotiated. I think these media "leaks" are a political tool for the DOJ to appear as though they extracted the maximum through hard negotiating

[biaggio]

if 17 is what they want, just get it done

 

If you just cave in, will they not just come back to you for something else? When will it end?

 

 

[peter1234]

When will it end?

 

That is the $64 million question.

:'(

[rkbabang]

When will it end?

 

That is the $64 million question.

 

Don't you mean billion?

 

Quotes from Bank of America Mortgage Settlement Is Said to Be Deadlocked

 

Bank of America wants to earmark a large chunk of the money for various forms of assistance to consumers rather than paying it in the form of a cash penalty, the people said. The Justice Department has also pushed for consumer relief, but also wants the bank to pay more in cash.

 

Which shows that this has nothing to do with justice and everything to do with bank robbery.

 

 

The Bank of America investigation represents an opportunity for the Justice Department to flex its muscle over the financial crisis, which has become a sore subject for prosecutors. After years of digging, prosecutors filed only a handful of criminal cases tied to the crisis and not a single charge against a senior Wall Street executive, a track record that fueled a public and congressional outcry. Without many criminal cases to show for the effort, prosecutors shifted focus, pursuing civil cases against Bank of America and other big banks. The cases, which have a lower burden of proof than criminal actions, offer the Justice Department another chance to impose eye-popping penalties on Wall Street.

 

Translation: the "justice" department has decided to let the individual criminals get off scot-free, while deciding to punish/rob shareholders instead.

 

 

The strategy largely traces to Mr. West, a former defense lawyer and a personal friend of President Obama's. Mr. West is fond of reminding bank lawyers that to be meaningful, settlements must have a huge penalty.

 

We can't raise taxes, but banks are unpopular right now, so we can rob the banks.

 

 

I could go on, but it is sickening. Just government (i.e. organized crime) doing what government does.

 

[Kraven]

When will it end?

 

That is the $64 million question.

:'(

 

It won't.  I am not sure why this concept is so difficult to understand.  It will end when either the environment changes or there is no money left.  At some point in the future it will become more manageable and will just be an ongoing cost of doing business.

[xazp]

You know, a couple of years ago, news like this would have dropped BAC by 15%.  The fact that BAC is down a fraction of a percent more than the market suggests ...

 

A)  The tide has shifted to where people think the government, rather than the banks, are being unreasonable.  For example, BAC did settle a large mortgage suit with a bunch of private investors who had bought their bonds.  That settlement amounted to $8.5Bn for Countrywide.  This case appears to be the government trying to collect money in excess of what private investors would settle for ... without the government being an injured party here (the FHFA settlement was the direct damage done to the government). 

or,

B)  investors don't really care about settlements any more as long as this is the "last big one"

or,

C)  investors believe BAC is correct in fighting.  BAC has been, in my mind, keen to settle - maybe too keen.  Perhaps investors now want them to fight since the costs are mostly bounded already. 

 

I don't know - I kinda expected BAC to go down more than it has. 

 

 

 

When will it end?

 

That is the $64 million question.

:'(

[ERICOPOLY]

You know, a couple of years ago, news like this would have dropped BAC by 15%.  The fact that BAC is down a fraction of a percent more than the market suggests ...

 

A)  The tide has shifted to where people think the government, rather than the banks, are being unreasonable.  For example, BAC did settle a large mortgage suit with a bunch of private investors who had bought their bonds.  That settlement amounted to $8.5Bn for Countrywide.  This case appears to be the government trying to collect money in excess of what private investors would settle for ... without the government being an injured party here (the FHFA settlement was the direct damage done to the government). 

or,

B)  investors don't really care about settlements any more as long as this is the "last big one"

or,

C)  investors believe BAC is correct in fighting.  BAC has been, in my mind, keen to settle - maybe too keen.  Perhaps investors now want them to fight since the costs are mostly bounded already. 

 

I don't know - I kinda expected BAC to go down more than it has. 

 

 

D)  A couple of years ago, a settlement this large would have impaired a lower capital base during a time when earnings were struggling under a higher expense load, and so a 15% drop would be more likely -- especially since it would mean something dilutive like selling more common stock (which last happened in December 2011 despite the bank claiming they didn't need more money).

[fareastwarriors]

You know, a couple of years ago, news like this would have dropped BAC by 15%.  The fact that BAC is down a fraction of a percent more than the market suggests ...

 

A)  The tide has shifted to where people think the government, rather than the banks, are being unreasonable.  For example, BAC did settle a large mortgage suit with a bunch of private investors who had bought their bonds.  That settlement amounted to $8.5Bn for Countrywide.  This case appears to be the government trying to collect money in excess of what private investors would settle for ... without the government being an injured party here (the FHFA settlement was the direct damage done to the government). 

or,

B)  investors don't really care about settlements any more as long as this is the "last big one"

or,

C)  investors believe BAC is correct in fighting.  BAC has been, in my mind, keen to settle - maybe too keen.  Perhaps investors now want them to fight since the costs are mostly bounded already. 

 

I don't know - I kinda expected BAC to go down more than it has. 

 

 

D)  A couple of years ago, a settlement this large would have impaired a lower capital base during a time when earnings were struggling under a higher expense load, and so a 15% drop would be more likely -- especially since it would mean something dilutive like selling more common stock (which last happened in December 2011 despite the bank claiming they didn't need more money).

