BAC-WT - Bank of America Warrants

[ERICOPOLY]

I was actually trying to make a bad joke, but apparently the board took me seriously. 

 

Are you sure?  It takes a lot less effort to fine $20Bn from one large company versus $750MM from each of 30 small companies.  :P. 

 

It solves the moral hazard.

 

Tiny banks are the ones that draw on the FDIC's reserves when they fail.

 

The big banks pay a lot of money towards establishing those FDIC reserves.

 

You can see where this is leading...  the small banks aren't paying their own fare.  This interference with the free market creates moral hazard.

 

I would like to see your support on this data point. I am not certain this is true when given the largest failures drive much larger losses given the way the FDIC bidding process is organized.

 

I knew you were joking. 

 

I just reminded me of how "stupid" people are being to encourage banks to once again get smaller and increase their leverage. 

 

Lots of small leveraged banks put together is the same as... a large leveraged bank.  The large banks today are exactly that -- the result of lots of small banks joined together.

 

I think it's better to have a less-leveraged large bank than a more-leveraged large bank.  We've currently got the less-leveraged large bank version -- don't force them to split themselves up.

[ERICOPOLY]

In my example, the profits and reserves from the New York arm are used in lieu of FDIC reserves to handle the failure of the California arm.

 

You wouldn't even need an FDIC if there was only one big large bank (and no other banks at all).

 

The FDIC system gains increased relevancy when the banking system becomes more fragmented.

 

And it came to pass during a period in which the banking system was more fragmented.  Go figure.

[SharperDingaan]

Lots of small leveraged banks put together is the same as... a large leveraged bank.

 

Many small banks is a lot safer. The regulator can cut throats by the hundreds, over a very short time-frame, without bringing the whole structure down. No lobbyist protection, no deals, lot shorter time for issues to fester; 2-3 days to wind up any given bank, & transfer all accounts to a stronger player. Pretty hard to argue against .....

 

SD

[ERICOPOLY]

Lots of small leveraged banks put together is the same as... a large leveraged bank.

 

Many small banks is a lot safer. The regulator can cut throats by the hundreds, over a very short time-frame, without bringing the whole structure down. No lobbyist protection, no deals, lot shorter time for issues to fester; 2-3 days to wind up any given bank, & transfer all accounts to a stronger player. Pretty hard to argue against .....

 

SD

 

So the solution to small bank problem is to create a larger bank (transfer it to another).  This is how JP Morgan got bigger taking WaMu.  But bigger is worse according to the rest of what you said... and I don't dispute those other points except for the one about the faster turnaround... you don't have to turn anything around if it's not failing in the first place.

 

 

[ERICOPOLY]

I suppose a shortened view of my point is that the small banks pay dividends (privatize the profits) when times are good, and socialize the losses (FDIC) when times are bad.

 

It just doesn't look like they are paying their own way here because they get help from the mega-banks in establishing those FDIC reserves.  However the mega-banks have more self-insurance coming in the form of diversified geography, diversified product, and less leverage.

 

That's a condensed view.

[ERICOPOLY]

Or does that mean that today's small banks would have to pay an increased FDIC fee if the mega-banks were split up?

 

[Mephistopheles]

A large bank can also have a large AIG style derivative blowup threatening to take down the entire company, and therefore the economy, with it.

 

 

[Guest wellmont]

We have to think in terms of PTPH (Pre-tax, pre-holder) earnings.  Perhaps he told Moynihan, our bill is another $500 million next week!  [i'm not so sure he didn't do a version of that given how fast the number seems to be increasing.]  On the plus side, PTPH earnings are pretty good!

 

 

 

Well, what’s another week?

 

Bank of America $17B pact still being haggled over

An immense amount of paperwork and concerns about wording in the settlement are taking up much of prosecutors’ and BofA lawyers’ attention, three people said.

…

The deal is now expected to be announced early next week, according to sources, roughly three weeks after the bank agreed to the broad outlines of the deal.

 

http://nypost.com/2014/08/14/bank-of-america-17b-pact-still-being-haggled-over/

 

Another week is another $500m of pre-tax earnings... since you asked.

us gov wanted this over by nov elections. so they started turning the screws on Moynihan...they want to go to voters and say how much $ they extracted from the TBTF banks for "what they did"....

 

[ERICOPOLY]

A large bank can also have a large AIG style derivative blowup threatening to take down the entire company, and therefore the economy, with it.

 

So what don't you like about excessive leverage and unregulated derivatives?  I understand that their insurance regulator had no say-so over their derivatives transaction.

