BAC-WT - Bank of America Warrants

[Uccmal]

I'm relieved.  I want this thing settled.  I'm happy to wait for 6 weeks to earn the difference (500m per week in pre-tax earnings).

 

Just give them $17b if it will make them go away.

 

I want the stock to climb without an endless drumbeat of FIRREA in the news.

 

Call them Future profits.....

[fareastwarriors]

BofA Said to Near Mortgage Deal for Up to $17 Billion

 

 

http://www.bloomberg.com/news/2014-08-06/bofa-said-to-near-mortgage-deal-for-up-to-17-billion.html

[mankap]

Eric holder has been successful in almost doubling the cash portion from 4B to 9B.

 

Does this $17B FHFA settlement that has already been done

[ERICOPOLY]

Perhaps settling separately with FHFA was a debacle in that it robbed Eric Holder of a sensational number in his press release.  Undeterred, he asked for it anyhow.  Essentially doubling that portion, whereas Jamie Dimon had the smarts to bundle the settlements for the more salacious press release.

[mankap]

I always though that $17B includes FHFA fine that has already been paid.

I agree, Eric Holder wanted to show a no. that is greater than what JPM paid. BAC will probably go in history as the bank that paid the biggest fine ever.

[meiroy]

Bank Regulators Roar at $700-Trillion Market at The Wall Street Journal10:46pm EDT

http://online.wsj.com/articles/heard-on-the-street-bank-regulators-roar-at-700-trillion-market-1407361223

 

"Failure to meet that and other conditions could lead the regulators to raise capital or leverage requirements for the banks, or even force them to sell off businesses or assets."

 

I think this is getting very serious now. Banks ARE going to be regulated and they already are. In this settlement with BAC other than numbers there are probably various provisions that would disallow BAC from various products and businesses and would cause some internal change. We'll have to wait and see.

 

My two takes from this:

 

1. It would actually strengthen banks balance sheets if they follow through and reduce exposure to possible contagion from China/Europe and friends. So that's good. Wondering what's the short term impact on revenue would be, though.

 

2. It would mean that banks would loosen even more on their loans -- they have to make money somehow --, this would cause the economy to heat up and continue the positive trend and eventually cause some other subprime bubble on the way. Supports rising interest rates sooner than later, of course.

 

 

Re. this settlement. Regulator asked for X and got X. No real discussion or compromise. I really, really don't like this considering what might still come and there's plenty more they can poke at.

 

Re. ERICOPOLY's suggestion to educate the public (you might want to delete your suggestion to take revenge on an AG...). I love it, even if it is completely childish and meaningless it would make me feel awesome, as a person who is paying for Mr. Holder's future political career I think I am entitled to.  We should wait, though, until he announces leaving office next year and he starts competing for something else and THEN publish these ads. Woo. Also by then we would not give a beep and forget about it which would be the smart thing to do.  Still, though, great idea, love it!

[Uccmal]

Perhaps settling separately with FHFA was a debacle in that it robbed Eric Holder of a sensational number in his press release.  Undeterred, he asked for it anyhow.  Essentially doubling that portion, whereas Jamie Dimon had the smarts to bundle the settlements for the more salacious press release.

I always though that $17B includes FHFA fine that has already been paid.

I agree, Eric Holder wanted to show a no. that is greater than what JPM paid. BAC will probably go in history as the bank that paid the biggest fine ever.

 

Without knowing the details at this point we dont know how much past settlements were accounted for within this settlement.  Is is not possible that even the cash portion is a headline number and that BAC has already paid some of it?  When BAC makes a statement as to their reserve changes and how it will impact earnings we will have a better idea.  I am also betting that the AG has no real idea what is in the settlement, himself.  He is after a headliner. 

 

I can see him (Holder) meeting with his deputies saying "Get Bac to figure out a way to get me a headline number of 17 B, without going to court.  I need this over with before I run for governor/senator.".

[Mephistopheles]

Perhaps settling separately with FHFA was a debacle in that it robbed Eric Holder of a sensational number in his press release.  Undeterred, he asked for it anyhow.  Essentially doubling that portion, whereas Jamie Dimon had the smarts to bundle the settlements for the more salacious press release.

I always though that $17B includes FHFA fine that has already been paid.

I agree, Eric Holder wanted to show a no. that is greater than what JPM paid. BAC will probably go in history as the bank that paid the biggest fine ever.

