BAC-WT - Bank of America Warrants

[alertmeipp]

i see it is punish the company, but will u punish a knife in a robbery case?  :)

 

anyways, maybe we will learn more when next crisis come.

[Mephistopheles]

http://www.sec.gov/Archives/edgar/data/70858/000007085814000066/0000070858-14-000066-index.htm

 

They are issuing $1.5 billion in preferred stock. Anyone know why they would do this now? Kinda surprising and disappointing.

[racemize]

http://www.sec.gov/Archives/edgar/data/70858/000007085814000066/0000070858-14-000066-index.htm

 

They are issuing $1.5 billion in preferred stock. Anyone know why they would do this now? Kinda surprising and disappointing.

 

I assume for capital reasons, I think there are incentives to do so based on one or more of the regulatory levels.

[Grenville]

http://www.sec.gov/Archives/edgar/data/70858/000007085814000066/0000070858-14-000066-index.htm

 

They are issuing $1.5 billion in preferred stock. Anyone know why they would do this now? Kinda surprising and disappointing.

 

I don't see a huge issue with this. It's not convertible into equity, and it may be used to replace an existing tranche of higher cost preferreds.

[xazp]

I don't see a huge issue with this. It's not convertible into equity, and it may be used to replace an existing tranche of higher cost preferreds.  >>

 

It also may be used to replace stock or warrants :P. 

 

http://www.sec.gov/Archives/edgar/data/70858/000007085814000066/0000070858-14-000066-index.htm

 

They are issuing $1.5 billion in preferred stock. Anyone know why they would do this now? Kinda surprising and disappointing.

 

I don't see a huge issue with this. It's not convertible into equity, and it may be used to replace an existing tranche of higher cost preferreds.

[morningstar]

They are going to issue billions more in preferreds (on the order of $10bn) over the next several years to fill the basket of required Tier 1 capital that may be filled with alternative Tier 1 instruments rather than common equity (about $1.4tn fully loaded Basel 3 RWAs * 1.5% = $20bn or so of preferreds needed).

 

More issuance beyond that may be needed to help the bank maintain adequate cushion against the minimum Supplementary Leverage Ratio, depending how well it can manage its leverage exposure.

 

They are actually well behind pace on issuance compared to JPM so stockholders should be pleased to see them tapping the market, which is very open at the moment.

[MYDemaray]

Great work xazp: http://m.seekingalpha.com/article/2274393

[jay21]

http://www.sec.gov/Archives/edgar/data/70858/000007085814000066/0000070858-14-000066-index.htm

 

They are issuing $1.5 billion in preferred stock. Anyone know why they would do this now? Kinda surprising and disappointing.

 

Rates are low, spreads are tight.  It makes sense.  I also don't think that $1.5b is substantial here.

[xazp]

Whoah, you are up early!

 

Here's a quick summary.  In two recent supreme court cases, CTS vs. Waldburger, and very recently, Nomura vs. NCUA, the Supreme Court seems to be hinting that the government litigation against the banks is beyond the statute of repose.  The Supreme Court vacated a decision from the Tenth circuit court and told them to "reconsider" their decision.  If "reconsider" means the verdict flips, then virtually all litigation against the banks that started after mid-2011 will be tossed.  I have not seen anyone link the case in Nomura (which you know is another bank) to BAC, but they're dealing with the same law (FIRREA) which makes it very relevant. 

 

The Nomura case is virtually unknown.  Reuters wrote an article about it (http://www.reuters.com/article/2014/06/16/us-usa-court-creditunion-idUSKBN0ER22220140616) but they only see the relevance to the credit union litigation itself.  This is not so: the case is really about FIRREA and other "extender" laws which give the government extra time to litigate.  I believe there's a good chance the supreme court is telling the 10th circuit that the "extension" is already over. 

 

Now I"m sad that BAC settled with the FHFA this year, that too could have been thrown out. 

 

 

Great work xazp: http://m.seekingalpha.com/article/2274393

[MYDemaray]

Whoah, you are up early!

 

kids :-(

[Rabbitisrich]

Whoah, you are up early!