 

The firm wasn't too big, IMO.

 

Rather, their liabilities were too great relative to their lack of reserves.

 

I think the insurance company was not weakened by it's size before the derivatives came along...  I mean I think due to their size their customers perceived them as stronger.  But they shouldn't be allowed to tie the ship to such a big, unregulated anchor.

 

 

 

[SharperDingaan]

So the solution to small bank problem is to create a larger bank (transfer it to another).  This is how JP Morgan got bigger taking WaMu.  But bigger is worse according to the rest of what you said... and I don't dispute those other points except for the one about the faster turnaround... you don't have to turn anything around if it's not failing in the first place.

This is way too gentle! All the regulator does is seize the accounts, transfers everything to a target regional bank, puts a 60 day freeze on account closures, & closes the doors - no mergers, no JP Morgan, no lobbyist, no appeals. The target bank gets a massive deposit infusion, a big improvement in their leverage ratio - & 60 days to retain as many accounts as possible. Those with a problem, close their accounts on day 61, & piss off.

 

Rinse & repeat!

 

SD

 

 

[ERICOPOLY]

I'm trying to figure out what if any benefit there is to super-large banks.  Will they just keep piling on more capital requirements, thus more pressure to break up?

 

They are all relatively quite-cheap versus the market.

 

1)  It's legal risks... not so much anymore.

2)  It's we just hate them... come on, that's too infantile.

3)  It's because their capital levels are going to go higher and higher and higher.... until they break themselves up?  After which the accumulated capital gets returned, so it's mostly a wash anyhow.

 

What's the deal here?

 

 

 

[tombgrt]

 

...

 

This is what a bubble looks like from the ground up at it's peak. The leverage is unbelievable in the system. An average house in Vancouver is around $650k with median household income of $68,000. Rental yields are sub 3%. The market has gone up for 12 years. People agree that none of this makes sense but are forced to buy otherwise they will never be able to buy another property. BC has negative net migration because the youth can earn higher incomes in Alberta with lower taxes and much cheaper houses to boot. Everyone who could afford to buy a property has.

 

This cannot end well.

 

Very informative post, thanks. I assume that median household income is pre-tax? That is insane.

 

Here in Ghent you pay 300-325k € (after taxes and costs) for a property that returns 9-10k € rent / year. That's for maybe 90-100m² in the city centres with 1-2 bedrooms, nothing outlandish. Most other big cities, where most people live, are equally expensive. So that's a rental yield of 3% (before costs!) for real estate at an ok location in the city and it's not all that cheaper the further away you go. Young couples make 30-45k € or maybe 20-40% more if they both went to college and have decent jobs. (Most are unlikely to make a lot more given that we are taxed at 50% (plus some extra's) at a certain point. There are few possibilities to make 10k+ monthly and if you do, you barely keep half.)

We do have some silly tax advantages but I can't see how prices can continue to go up from here, it is simply getting unpayable for most.

 

 

To quote myself and go off-topic a last time:

 

Next week we are going to check out a place to rent in Ghent, close to the city center. It's almost identical to the one you can see here (pictures included if you click next): http://www.immoweb.be/nl/immo/huis-te-koop/Gent/Gent-b3684304.htm#

 

You can check the price there to buy a 81m² appartment: 375,000€ and that doesn't include around 50,000€ in extra costs (mainly taxes and life insurance). We can rent that place for 730-750€/month. 9000€/year. That is a rental yield of 2,11% BEFORE COSTS. Are people insane? The location isn't even extremely good.

 

I'll take that bet. On average, people simply can't take much higher rents and even at 12,000€/year we would do okay to keep renting. If we would like to take a loan at 2.75% over 25 years for say 350,000€ (you need some extra cash, buy furniture, ...), we would pay 1615€/month FOR THE NEXT 25 YEARS. There are some tax advantages on the intrest you pay (640€/month on average the first 12,5 years) but there are also additional costs to owning a home, even if it's an appartment. But hey, renting is "throwing away your money" if you trust the consensus. This is not going to end well.

 

Sorry for the rant guys.  ;)

[Aurelius]

Seems I would rent as well if I were in your shoes.

 

Having said that I live in one of Europe's most expensive cities. I bought an apartment 2 years ago for 374K. I took a 5 year loan. I pay interest only. 40% down, refinanced after one year to 20%.

 

I could run the numbers at another time, but I'm guessing I'm paying less than half of what I would have had I decided to rent.