 

Without knowing the details at this point we dont know how much past settlements were accounted for within this settlement.  Is is not possible that even the cash portion is a headline number and that BAC has already paid some of it?  When BAC makes a statement as to their reserve changes and how it will impact earnings we will have a better idea.  I am also betting that the AG has no real idea what is in the settlement, himself.  He is after a headliner. 

 

I can see him (Holder) meeting with his deputies saying "Get Bac to figure out a way to get me a headline number of 17 B, without going to court.  I need this over with before I run for governor/senator.".

 

I thought of this, but then realized they could have easily included the FHFA # and it would have been easy. But the AG didn't allow it. I feel this is $9 billion of new money. But I hope you're right.

[Mikenhe]

I wonder what reduction we will see in legal expenses... should be significant.

[xazp]

I think they have paid most of it. 

 

Working off newspaper reports and earnings releases, I think:

Right before earnings, BAC offered $7Bn cash/$13Bn total.  Holder rejected it, but, I believe BAC's $4Bn bump in litigation reserves, was set to that $7Bn/$13Bn offer.

 

Today they appear to be offering something like $9Bn cash/$17Bn total.  If I'm right they need to pay a further $2Bn cash, $2Bn non-cash above their former reserves. 

 

So that would be probably be about a $2.5Bn pre-tax charge, since the "non cash" stuff doesn't cost them the same as "cash." 

 

 

 

 

 

 

 

Without knowing the details at this point we dont know how much past settlements were accounted for within this settlement.  Is is not possible that even the cash portion is a headline number and that BAC has already paid some of it?  When BAC makes a statement as to their reserve changes and how it will impact earnings we will have a better idea.  I am also betting that the AG has no real idea what is in the settlement, himself.  He is after a headliner. 

 

I can see him (Holder) meeting with his deputies saying "Get Bac to figure out a way to get me a headline number of 17 B, without going to court.  I need this over with before I run for governor/senator.".

[ERICOPOLY]

So that would be probably be about a $2.5Bn pre-tax charge, since the "non cash" stuff doesn't cost them the same as "cash." 

 

I've never fully understood why non-cash stuff costs less than cash.  For example, if I buy a house for $200,000 and then have the house seized by the DOJ, I've still lost $200,000 since I could sell it for $200,000 once again had they not taken it.

 

So... I'm going to make a guess...

 

They have mortgages with $200,000 principle value on the books but the loans are non-performing and the asset values are underwater.  So they "give" some $50,000 of the principle value to the borrower as "mortgage relief".  The loan was already marked-down down on the books as $150,000, so the loss is now being formalized even though the hit was previously taken in a prior quarter when written down.

 

Is that basically it?

[xazp]

That's right.  If BAC has already written down something by $50,000 - instead of foreclosing, they offer "mortgage relief" of $50,000 which lowers their monthly payment and overall debt.  This doesn't really impact BAC's balance sheet (may even help with expenses) but from the consumer's perspective, BAC has given them $50,000. 

 

There are other versions where for example BAC will "forgive" loans that BAC originated but no longer holds.  So the people who "pay" for those are the owners of mortgage securitizations.  Those guys are rightfully upset, and ironically, the people that BAC supposedly injured. 

 

Unlike normal lawsuits, the supposedly injured parties are not the recipients of any of this $17Bn.  Most of it goes to the DOJ and/or to consumers (the subject of this investigation was mortgage securitizations, so the people "hurt" were likely corporations that bought RMBS). 

 

I call the whole thing "calvinball" (if anyone gets the reference) because the rules keep changing and the outcomes don't make much sense to me.  But, I signed up for the game so what can be done. 

 

So that would be probably be about a $2.5Bn pre-tax charge, since the "non cash" stuff doesn't cost them the same as "cash." 

 

I've never fully understood why non-cash stuff costs less than cash.  For example, if I buy a house for $200,000 and then have the house seized by the DOJ, I've still lost $200,000 since I could sell it for $200,000 once again had they not taken it.

 

So... I'm going to make a guess...

 

They have mortgages with $200,000 principle value on the books but the loans are non-performing and the asset values are underwater.  So they "give" some $50,000 of the principle value to the borrower as "mortgage relief".  The loan was already marked-down down on the books as $150,000, so the loss is now being formalized even though the hit was previously taken in a prior quarter when written down.

 

Is that basically it?

[Andy Dufresne]

If I may be so bold to offer my dumbed-down understanding of this:

 

1. The cash part - BAC has been reserving money in previous accounting periods (which came out of net income); They reserved 2.4 bn in Q1 (another 3.6 for the FHFA settlement) and 4 bn in Q2, so they have ~2.6 bn to reserve/expense in this Q.