 

 

Eric, if you don't mind me asking, what percentage of your portfolio is in BAC now?

[ERICOPOLY]

You know, a couple of years ago, news like this would have dropped BAC by 15%.  The fact that BAC is down a fraction of a percent more than the market suggests ...

 

A)  The tide has shifted to where people think the government, rather than the banks, are being unreasonable.  For example, BAC did settle a large mortgage suit with a bunch of private investors who had bought their bonds.  That settlement amounted to $8.5Bn for Countrywide.  This case appears to be the government trying to collect money in excess of what private investors would settle for ... without the government being an injured party here (the FHFA settlement was the direct damage done to the government). 

or,

B)  investors don't really care about settlements any more as long as this is the "last big one"

or,

C)  investors believe BAC is correct in fighting.  BAC has been, in my mind, keen to settle - maybe too keen.  Perhaps investors now want them to fight since the costs are mostly bounded already. 

 

I don't know - I kinda expected BAC to go down more than it has. 

 

 

D)  A couple of years ago, a settlement this large would have impaired a lower capital base during a time when earnings were struggling under a higher expense load, and so a 15% drop would be more likely -- especially since it would mean something dilutive like selling more common stock (which last happened in December 2011 despite the bank claiming they didn't need more money).

 

 

Eric, if you don't mind me asking, what percentage of your portfolio is in BAC now?

 

 

The taxable account has each and every one of my BAC shares guarded by puts with $15 strike.  However the upside is greater than 100% exposure.

 

The RothIRA -- I have no idea if there are any BAC shares in there.  You'd have to ask Mohnish and Sanjeev/Alnesh.

 

[Sunrider]

Hi Eric

 

What expiry date do you use for the puts? Are you willing to pay premium out to Jan15/16?

 

... just curious...

 

Thanks!

[Aberhound]

Instead of paying a penalty to the government who shared at least part of the guilt for the losses suffered mostly by the poor, the Bank could agree to write off instead of selling its delinquent debts. Last cycle they were selling receivables for a few percent and then mostly offshore companies would buy then try to collect 100 cents turning the lives of many to misery. More would likely be collected with gentler collection. In Canada the banks push you the the credit counselling society who they allow to settle debts by reducing the interest to zero and creating a 5 year repayment schedule with an agreement to cut up all credit cards. It is a very effective program and is one of the reasons Canadian banks are so profitable. Cutting up the cards is the best way to cut spending. Many fortunes were made in the US buying delinquent debts but at the cost of increasing the ranks of the poor. This cycle when the total debts are much larger there would be a benefit to both sides if debts were discharged. For instance, the bank could agree to discharge debts for college students and former college student credit card debt increasing the chance for the government to collect more on the $1T student debts. At 2 cents to 10 cents on the dollar value it would not cost the bank much to create a multiple billion dollar headline at a much lesser real cost. A strategic settlement could help the bank long term particularly if other banks follow the same model. Debt discharge is what a highly indebted economy needs to grow faster.

[ERICOPOLY]

Hi Eric

 

What expiry date do you use for the puts? Are you willing to pay premium out to Jan15/16?

 

... just curious...

 

Thanks!

 

All 2016 now.

 

[rkbabang]

Instead of paying a penalty to the government who shared at least part of the guilt for the losses suffered mostly by the poor, the Bank could agree to write off instead of selling its delinquent debts. Last cycle they were selling receivables for a few percent and then mostly offshore companies would buy then try to collect 100 cents turning the lives of many to misery. More would likely be collected with gentler collection. In Canada the banks push you the the credit counselling society who they allow to settle debts by reducing the interest to zero and creating a 5 year repayment schedule with an agreement to cut up all credit cards. It is a very effective program and is one of the reasons Canadian banks are so profitable. Cutting up the cards is the best way to cut spending. Many fortunes were made in the US buying delinquent debts but at the cost of increasing the ranks of the poor. This cycle when the total debts are much larger there would be a benefit to both sides if debts were discharged. For instance, the bank could agree to discharge debts for college students and former college student credit card debt increasing the chance for the government to collect more on the $1T student debts. At 2 cents to 10 cents on the dollar value it would not cost the bank much to create a multiple billion dollar headline at a much lesser real cost. A strategic settlement could help the bank long term particularly if other banks follow the same model. Debt discharge is what a highly indebted economy needs to grow faster.

 

Yes, but you see the government wants cash.  If you really want justice to prevail then the same organization which runs the court system should not be allowed to use it to sue anyone.  Imagine if you had a problem with a corporation and they proposed taking it to private arbitration with an arbitration firm that was a subsidiary of the very corporation you had the problem with?  What if the mob told you that you owed them a certain amount of money and you disputed that you owed them that much, would you be happy if they told you that the case could be brought in front of someone on the mob's payroll to make the decision?  It is the same here.  The government is asking for money and backing that up with a threat to sue for even more in a government court presided over by a judge on the government payroll.

 

Governments should only be able to sue using private non-involved 3rd party arbitration firms outside of their jurisdiction/influence and agreed to by both sides.  So a state government would need to agree to use a firm in another state, while the federal government would need to agree to using a private firm in another country.