The apartment is up 24%. Also I don't pay taxes on sale whereas I pay up to over 40% in stocks.

 

I'll try running the numbers when I have more time, but I'm pretty sure the "owners rent" from owning an apartment like mine is still, today, quite a bit lower than renting assuming you take a 30 year fixed loan.

[SharperDingaan]

I'm trying to figure out what if any benefit there is to super-large banks.  Will they just keep piling on more capital requirements, thus more pressure to break up?

 

They are all relatively quite-cheap versus the market.

 

1)  It's legal risks... not so much anymore.

2)  It's we just hate them... come on, that's too infantile.

3)  It's because their capital levels are going to go higher and higher and higher.... until they break themselves up?  After which the accumulated capital gets returned, so it's mostly a wash anyhow.

 

What's the deal here?

 

The more geographically, & market, diversified the plain vanilla S&L & wealth management (mutual funds) type bank - the safer it is; re the insurance type spreading of risk across multiple pools. But the diversification benefit only works if all the banks have broadly similar product risks.

 

A JP Morgan does well - because it is arbitraging its riskier product mix against the much lower risk S&L/wealth management pool, and capturing the spread. It is risk pollution; & were this an electricity generation plant outside Shanghai, it would be clearly visible - as smog. In most of the western world if you pollute; you pay - bottle refunds, carbon tax, etc.

 

So ... increase the capital requirements on riskier product mixes, & price the wanna bees out of the market. If you want that multi-dimensional CDS, we have it - but if you have to ask the price you cant afford it :D  Kill the demand, & divert what is left to the best of the best.

 

The result is a small quantity of high risk product, concentrated in specialist firms, arbitraged against central banks. People flow to/from the specialists/central bank, protected markets, & run by central bank consigliere. A return to the white-walled firms of yesteryear.

 

SD

 

[ERICOPOLY]

There are some tax advantages on the intrest you pay (640€/month on average the first 12,5 years)

 

Pretend that you have the cash to buy it outright.

 

You can choose to:

a)  buy it outright with your cash

... or ...

b)  invest your cash in fixed income and pay the rent with the after-tax yield

 

 

1)  How much cash do you need to meet the rent, on an after-tax yield basis?

2)  Is this a secure yield? Same risk profile as just owning the home?  ie... zero default risk

3)  Are you absolutely certain that this investment yield will rise at least as fast as future rental inflation?

4)  Are you positive that the income tax rate on your investment yield won't climb?

 

You have to answer all of those questions before you can smugly proclaim that people are insane to buy.

 

[xazp]

Super-large companies need super-large banks.  A billion dollar cash balance needs to be stored with a bank that can easily absorb that.  Apple can't store their cash wad with a thousand community banks, no matter how many free toasters. 

 

Also some benefits to consumers, for example, you can reach a Citigroup ATM worldwide, and a Bank of America ATM in lots of the U.S.  Most people are on ATT or VZ plans for the same convenience of being able to use their phones anywhere.  Other benefits to consumers in being able to centralize all your financial needs in one place - checking, savings, wealth management, CC, mortgage, etc. 

 

However:  I do think there's a case for separating BAC into the portion that caters to business from the portion that caters to individuals.  Not only would each need lower capital requirements (so instant large dividend, possibly), I think it's possible each would trade at a larger P/E than they do combined today.  What's the case they should be together?  I suppose low cost retail deposits flowing into commercial loans? 

 

 

 

 

 

 

I'm trying to figure out what if any benefit there is to super-large banks.  Will they just keep piling on more capital requirements, thus more pressure to break up?

 

They are all relatively quite-cheap versus the market.

 

1)  It's legal risks... not so much anymore.

2)  It's we just hate them... come on, that's too infantile.

3)  It's because their capital levels are going to go higher and higher and higher.... until they break themselves up?  After which the accumulated capital gets returned, so it's mostly a wash anyhow.

 

What's the deal here?

[tombgrt]

There are some tax advantages on the intrest you pay (640€/month on average the first 12,5 years)

 

Pretend that you have the cash to buy it outright.

 

You can choose to:

a)  buy it outright with your cash

... or ...

b)  invest your cash in fixed income and pay the rent with the after-tax yield

 

 

1)  How much cash do you need to meet the rent, on an after-tax yield basis?

2)  Is this a secure yield? Same risk profile as just owning the home?  ie... zero default risk

3)  Are you absolutely certain that this investment yield will rise at least as fast as future rental inflation?

4)  Are you positive that the income tax rate on your investment yield won't climb?