 

2. The non-cash part - it is non-cash because the cash has either:

(a) been reserved on the BS at an earlier accounting period - e.g. bad mortgage debts; so here this cash is also already reserved; or

(b) has actually been expensed/written down in previous periods - either lowering that period's net income or the "asset" on the BS through comprehensive income/shareholders' equity.

 

 

[jay21]

So that would be probably be about a $2.5Bn pre-tax charge, since the "non cash" stuff doesn't cost them the same as "cash." 

 

I've never fully understood why non-cash stuff costs less than cash.  For example, if I buy a house for $200,000 and then have the house seized by the DOJ, I've still lost $200,000 since I could sell it for $200,000 once again had they not taken it.

 

So... I'm going to make a guess...

 

They have mortgages with $200,000 principle value on the books but the loans are non-performing and the asset values are underwater.  So they "give" some $50,000 of the principle value to the borrower as "mortgage relief".  The loan was already marked-down down on the books as $150,000, so the loss is now being formalized even though the hit was previously taken in a prior quarter when written down.

 

Is that basically it?

 

xazp hit it.  A large amount of the loans are not held by the bank but by RMBS holders.  They take the mod losses (if any).

[finetrader]

Bank of America may record $2 billion charge in third quarter - analyst

 

http://finance.yahoo.com/news/bank-america-may-record-2-165508299.html

[rkbabang]

So that would be probably be about a $2.5Bn pre-tax charge, since the "non cash" stuff doesn't cost them the same as "cash." 

 

I've never fully understood why non-cash stuff costs less than cash.  For example, if I buy a house for $200,000 and then have the house seized by the DOJ, I've still lost $200,000 since I could sell it for $200,000 once again had they not taken it.

 

So... I'm going to make a guess...

 

They have mortgages with $200,000 principle value on the books but the loans are non-performing and the asset values are underwater.  So they "give" some $50,000 of the principle value to the borrower as "mortgage relief".  The loan was already marked-down down on the books as $150,000, so the loss is now being formalized even though the hit was previously taken in a prior quarter when written down.

 

Is that basically it?

 

xazp hit it.  A large amount of the loans are not held by the bank but by RMBS holders.  They take the mod losses (if any).

 

So let me get this straight?

 

Party A does something to party B.

The government sues Party A because of what they did to Party B.

The government settles with Party A.

The government gets its coveted headline with a large number on it.

The government keeps the money from the settlement.

Party B pays a large chunk of the settlement.

 

Those mortgage backed securities are like the gift that keeps on giving.

 

[ERICOPOLY]

It's a moral hazard dilemma.

 

Everybody knew that Cointrywide was writing NINJA quality loans.  The purchasers of their MBS enabled the fraud to continue.

 

So they deserve a share of the losses -- next time, perhaps they'll remember this.  Thus, the market may choose to not purchase securitizations from the next Countrywide to come along.

[jay21]

So that would be probably be about a $2.5Bn pre-tax charge, since the "non cash" stuff doesn't cost them the same as "cash." 

 

I've never fully understood why non-cash stuff costs less than cash.  For example, if I buy a house for $200,000 and then have the house seized by the DOJ, I've still lost $200,000 since I could sell it for $200,000 once again had they not taken it.

 

So... I'm going to make a guess...

 

They have mortgages with $200,000 principle value on the books but the loans are non-performing and the asset values are underwater.  So they "give" some $50,000 of the principle value to the borrower as "mortgage relief".  The loan was already marked-down down on the books as $150,000, so the loss is now being formalized even though the hit was previously taken in a prior quarter when written down.

 

Is that basically it?

 

xazp hit it.  A large amount of the loans are not held by the bank but by RMBS holders.  They take the mod losses (if any).

 

So let me get this straight?

 

Party A does something to party B.

The government sues Party A because of what they did to Party B.

The government settles with Party A.

The government gets its coveted headline with a large number on it.

The government keeps the money from the settlement.

Party B pays a large chunk of the settlement.

 

Those mortgage backed securities are like the gift that keeps on giving.

 

 

Yes, but it is more ambiguous than that.  The "soft dollar" relief is usually targeted at high risk mortgages, which are then modified either with principal forgiveness, rate reductions, term extensions, etc. 

 

So say a loan is in foreclosure.  Is it more economical to forgive a portion of the mortgage and return the borrower to current or to liquidate the loan?  What results in a higher NPV?  It's a tough call a lot of times.

[gary17]

Thank you all for your contribution...  allowing me to concentrate on working at my dayjob!

