BAC-WT - Bank of America Warrants

[fareastwarriors]

BofA Seeks to Prove Buffett Right After Record Settlement

 

http://www.bloomberg.com/news/2014-08-21/bofa-seeks-to-prove-buffett-right-after-record-settlement.html

[CorpRaider]

Hold on big fella' don't run off an leave me before I get a nice sized position built.  ;D

[fareastwarriors]

Bank of America’s $16 Billion Mortgage Settlement Less Painful Than It Looks

 

 

http://dealbook.nytimes.com/2014/08/21/bank-of-america-reaches-16-65-billion-mortgage-settlement/?_php=true&_type=blogs&ref=business&_r=0

[ni-co]

Bank of America’s $16 Billion Mortgage Settlement Less Painful Than It Looks

 

 

http://dealbook.nytimes.com/2014/08/21/bank-of-america-reaches-16-65-billion-mortgage-settlement/?_php=true&_type=blogs&ref=business&_r=0

 

This NYT article really bothers me. I think Holder saw this kind of article coming. This is why he pushed for the large cash part within the settlement. Now they are portraying it as tax payers paying the bill, which is really dishonest. I don't think the jump yesterday had anything to do with the size of the settlement, which is huge by all accounts, but all the more with the "free at last" feelings of (potential) shareholders.

[alertmeipp]

So can US citizens sue the regulators for not doing their jobs? I mean it is not like they didn't know all those ninja mortgages etc.

[rkbabang]

Bank of America’s $16 Billion Mortgage Settlement Less Painful Than It Looks

 

 

http://dealbook.nytimes.com/2014/08/21/bank-of-america-reaches-16-65-billion-mortgage-settlement/?_php=true&_type=blogs&ref=business&_r=0

 

This NYT article really bothers me. I think Holder saw this kind of article coming. This is why he pushed for the large cash part within the settlement. Now they are portraying it as tax payers paying the bill, which is really dishonest. I don't think the jump yesterday had anything to do with the size of the settlement, which is huge by all accounts, but all the more with the "free at last" feelings of (potential) shareholders.

 

 

This whole thing is just insane.  Look at this line from the article:  "Bank of America has also agreed to pay as much as $490 million to homeowners who face larger tax bills after their mortgages are modified. Such debt relief may be taxable for the homeowner."

 

I wonder if there will be homeowners who have managed to keep their homes until now, who will have the sell them to pay the taxes on the "help" they receive.  Of course the press won't cover such stories, because it would make our lord and savior Obama sound bad.  Not prosecuting anyone, punishing the shareholders, the government keeping most of the cash and taxing the relief to the few who get any.  It is just absolute insanity from beginning to end.

 

[ni-co]

To celebrate BAC independence day, I went back to the beginnings of this thread and stumbled upon this Berkowitz interview:

 

http://www.cnbc.com/id/43343328

Video of interview (video is 1/4 down the page) with Bruce Berkowitz. Discussion re financials especialy BAC

 

I found it very interesting from today's point of view. Towards the 3:35 mark Berkowitz states that BAC is generating 45-50bn pre-tax pre-provisions. While I don't know what numbers is he exactly referring to (and was to lazy to look it up in the 2011 reports), it got me thinking about future earnings along those lines. In their Q2 earnings presentation they break out legacy asset servicing costs and litigation expenses.

 

Assuming they go away mid-term and therefore adding them back to the earnings this is how it looks like in Q2 2014:

 

Total revenue, net of interest expense: 22.0 bn

Noninterest expense: -18.5 bn

Litigation: + 4.0 bn

LAS: + 1.4 bn

Adj. pre-tax income in Q2: ~ 8.9 bn

 

@ 11.3 bn fully diluted common shares: ~ $0.78 per share

 

Extrapolating it for the whole year: ~35.6 bn or ~ $3.15 per share (~$2 per share @ 35% tax rate) – I don't come anywhere near Berkowitz's $45-50bn per year, though.

 

Since we've derived the $2 EPS in other ways this seems to be a realistic mid-term assumption.

[ERICOPOLY]

To celebrate BAC independence day, I went back to the beginnings of this thread and stumbled upon this Berkowitz interview:

 

http://www.cnbc.com/id/43343328

Video of interview (video is 1/4 down the page) with Bruce Berkowitz. Discussion re financials especialy BAC

 

I found it very interesting from today's point of view. Towards the 3:35 mark Berkowitz states that BAC is generating 45-50bn pre-tax pre-provisions. While I don't know what numbers is he exactly referring to (and was to lazy to look it up in the 2011 reports), it got me thinking about future earnings along those lines. In their Q2 earnings presentation they break out legacy asset servicing costs and litigation expenses.

 

Assuming they go away mid-term and therefore adding them back to the earnings this is how it looks like in Q2 2014:

 

Total revenue, net of interest expense: 22.0 bn

Noninterest expense: -18.5 bn

Litigation: + 4.0 bn

LAS: + 1.4 bn

Adj. pre-tax income in Q2: ~ 8.9 bn

 

@ 11.3 bn fully diluted common shares: ~ $0.78 per share

 

Extrapolating it for the whole year: ~35.6 bn or ~ $3.15 per share (~$2 per share @ 35% tax rate) – I don't come anywhere near Berkowitz's $45-50bn per year, though.