 

You have to answer all of those questions before you can smugly proclaim that people are insane to buy.

 

 

1) After tax probably slightly more than the cash needed for buying the house outright, so a 2% yield at best if you need it to be absolutely safe.

2) There is a cost to owning a home hidden in repairs etc. Wouldn't have that with fixed income. Also no risk of renters that don't pay, damaged property,...

3) Absolutely not but I'm concerned about what my 'investment' in a home bought with cash would be worth 10-20 years out. To go back to a more reasonable yield of 4.5% rental yield over time, prices would have to half, rents would have to double or a combination of both. Here in Europe with a lot of people having a hard time making ends meet and poor economic growth, I doubt much of that correction will come from higher rent (after inflation). There simply isn't much room for it. The example I have shown isn't even top real estate, just ok and new.

4) It's 25% tax on fixed income here already, I can't be sure of anything but I doubt they could get it much higher.

 

All in all, prices are waaay above long term averages, helped by bad government policies (tax advantages from a few years ago were meant to make buying cheaper, all they did was boost prices up higher. Now they are cutting back on those tax advantages). Makes the chance for permanent loss of capital quite high. If you believe owning property is equally risky as fixed income, that's fine by me but I'll have to disagree. It doesn't even come close.

[ERICOPOLY]

There are some tax advantages on the intrest you pay (640€/month on average the first 12,5 years)

 

Pretend that you have the cash to buy it outright.

 

You can choose to:

a)  buy it outright with your cash

... or ...

b)  invest your cash in fixed income and pay the rent with the after-tax yield

 

 

1)  How much cash do you need to meet the rent, on an after-tax yield basis?

2)  Is this a secure yield? Same risk profile as just owning the home?  ie... zero default risk

3)  Are you absolutely certain that this investment yield will rise at least as fast as future rental inflation?

4)  Are you positive that the income tax rate on your investment yield won't climb?

 

You have to answer all of those questions before you can smugly proclaim that people are insane to buy.

 

 

1) After tax probably slightly more than the cash needed for buying the house outright, so a 2% yield at best if you need it to be absolutely safe.

2) There is a cost to owning a home hidden in repairs etc. Wouldn't have that with fixed income. Also no risk of renters that don't pay, damaged property,...

3) Absolutely not but I'm concerned about what my 'investment' in a home bought with cash would be worth 10-20 years out. To go back to a more reasonable yield of 4.5% rental yield over time, prices would have to half, rents would have to double or a combination of both. Here in Europe with a lot of people having a hard time making ends meet and poor economic growth, I doubt much of that correction will come from higher rent (after inflation). There simply isn't much room for it. The example I have shown isn't even top real estate, just ok and new.

4) It's 25% tax on fixed income here already, I can't be sure of anything but I doubt they could get it much higher.

 

All in all, prices are waaay above long term averages, helped by bad government policies (tax advantages from a few years ago were meant to make buying cheaper, all they did was boost prices up higher. Now they are cutting back on those tax advantages). Makes the chance for permanent loss of capital quite high. If you believe owning property is equally risky as fixed income, that's fine by me but I'll have to disagree. It doesn't even come close.

 

Wow!  25% tax on fixed income.  And you think it's high!  It is, but we've never had it that good in America in my lifetime.

 

It's taxed the same as regular income here in the "land of the free and the brave".

 

So in California you get up near the 50% tax rate level for non-Treasury bonds.  Treasury bonds are exempt from state tax and so roughly at 40%.

 

So yes, after-tax you can expect to lose money after inflation.  It makes owning a home relatively more affordable.

 

[jouni1]

To quote myself and go off-topic a last time:

 

Next week we are going to check out a place to rent in Ghent, close to the city center. It's almost identical to the one you can see here (pictures included if you click next): http://www.immoweb.be/nl/immo/huis-te-koop/Gent/Gent-b3684304.htm#

 

You can check the price there to buy a 81m² appartment: 375,000€ and that doesn't include around 50,000€ in extra costs (mainly taxes and life insurance). We can rent that place for 730-750€/month. 9000€/year. That is a rental yield of 2,11% BEFORE COSTS. Are people insane? The location isn't even extremely good.

 

I'll take that bet. On average, people simply can't take much higher rents and even at 12,000€/year we would do okay to keep renting. If we would like to take a loan at 2.75% over 25 years for say 350,000€ (you need some extra cash, buy furniture, ...), we would pay 1615€/month FOR THE NEXT 25 YEARS. There are some tax advantages on the intrest you pay (640€/month on average the first 12,5 years) but there are also additional costs to owning a home, even if it's an appartment. But hey, renting is "throwing away your money" if you trust the consensus. This is not going to end well.