 

Here's a quick summary.  In two recent supreme court cases, CTS vs. Waldburger, and very recently, Nomura vs. NCUA, the Supreme Court seems to be hinting that the government litigation against the banks is beyond the statute of repose.  The Supreme Court vacated a decision from the Tenth circuit court and told them to "reconsider" their decision.  If "reconsider" means the verdict flips, then virtually all litigation against the banks that started after mid-2011 will be tossed.  I have not seen anyone link the case in Nomura (which you know is another bank) to BAC, but they're dealing with the same law (FIRREA) which makes it very relevant. 

 

The Nomura case is virtually unknown.  Reuters wrote an article about it (http://www.reuters.com/article/2014/06/16/us-usa-court-creditunion-idUSKBN0ER22220140616) but they only see the relevance to the credit union litigation itself.  This is not so: the case is really about FIRREA and other "extender" laws which give the government extra time to litigate.  I believe there's a good chance the supreme court is telling the 10th circuit that the "extension" is already over. 

 

Now I"m sad that BAC settled with the FHFA this year, that too could have been thrown out. 

 

 

Great work xazp: http://m.seekingalpha.com/article/2274393

 

Nice catch. Justice Kennedy's reasoning is very clear and persuasive. An advisory group for the development of FIRREA had noted the difference between limitation and repose, and had specifically advised to cover both periods. Yet the relevant section not only limits the language to "limitation", it refers to "period" singular, rather than to distinct time horizons. The burden is on the claimants to find that smoking gun that proves that Congress meant to include both statutes.

 

[xazp]

Hang on.  Justice Kennedy's opinion is on CTS vs. Waldburger - that's an environmental law, not FIRREA.  The supreme court has not ruled directly on FIRREA. 

 

But, the supreme court's vacating a decision about FIRREA by the tenth circuit and telling them to look at CTS indicates to me anyway, the supreme court feels the same way about FIRREA.  If so, IMO it's a real game changer. 

 

Whoah, you are up early!

 

Here's a quick summary.  In two recent supreme court cases, CTS vs. Waldburger, and very recently, Nomura vs. NCUA, the Supreme Court seems to be hinting that the government litigation against the banks is beyond the statute of repose.  The Supreme Court vacated a decision from the Tenth circuit court and told them to "reconsider" their decision.  If "reconsider" means the verdict flips, then virtually all litigation against the banks that started after mid-2011 will be tossed.  I have not seen anyone link the case in Nomura (which you know is another bank) to BAC, but they're dealing with the same law (FIRREA) which makes it very relevant. 

 

The Nomura case is virtually unknown.  Reuters wrote an article about it (http://www.reuters.com/article/2014/06/16/us-usa-court-creditunion-idUSKBN0ER22220140616) but they only see the relevance to the credit union litigation itself.  This is not so: the case is really about FIRREA and other "extender" laws which give the government extra time to litigate.  I believe there's a good chance the supreme court is telling the 10th circuit that the "extension" is already over. 

 

Now I"m sad that BAC settled with the FHFA this year, that too could have been thrown out. 

 

 

Great work xazp: http://m.seekingalpha.com/article/2274393

 

Nice catch. Justice Kennedy's reasoning is very clear and persuasive. An advisory group for the development of FIRREA had noted the difference between limitation and repose, and had specifically advised to cover both periods. Yet the relevant section not only limits the language to "limitation", it refers to "period" singular, rather than to distinct time horizons. The burden is on the claimants to find that smoking gun that proves that Congress meant to include both statutes.

[MYDemaray]

Are there any tolling agreements involved here?

[xazp]

I don't have a 100% answer for you, though I do have pieces of data that suggest we are safe. 

 

So the real issue at hand is until around 2011, the government didn't even view the banks as having done wrong.  Neither did the people they sold bonds to.  This is because generally, if you buy a house, a stock, a bond or whatever - the losses and gains accrue to you.  You don't really get to buy some crappy stock and then sue the guy who sold it (for the most part).

 

I believe the first case of FIRREA as applied to the financial crisis was filed in 2012.  That's already too late.  Nomura vs NCUA is the first FIRREA case to reach the supreme court, and I believe they will say that is too late.  The current wave of DOJ prosecutions really started (I think) around 2012 or 2013 - at least, that's when they settled with JPM.  That also would be too late. 