 

Since we've derived the $2 EPS in other ways this seems to be a realistic mid-term assumption.

 

Litigation won't be zero, and neither will LAS.  They've guided that they can get LAS down to at least $500m quarterly, perhaps lower.

 

There is also a $1b compensation expense that comes in Q1 each year -- so that's $250m per quarter.

 

So you need to add back $750m per quarter and then some more for normalized litigation.

 

It comes out to roughly $1.83 after tax per share.  So roughly a 13% ROTE.  But that's before litigation expense.  However 35% is too high of a tax rate -- I think they normally run at around 31% (getting you to around $1.90 before litigation).

 

 

[ni-co]

To celebrate BAC independence day, I went back to the beginnings of this thread and stumbled upon this Berkowitz interview:

 

http://www.cnbc.com/id/43343328

Video of interview (video is 1/4 down the page) with Bruce Berkowitz. Discussion re financials especialy BAC

 

I found it very interesting from today's point of view. Towards the 3:35 mark Berkowitz states that BAC is generating 45-50bn pre-tax pre-provisions. While I don't know what numbers is he exactly referring to (and was to lazy to look it up in the 2011 reports), it got me thinking about future earnings along those lines. In their Q2 earnings presentation they break out legacy asset servicing costs and litigation expenses.

 

Assuming they go away mid-term and therefore adding them back to the earnings this is how it looks like in Q2 2014:

 

Total revenue, net of interest expense: 22.0 bn

Noninterest expense: -18.5 bn

Litigation: + 4.0 bn

LAS: + 1.4 bn

Adj. pre-tax income in Q2: ~ 8.9 bn

 

@ 11.3 bn fully diluted common shares: ~ $0.78 per share

 

Extrapolating it for the whole year: ~35.6 bn or ~ $3.15 per share (~$2 per share @ 35% tax rate) – I don't come anywhere near Berkowitz's $45-50bn per year, though.

 

Since we've derived the $2 EPS in other ways this seems to be a realistic mid-term assumption.

 

Litigation won't be zero, and neither will LAS.  They've guided that they can get LAS down to at least $500m quarterly, perhaps lower.

 

There is also a $1b compensation expense that comes in Q1 each year -- so that's $250m per quarter.

 

So you need to add back $750m per quarter and then some more for normalized litigation.

 

It comes out to roughly $1.83 after tax per share.  So roughly a 13% ROTE.  But that's before litigation expense.  However 35% is too high of a tax rate -- I think they normally run at around 31% (getting you to around $1.90 before litigation).

 

Thanks! So, considering the NOLs one can reasonably expect better than $1.90 EPS, at least as soon as they start buying back shares, I guess.

[Mephistopheles]

^Yes so at $1.90 we have it trading at 8.5x + net deferred tax assets of $32 billion, which is roughly $3/share. But remember that doesn't all get realized right away. And then of course interest rates moving up is a free call option. With the economy is getting better and unemployment is coming down every month, I would bet on it rather than against it.

 

It still remains a very solid investment.

[ERICOPOLY]

The odd thing is... they appear to be building their capital level this quarter despite the settlement.

 

43 cents a share charge in Q3 is less than they are building, using their NOLs and disallowed DTAs.

 

That's pretty cool.

 

[Liberty]

Eric, I can't figure out what is the symbolism of your new avatar.

 

First you had Arthur Rothstein, which made sense for the big BAC bet.

 

Then a pretty lady, when BAC was starting to look better.

 

Then a fish when you were looking at Sears (no explanation needed).

 

And now..?  ???

[stahleyp]

Eric, I can't figure out what is the symbolism of your new avatar.

 

First you had Arthur Rothstein, which made sense for the big BAC bet.

 

Then a pretty lady, when BAC was starting to look better.

 

Then a fish when you were looking at Sears (no explanation needed).

 

And now..?  ???

 

I think it's a reference to A Gary Shilling and his predictive abilities. I'm basing that off the Macro Musing thread.

[karthikpm]

BofA's settlement in comparisont to Murdoch networth/iceland GDP

 

http://www.bloomberg.com/video/bofa-s-16-65b-bank-settlement-is-worth-more-than-murdoch-8tsxIbPsTJ6OaG4WoztonQ.html

[ERICOPOLY]

Eric, I can't figure out what is the symbolism of your new avatar.

 

First you had Arthur Rothstein, which made sense for the big BAC bet.

 

Then a pretty lady, when BAC was starting to look better.

 

Then a fish when you were looking at Sears (no explanation needed).

 

And now..?  ???

 

I think it's a reference to A Gary Shilling and his predictive abilities. I'm basing that off the Macro Musing thread.

 

Yes, because A. Gary Shilling is not too far from a "Madame Tarot" -- I mean, he sells predictions of the future... how is that too different?  That's his bread and butter.  Sort of like the same business model as a tarot card reader.

 

So I wanted to find out more about Madame Tarot, so I googled the name.  It came up with the usual image search, where I found these really cool "fortune cards".