 

Sorry for the rant guys.  ;)

the apartment building i live in (new, ok quality and location) had a similiar condo (not top floor like mine) for sale. my rent after owner's costs would have yielded 1,5% if the asking price had 20% haggle room. the same situation applies to most cities that are growing.

 

prices have been going up for the past 20 years down here. every time they have a quarter of +-0%, the real estate agents are in the headlines shouting it's a buyers' market. we have a lot of people who think real estate prices never go down.

[tombgrt]

There are some tax advantages on the intrest you pay (640€/month on average the first 12,5 years)

 

Pretend that you have the cash to buy it outright.

 

You can choose to:

a)  buy it outright with your cash

... or ...

b)  invest your cash in fixed income and pay the rent with the after-tax yield

 

 

1)  How much cash do you need to meet the rent, on an after-tax yield basis?

2)  Is this a secure yield? Same risk profile as just owning the home?  ie... zero default risk

3)  Are you absolutely certain that this investment yield will rise at least as fast as future rental inflation?

4)  Are you positive that the income tax rate on your investment yield won't climb?

 

You have to answer all of those questions before you can smugly proclaim that people are insane to buy.

 

 

1) After tax probably slightly more than the cash needed for buying the house outright, so a 2% yield at best if you need it to be absolutely safe.

2) There is a cost to owning a home hidden in repairs etc. Wouldn't have that with fixed income. Also no risk of renters that don't pay, damaged property,...

3) Absolutely not but I'm concerned about what my 'investment' in a home bought with cash would be worth 10-20 years out. To go back to a more reasonable yield of 4.5% rental yield over time, prices would have to half, rents would have to double or a combination of both. Here in Europe with a lot of people having a hard time making ends meet and poor economic growth, I doubt much of that correction will come from higher rent (after inflation). There simply isn't much room for it. The example I have shown isn't even top real estate, just ok and new.

4) It's 25% tax on fixed income here already, I can't be sure of anything but I doubt they could get it much higher.

 

All in all, prices are waaay above long term averages, helped by bad government policies (tax advantages from a few years ago were meant to make buying cheaper, all they did was boost prices up higher. Now they are cutting back on those tax advantages). Makes the chance for permanent loss of capital quite high. If you believe owning property is equally risky as fixed income, that's fine by me but I'll have to disagree. It doesn't even come close.

 

Wow!  25% tax on fixed income.  And you think it's high!  It is, but we've never had it that good in America in my lifetime.

 

It's taxed the same as regular income here in the "land of the free and the brave".

 

So in California you get up near the 50% tax rate level for non-Treasury bonds.  Treasury bonds are exempt from state tax and so roughly at 40%.

 

So yes, after-tax you can expect to lose money after inflation.  It makes owning a home relatively more affordable.

 

 

That's certainly a lot! But all things considered, Belgium is still the highest taxed country, not that I want to make this a competition. I certainly wish this wasn't true. ;) I say this because 0.5 million euro is still very modest and they are unlikely to tax that money much further given the already high overall tax rate. They might bring capital gains or flat tax starting at 1-2 million euro, who knows. Anyway, not all that important.

 

But even if you do lose after inflation, I doubt the combination of RE appreciation and rent inflation will do much better from here on (if any) and you are certainly taking more risk. What would rent inflation have to look like so that it isn't a terrible deal? Even a 50% hike over 10 years would yield only 3,15% on the initial inlay.  What should we subtract here for the costs? I read about 1% of the buying price/year. Seems reasonable but even 0.5% takes a good bite out of the return.

 

There is no way I could but all that money in one basket with that terrible return. I'll be buying something in between cities in a few years at a hopefully more reasonable 4-4.5% yield.  Otherwise I'll happily rent!

 

But I appreciate the posts and arguments Eric, so thanks!

 

 

the apartment building i live in (new, ok quality and location) had a similiar condo (not top floor like mine) for sale. my rent after owner's costs would have yielded 1,5% if the asking price had 20% haggle room. the same situation applies to most cities that are growing.

 

prices have been going up for the past 20 years down here. every time they have a quarter of +-0%, the real estate agents are in the headlines shouting it's a buyers' market. we have a lot of people who think real estate prices never go down.