 

Where I may be wrong is if BAC agreed to toll starting say in 2010 or early 2011, then they both agreed to do nothing until 2013.  That is possible and unknowable to me.  Even then, the supreme court says the statute of repose is not tollable - but, I'm not sure if that applies to situations where BAC and DOJ agree to toll it.

 

 

 

Are there any tolling agreements involved here?

[xazp]

Just for reference:

Here is an earlier, I guess it's a "test case" where the DOJ sued BAC over RMBS.  (this one is about to get dismissed, too, on different grounds).  http://www.buckleysandler.com/uploads/1082/doc/Bank_of_America_COMPLAINT_%28W.D.N.C.,_6_Aug_13%29.pdf

 

In their complaint, they are specifically suing with FIRREA, and, a search of the document has no instances of the word "toll."

 

I'm dubious they would not toll this RMBS complaint but would toll other ones ... I just don't see it happening.  And this one was filed in 2013. 

 

 

 

 

I don't have a 100% answer for you, though I do have pieces of data that suggest we are safe. 

 

So the real issue at hand is until around 2011, the government didn't even view the banks as having done wrong.  Neither did the people they sold bonds to.  This is because generally, if you buy a house, a stock, a bond or whatever - the losses and gains accrue to you.  You don't really get to buy some crappy stock and then sue the guy who sold it (for the most part).

 

I believe the first case of FIRREA as applied to the financial crisis was filed in 2012.  That's already too late.  Nomura vs NCUA is the first FIRREA case to reach the supreme court, and I believe they will say that is too late.  The current wave of DOJ prosecutions really started (I think) around 2012 or 2013 - at least, that's when they settled with JPM.  That also would be too late. 

 

Where I may be wrong is if BAC agreed to toll starting say in 2010 or early 2011, then they both agreed to do nothing until 2013.  That is possible and unknowable to me.  Even then, the supreme court says the statute of repose is not tollable - but, I'm not sure if that applies to situations where BAC and DOJ agree to toll it.

 

 

 

Are there any tolling agreements involved here?

[Mephistopheles]

Just for reference:

Here is an earlier, I guess it's a "test case" where the DOJ sued BAC over RMBS.  (this one is about to get dismissed, too, on different grounds).  http://www.buckleysandler.com/uploads/1082/doc/Bank_of_America_COMPLAINT_%28W.D.N.C.,_6_Aug_13%29.pdf

 

 

Unfortunately it won't be getting dismissed. :(

 

http://www.bloomberg.com/news/2014-06-20/bofa-fails-to-win-dismissal-of-u-s-mortgage-fraud-suit.html

[Mephistopheles]

They are going to issue billions more in preferreds (on the order of $10bn) over the next several years to fill the basket of required Tier 1 capital that may be filled with alternative Tier 1 instruments rather than common equity (about $1.4tn fully loaded Basel 3 RWAs * 1.5% = $20bn or so of preferreds needed).

 

More issuance beyond that may be needed to help the bank maintain adequate cushion against the minimum Supplementary Leverage Ratio, depending how well it can manage its leverage exposure.

 

They are actually well behind pace on issuance compared to JPM so stockholders should be pleased to see them tapping the market, which is very open at the moment.

 

Thanks a lot! I looked up the capital rules after you mentioned and it makes sense now.

[xazp]

I think the news reports are misleading.

 

In March, the magistrate recommended the lawsuit be dismissed because, even if everything DOJ said was true, the government wasn't proving that BAC had violated the law. 

 

The judge agreed with the magistrate, but, instead of an outright dismissal, he gave the government 30 days to amend the complaint.

 

I would call an outright dismissal a ruling in favor of BAC, and outright "the case goes to trial" in favor of the government, and I'd say this is somewhere in between.  The case has neither been dismissed nor has it moved forward.  It's more like it's going to re-start.  It's a set-back or a victory for both. 