 

I was wondering if after this $9B cash settlement and assuming this is the last of the major ones.... which quarter do you see we should start seeing BAC report 'normalized' earnings... and how much would that be (EPS) ?

 

many thanks in advance

 

Gary

[fareastwarriors]

 

Bank of America: new beginnings

 

 

With its $16bn settlement behind it, the future is brighter for BofA

 

 

http://www.ft.com/intl/cms/s/3/043f0e6c-1e3e-11e4-bb68-00144feabdc0.html?siteedition=intl#axzz39RglzbQF

 

Buyer’s remorse. That is what Bank of America must have as it prepares to pay about $16bn to end a probe into the sale of toxic mortgage-backed securities. The fine, comprising $9bn in cash and $7bn in consumer relief (measures such as flexibility on troubled loans) is mainly linked to the misdeeds of Countrywide Financial and Merrill Lynch, which it acquired in haste amid the financial crisis. The deal with the US Department of Justice is a cautionary tale for banks buying distressed rivals: if possible, avoid.

 

 

 

Yet the future is brighter. With one of the largest federal settlements in US history behind it, BofA can focus on shareholders, who have seen it pay $58bn to resolve lawsuits since 2008. The decision to raise its dividend for the first time in seven years (after Federal Reserve approval of a new capital plan) is welcome. Still, the 5c-a-share increase generates a meagre 1.3 per cent yield. JPMorgan and Wells Fargo offer 2.8 per cent.

 

With more than $6bn set aside for legal fines, BofA can easily absorb the extra $3bn cash hit. It is decently capitalised with a common equity tier I ratio of 9.5 per cent, and is expected to make about $4bn in pre-tax earnings to handle the charge. There are even calls for a share buyback as early as next March, if it passes the Federal Reserve’s stress test. That would be premature – BofA is still facing investigations over Libor and other matters, and US regulators are developing a taste for ever larger fines. A hasty buyback could be quickly regretted.

 

What BofA’s board will certainly not regret is their choice of Brian Moynihan as chief executive in late 2009. A lawyer by training, he deserves credit for shepherding a litigation-laden bank out of the woods. The question now is whether he can come up with the right strategy to propel BofA into a new growth phase.

 

 

[ERICOPOLY]

Thank you all for your contribution...  allowing me to concentrate on working at my dayjob!

 

I was wondering if after this $9B cash settlement and assuming this is the last of the major ones.... which quarter do you see we should start seeing BAC report 'normalized' earnings... and how much would that be (EPS) ?

 

many thanks in advance

 

Gary

 

The latest conference call seemed to imply that LAS expenses would normalize sometime around early 2016.  That would shave about 800m off the current quarterly LAS expense, but there will likely be some revenue hit as well.

 

[xazp]

It's even more convoluted, because the law they're using (FIRREA) is a law intended to punish people who defraud federally insured banks. 

So the intention of this law was, if you forge a check, that's worse than regular old fraud because you're messing with the federal government who is ensuring the bank behind the check. 

 

So DOJ's claim is that BAC has defrauded BAC.  But, even though BAC is both the injurer and the injured party, DOJ gets the money. 

 

It's almost like if you see a guy doing something stupid and injuring himself, you then arrest him for assaulting himself. 

 

 

 

 

So let me get this straight?

 

Party A does something to party B.

The government sues Party A because of what they did to Party B.

The government settles with Party A.

The government gets its coveted headline with a large number on it.

The government keeps the money from the settlement.

Party B pays a large chunk of the settlement.

 

Those mortgage backed securities are like the gift that keeps on giving.

[gary17]

Meaning we could be looking at about a $3B/quarter earnings with no increase in interest rate....  with 11B shares out that's about $0.27/quarter or $1.1/year  ... 

[ERICOPOLY]

Meaning we could be looking at about a $3B/quarter earnings with no increase in interest rate....  with 11B shares out that's about $0.27/quarter or $1.1/year  ...

 

How did you come up with only $3b a quarter?

 

I personally come up with more like $1.80 per share earnings.  The executives stated that they can make 13%+ return on tangible common equity in this environment when the expenses normalize.  So that's $1.80 (0.13 x $14).

[gary17]

Meaning we could be looking at about a $3B/quarter earnings with no increase in interest rate....  with 11B shares out that's about $0.27/quarter or $1.1/year  ...

 

How did you come up with only $3b a quarter?

 

I personally come up with more like $1.80.

 

I just did a very quick $2.19B this quarter+ $800m less in LAS expense = $3B --  perhaps over simplifying this.