 

They have been going up for 30+ years here. Meaning, whole generations of people between 0-60+ years old have only known rising RE prices after inflation. Thus the consensus that prices will only go up in the future. In investing we all know to buy the fear and sell the greed and that at some point you won't find new money to buy if everyone agrees with you already. Somehow for RE valuation people are more emotional or something. Nothing was learned from the past few years. People should look back at RE prices these last 200 years, not 1-3 generations.

 

But no matter what, I'll shut up now. If wanted, people can PM me or open a new discussion. :)

[Spekulatius]

Super-large companies need super-large banks.  A billion dollar cash balance needs to be stored with a bank that can easily absorb that.  Apple can't store their cash wad with a thousand community banks, no matter how many free toasters

 

Do you really need to do business with a Megabank if you have a multi-billion$ balance sheet? You can basically run your own treasury department, issue commercial paper (assuming the company has investment grade credit), do your own cash management. You may need help placing bonds, but you don't need your cash managment running through a bank - at this size, I think they can do it themselves.

[sswan11]

Here's a comment from a current BAC Seeking Alpha article:

 

 

jclyak

Comments (148)| + Follow | Send Message 

I like your analysis. However, I believe a comparison of assets with those of Wells is more probative. I believe BAC's Merrill and US Trust make BAC worth more than Wells, not to mention more deposits and simply a larger, albeit poorly executed operation.

 

The really big advantage both JPM and BAC have over Wells is $100 bil. Credit card books compared to Wells $27 bil. or so. Tag a net 8.5% interest on a $75 bil. difference and you have an advantage of $6 bil. a year over Wells.

 

Another real plus is the DTA of $30 bil. for BAC. Over the next 3 years this becomes hard cash if earnings get closer to "normal. What is "normal?" I believe BAC ought to be able to $4+ bil. more than Wells if it can halfway emulate Wells operationally. I think a market cap of 14-15 times earnings is quite achievable once the market realizes the banks are vastly better capitalized and specifically BAC has put serial, nutcase gamblers as CEO's in the rear-view mirror permanently.

 

Put a 14 PE on $24-$26 bil. earnings and you get a market cap that is $360 bil. plus...around 1.5 times book value....Ok, shoulda got there the easy way like you did...but it is nice to get there using income analysis (which I prefer) too.

 

Thanks

 

17 Aug, 02:15 PM

 

http://seekingalpha.com/article/2430045-the-only-metric-that-really-matters-for-long-term-bank-of-america-shareholders?uprof=45

[xazp]

As far as I know 100% of large American corporations do business with one of the four mega-banks.  It may be that it's possible for a large company to be unbanked, but I'm not aware of any!

 

Super-large companies need super-large banks.  A billion dollar cash balance needs to be stored with a bank that can easily absorb that.  Apple can't store their cash wad with a thousand community banks, no matter how many free toasters

 

Do you really need to do business with a Megabank if you have a multi-billion$ balance sheet? You can basically run your own treasury department, issue commercial paper (assuming the company has investment grade credit), do your own cash management. You may need help placing bonds, but you don't need your cash managment running through a bank - at this size, I think they can do it themselves.

[jay21]

As far as I know 100% of large American corporations do business with one of the four mega-banks.  Have you ever gotten a paycheck from "Apple bank"?

 

Super-large companies need super-large banks.  A billion dollar cash balance needs to be stored with a bank that can easily absorb that.  Apple can't store their cash wad with a thousand community banks, no matter how many free toasters

 

Do you really need to do business with a Megabank if you have a multi-billion$ balance sheet? You can basically run your own treasury department, issue commercial paper (assuming the company has investment grade credit), do your own cash management. You may need help placing bonds, but you don't need your cash managment running through a bank - at this size, I think they can do it themselves.

 

Derivatives alone make megabanks a necessity for large companies.

[plato1976]

Is the lack of big oversea presence for BAC a huge minus for these corp related business?

 

As far as I know 100% of large American corporations do business with one of the four mega-banks.  Have you ever gotten a paycheck from "Apple bank"?

 

Super-large companies need super-large banks.  A billion dollar cash balance needs to be stored with a bank that can easily absorb that.  Apple can't store their cash wad with a thousand community banks, no matter how many free toasters

 

Do you really need to do business with a Megabank if you have a multi-billion$ balance sheet? You can basically run your own treasury department, issue commercial paper (assuming the company has investment grade credit), do your own cash management. You may need help placing bonds, but you don't need your cash managment running through a bank - at this size, I think they can do it themselves.

 

Derivatives alone make megabanks a necessity for large companies.