 

Just for reference:

Here is an earlier, I guess it's a "test case" where the DOJ sued BAC over RMBS.  (this one is about to get dismissed, too, on different grounds).  http://www.buckleysandler.com/uploads/1082/doc/Bank_of_America_COMPLAINT_%28W.D.N.C.,_6_Aug_13%29.pdf

 

 

Unfortunately it won't be getting dismissed. :(

 

http://www.bloomberg.com/news/2014-06-20/bofa-fails-to-win-dismissal-of-u-s-mortgage-fraud-suit.html

[xazp]

I am worried that Moynihan is trying to settle with Holder and is going to roll over on these cases:  http://www.cnbc.com/id/101776077

 

I would much prefer they wait until the Supreme Court finalizes a few items, since the SCOTUS seems to be favoring the banks right now.  I'm not sure why he's in a hurry to settle.  At a bare minimum, time is on BAC's side (in terms of the time value of money, and the clock ticking on the statute of repose/limitations).  Why is he calling holder, ugh.

 

The only glimpse of hope I have is that he's trying to settle in a manner where A) Holder gets a big headline dollar amount; but B) it's within BAC's existing reserves.  They can do that, for example, by including the existing FHFA settlement in the numbers they report; by doing more "consumer relief" which doesn't necessarily costing BAC money, etc. 

 

I would approve a signing bonus of $1 billion if Jamie Dimon would come be the CEO here.  I think he would save >> $1Bn in unforced errors by Moynihan (I'm talking the Buffett deal which still irks me).  I think the company is fine, but when Moynihan loses a billion here, a billion there, in unforced errors it's kind of annoying!

 

 

I think the news reports are misleading.

 

In March, the magistrate recommended the lawsuit be dismissed because, even if everything DOJ said was true, the government wasn't proving that BAC had violated the law. 

 

The judge agreed with the magistrate, but, instead of an outright dismissal, he gave the government 30 days to amend the complaint.

 

I would call an outright dismissal a ruling in favor of BAC, and outright "the case goes to trial" in favor of the government, and I'd say this is somewhere in between.  The case has neither been dismissed nor has it moved forward.  It's more like it's going to re-start.  It's a set-back or a victory for both. 

 

Just for reference:

Here is an earlier, I guess it's a "test case" where the DOJ sued BAC over RMBS.  (this one is about to get dismissed, too, on different grounds).  http://www.buckleysandler.com/uploads/1082/doc/Bank_of_America_COMPLAINT_%28W.D.N.C.,_6_Aug_13%29.pdf

 

 

Unfortunately it won't be getting dismissed. :(

 

http://www.bloomberg.com/news/2014-06-20/bofa-fails-to-win-dismissal-of-u-s-mortgage-fraud-suit.html

[Andy Dufresne]

xzap,

 

Allow me to play devil's advocate here for a second. First, the re-set by the district court is more of a win for BAC than the US Govt. for two reasons - the first is, as you said, the time value of money; however, the second, and more important one in my mind, is the clear signal this send to the current administration that their chances of getting anything settled by the courts during this administration is now lower ... so, if Moynihan thinks its in the best interest of BAC to clear itself from the spectre of such lawsuits (and I think it would be a great thing), then going directly to Holder to hash a favorable deal is not so stupid IMHO - it's best to negotiate when things look slightly better for you because you only know how you go into court, never how you come out ... perhaps Moynihan is "squandering" billions, but he might also be saving a few ...

 

Disclaimer - non-US attorney with trial experience  8)

[xazp]

I would not mind if Dimon were negotiating it.  I don't like Moynihan in his capacity as a negotiator with other big entities - I view him as a decent operating guy (like a COO) but being too timid when it comes to big dollar negotiations.  I just don't trust him in these situations.  It's more of a "who" than a "what" view. 

 

I voted my shares against him this year, for all the good that did :).  I think his mistakes are in excess of Pandit's when Pandit got thrown out of Citigroup. 

 

 

xzap,

 

Allow me to play devil's advocate here for a second. First, the re-set by the district court is more of a win for BAC than the US Govt. for two reasons - the first is, as you said, the time value of money; however, the second, and more important one in my mind, is the clear signal this send to the current administration that their chances of getting anything settled by the courts during this administration is now lower ... so, if Moynihan thinks its in the best interest of BAC to clear itself from the spectre of such lawsuits (and I think it would be a great thing), then going directly to Holder to hash a favorable deal is not so stupid IMHO - it's best to negotiate when things look slightly better for you because you only know how you go into court, never how you come out ... perhaps Moynihan is "squandering" billions, but he might also be saving a few ...