 

The new avatar is a fortune card.  Sort of a tribute to the macro forecasters.

 

[Liberty]

Thanks. Makes sense.

 

Just trying to stay up-to-date on this real-world trivia game    8)

[Uccmal]

The odd thing is... they appear to be building their capital level this quarter despite the settlement.

 

43 cents a share charge in Q3 is less than they are building, using their NOLs and disallowed DTAs.

 

That's pretty cool.

 

The Earnings for 2010, 2011, 2012, 2013, and 2014 are roughly 30 B.  The amount being tossed around for fines, settlements etc. is 70 B. The legal run rate is maybe 20 B over that period - purely a guestimate - say 16 B above the normal run rate. 

 

EPS over those 5 years would have been in the realm of 115 B.  Divide that by 5 and you get 23 B per year.  $2.00 per share.  I have not even included the cost reductions in the LAS.  In a year or two we should be bumping up to $3.00 per share of cash flow. 

 

 

[Mephistopheles]

^Out of the $70bn, a significant amount was in security buybacks and consumer relief so I feel like the eps number is overstated.

[Uccmal]

^Out of the $70bn, a significant amount was in security buybacks and consumer relief so I feel like the eps number is overstated.

 

Maybe so... but if it hadn't been spent... just saying. 

[ERICOPOLY]

Jim Cramer sees $2 in 2016:

 

http://finance.yahoo.com/news/bac-pays-dues-freight-cars-173100867.html

 

[Uccmal]

Jim Cramer sees $2 in 2016:

 

http://finance.yahoo.com/news/bac-pays-dues-freight-cars-173100867.html

 

 

He's a genius.

[merkhet]

Jim Cramer sees $2 in 2016:

 

http://finance.yahoo.com/news/bac-pays-dues-freight-cars-173100867.html

 

 

He's a genius.

 

Agreed.

 

If only there was some way to figure this out earlier... then a small group of people who were able to ignore the noise would be significantly wealthier. c'est la vie

[xazp]

BAC's 2011 investor day (which is full of broken promises, btw) - they say normalized PPNR is $35-$40Bn. 

 

I have no idea why Berkowitz would say a few months later he thought it was $10Bn above BAC. 

 

But, I also remember on one of his calls, a caller asked if BAC paid a dividend, and he said "nope."  Which made me think ... does this guy know what he's talking about??

 

FWIW that presentation says:

 

BAC non-card, $30-$35Bn PPNR, $4Bn of loan losses = $26-$31Bn pre-tax income

BAC card, $15Bn PPNR, $7.5Bn of loan losses = $7.5Bn pre-tax income

 

So they were talking $33.5-$38.5Bn in pre-tax, or say $2-$2.30/share in earnings. 

 

That sounds about right to me.

 

 

To celebrate BAC independence day, I went back to the beginnings of this thread and stumbled upon this Berkowitz interview:

 

http://www.cnbc.com/id/43343328

Video of interview (video is 1/4 down the page) with Bruce Berkowitz. Discussion re financials especialy BAC

 

I found it very interesting from today's point of view. Towards the 3:35 mark Berkowitz states that BAC is generating 45-50bn pre-tax pre-provisions. While I don't know what numbers is he exactly referring to (and was to lazy to look it up in the 2011 reports), it got me thinking about future earnings along those lines. In their Q2 earnings presentation they break out legacy asset servicing costs and litigation expenses.

 

Assuming they go away mid-term and therefore adding them back to the earnings this is how it looks like in Q2 2014:

 

Total revenue, net of interest expense: 22.0 bn

Noninterest expense: -18.5 bn

Litigation: + 4.0 bn

LAS: + 1.4 bn

Adj. pre-tax income in Q2: ~ 8.9 bn

 

@ 11.3 bn fully diluted common shares: ~ $0.78 per share

 

Extrapolating it for the whole year: ~35.6 bn or ~ $3.15 per share (~$2 per share @ 35% tax rate) – I don't come anywhere near Berkowitz's $45-50bn per year, though.

 

Since we've derived the $2 EPS in other ways this seems to be a realistic mid-term assumption.

[Guest Dazel]

 

 

We re entered here a few months ago...in a very big way...I am pretty sure that we disclosed here...and at $20 I expected an invitation to go surfing with Ericopoly!

 

Time to go to sleep here I believe...we are about to be reevaluated on our business rather than our past and overhang of lawsuits and capital questions. We have retained all the capital that all the other major banks have paid out in dividends and buy backs...to pay off our massive legal bills. We have endured the pain now we will see the gain!

Merrill Lynch will become the greatest investment that B of A has made when history is written and they are printing money right now. The huge deposit base make B of A's brand, stability and earnings potential on par with the top brands globally.

 

Warren Buffett will make an absolute killing here.

 

 

Good luck to all!

 

Dazel

[ni-co]

Warren Buffett will make an absolute killing here.

 

Yes. This could very well become the greatest investment he has ever made (or at least we know of) – especially in absolute terms. Heck, maybe even in relative terms – which is absolutely amazing, when you think about it. When else do you get an opportunity to invest 5 bn at once with this kind of leverage and risk/reward ratio?