 

Disclaimer - non-US attorney with trial experience  8)

[Andy Dufresne]

xzap - I fully understand your concern, but if you do not trust the CEO, may I ask why you are long BAC? Or is it that you are holding BAC despite Moynihan, thinking he can cause some damage but not enough to offset a basically good bank?

 

Just trying to understand things better!

[xazp]

I view Moynihan as a decent-to-good COO, meaning, he's streamlining the company, refocusing it on profitability and capital return, cutting costs, etc.  That's where I think he should be in the company - COO.  I don't think he's a good at things "external" to the company - meaning, he's a poor/uncharismatic speaker, he's timid on negotiations, and that's why I don't like  him as CEO.  No one is paying much money to meet Moynihan at some charity dinner!  Buffett's deal could well cost shareholders more than the DOJ settlement - and that, in my view, was a totally unforced error. 

 

I think BAC and C have a number of tailwinds coming up - a drop in costs due to (eventually) ending litigation; a rise in income due to higher interest rates; and increased capital returns whenever the Fed gets off their necks.  I think Moynihan will get those big-picture items right.  But I also think any bank CEO will get these right.  So, yes, I am investing because I see macro tailwinds and I don't think Moynihan will screw them up. 

 

 

 

 

xzap - I fully understand your concern, but if you do not trust the CEO, may I ask why you are long BAC? Or is it that you are holding BAC despite Moynihan, thinking he can cause some damage but not enough to offset a basically good bank?

 

Just trying to understand things better!

[CorpRaider]

I view Moynihan as a decent-to-good COO, meaning, he's streamlining the company, refocusing it on profitability and capital return, cutting costs, etc.  That's where I think he should be in the company - COO.  I don't think he's a good at things "external" to the company - meaning, he's a poor/uncharismatic speaker, he's timid on negotiations, and that's why I don't like  him as CEO.  No one is paying much money to meet Moynihan at some charity dinner!  Buffett's deal could well cost shareholders more than the DOJ settlement - and that, in my view, was a totally unforced error. 

 

I think BAC and C have a number of tailwinds coming up - a drop in costs due to (eventually) ending litigation; a rise in income due to higher interest rates; and increased capital returns whenever the Fed gets off their necks.  I think Moynihan will get those big-picture items right.  But I also think any bank CEO will get these right.  So, yes, I am investing because I see macro tailwinds and I don't think Moynihan will screw them up. 

 

 

 

 

xzap - I fully understand your concern, but if you do not trust the CEO, may I ask why you are long BAC? Or is it that you are holding BAC despite Moynihan, thinking he can cause some damage but not enough to offset a basically good bank?

 

Just trying to understand things better!

 

I much prefer a COO type to a moronic deal maker who likes to "think big" like the last guy who ran this thing into the ground.

[xazp]

There are certainly worse CEO's out there than Moynihan, including his predecessor.  But that's not exactly a high bar we're discussing.  "Better than the guy that almost bankrupted one of the largest banks in the world" is not exactly a ringing endorsement. 

 

I view Moynihan as a decent-to-good COO, meaning, he's streamlining the company, refocusing it on profitability and capital return, cutting costs, etc.  That's where I think he should be in the company - COO.  I don't think he's a good at things "external" to the company - meaning, he's a poor/uncharismatic speaker, he's timid on negotiations, and that's why I don't like  him as CEO.  No one is paying much money to meet Moynihan at some charity dinner!  Buffett's deal could well cost shareholders more than the DOJ settlement - and that, in my view, was a totally unforced error. 

 

I think BAC and C have a number of tailwinds coming up - a drop in costs due to (eventually) ending litigation; a rise in income due to higher interest rates; and increased capital returns whenever the Fed gets off their necks.  I think Moynihan will get those big-picture items right.  But I also think any bank CEO will get these right.  So, yes, I am investing because I see macro tailwinds and I don't think Moynihan will screw them up. 

 

 

 

 

xzap - I fully understand your concern, but if you do not trust the CEO, may I ask why you are long BAC? Or is it that you are holding BAC despite Moynihan, thinking he can cause some damage but not enough to offset a basically good bank?

 

Just trying to understand things better!

 

I much prefer a COO type to a moronic deal maker who likes to "think big" like the last guy who ran this thing into the ground.