BAC-WT - Bank of America Warrants

[tylerdurden]

What I read from multiple sources is that he wanted to run a business inside BofA but they didn't give that to him obviously. He could run a business unit in a smaller bank I think. It should not create any issues like succession etc. for BofA anyways. That's what I care...

[CorpRaider]

Perhaps, he can run the capital calculations and stress tests for WFC or JPM.  Swap him out.  Even trade?

[EliG]

Bank of America Stiffs Shareholders

 

To my mind, the core issue is not whether the bank is well or poorly run, or whether Mayo is right or wrong about the stock. It is the contempt the Bank of America board showed for its shareholders in quietly amending the bylaw — a contempt too often shown by boards that are supposed to protect shareholders, not defy them.

 

What the bank’s board did last October is not the biggest scandal ever; I know that. Instead, it’s the kind of small, corrosive scandal that too often marks the behavior of the modern company board.

[ERICOPOLY]

Getting pretty close to tangible book value. With nearly two months of earnings under our belt for the quarter, might already be there based on the after hours trading price.

 

I suppose tangible book value is what you'd have to pay to go start your own bank from scratch -- if you actually knew how to do something like that. 

[Uccmal]

Bank of America Stiffs Shareholders

 

To my mind, the core issue is not whether the bank is well or poorly run, or whether Mayo is right or wrong about the stock. It is the contempt the Bank of America board showed for its shareholders in quietly amending the bylaw — a contempt too often shown by boards that are supposed to protect shareholders, not defy them.

 

What the bank’s board did last October is not the biggest scandal ever; I know that. Instead, it’s the kind of small, corrosive scandal that too often marks the behavior of the modern company board.

 

Dude has had a hate on for BAC as long as I can recall.  He is the one that prompted Jamie Dimon to make the comment "thats why I am richer than you".  If analysts get paid by the sound bite Mayo will make the most hands down.

[Uccmal]

Getting pretty close to tangible book value. With nearly two months of earnings under our belt for the quarter, might already be there based on the after hours trading price.

 

I suppose tangible book value is what you'd have to pay to go start your own bank from scratch -- if you actually knew how to do something like that. 

 

I am back in with a fair size Leaps bet.  Actually got some Leaps really cheap this morning before things rebounded some - I think the stock was below tangible then. 

 

Do you suppose tangible book value accounts for the billions in regulatory expenses to start up a beast like BAC?

[ERICOPOLY]

Getting pretty close to tangible book value. With nearly two months of earnings under our belt for the quarter, might already be there based on the after hours trading price.

 

I suppose tangible book value is what you'd have to pay to go start your own bank from scratch -- if you actually knew how to do something like that. 

 

I am back in with a fair size Leaps bet.  Actually got some Leaps really cheap this morning before things rebounded some - I think the stock was below tangible then. 

 

Do you suppose tangible book value accounts for the billions in regulatory expenses to start up a beast like BAC?

 

Good work.  You have been doing this trade a couple of times this year.

 

[undervalued]

Getting pretty close to tangible book value. With nearly two months of earnings under our belt for the quarter, might already be there based on the after hours trading price.

 

I suppose tangible book value is what you'd have to pay to go start your own bank from scratch -- if you actually knew how to do something like that. 

 

I am back in with a fair size Leaps bet.  Actually got some Leaps really cheap this morning before things rebounded some - I think the stock was below tangible then. 

 

Do you suppose tangible book value accounts for the billions in regulatory expenses to start up a beast like BAC?

 

I have never invested in BAC warrant before.. I am wondering what make you so sure that you can make money on the warrant? Is this more a short term holding (making money on the up/down of the stock) when it hits tangible book value?

[gary17]

Not sure how good these guys are but there's an article in the Bull & Bear newsletter

 

http://www.thebullandbear.com/Reports/BB/BB_pdf/BB-0815.pdf

 

• Bank of America (BAC). We believe

Bank of America will outperform

peers over the next 3 years as expense

management, rising rates, and higher

capital return together drive a 15%

EPS CAGR 2015-18e.

Expense declines are the primary

reason to own BAC, we believe. We

expect Legacy Asset Servicing (LAS)

costs to decline from the current $1

billion quarterly run-rate to $0.6B by

4Q16 en route to below $0.5B in 2017

as BAC works out pre-crisis delinquent

loans. Outside of LAS, we expect BAC

to improve efficiency through lower

comp ratios, increased automation,

and more branch consolidation.

BAC’s comp / revenue ratio of 40% in

2014 was highest among both money

centers and super-regionals (median

34% at peers), and we see room for

BAC to bring this down, particularly

in the investment bank. To be clear,

management has not said they are

planning to lower comp ratios, only

that they will manage expenses to

grow slower than revenues. Our view

is that BAC will hold the core expense

CAGR at 3% over the next 3 years

while driving a 5% core revenue CAGR

by paying out less on incremental

revenues, as their investment banking

peers have been doing. We expect

BAC’s core expense ratio (ex-legal and

LAS) to fall from 59% in 2015 to 55%

in 2018, while the overall expense ratio

declines from 67% to 59%.

Among the biggest beneficiaries of

rising rates. BAC sources 52% of its

deposits from consumers, above the

peer median of 35%; has 47% of its

loans tied to front-end floating rates

(peers 41%); and has been marking its

bond portfolio through its Net Interest

Income line due to FAS 91, setting up

for a sharp rise in NII as short and

long term rates rise. If the forward

curve shifts up 100bp from March

31 levels, BAC estimates NII would

increase by $4.6B, or $0.27 (or 16%)

upside to EPS, highest in our coverage

group. We model 2018 NII to be $7B

above 2015 (5% CAGR), with one-third

of the increase from rising rates and

two-thirds from earning asset growth.

Expect payout ratios to rise as

strong earnings drive capital accretion.

BAC already has a strong 9.1% Basel

3 Common Tier 1 ratio, and we expect

35-40bps in capital accretion per

quarter from earnings and deferred tax

asset utilization. Model approvals and

active risk-weighted asset mitigation

are also likely benefits going forward.

These should drive net payout ratios

up from 27% in 2015 to 65% in 2018,

boosting total yield from 2.5% to 8.7%.

Risk Reward on a 12-month view

(Overweight, PT $20)

[Uccmal]

Getting pretty close to tangible book value. With nearly two months of earnings under our belt for the quarter, might already be there based on the after hours trading price.

 

I suppose tangible book value is what you'd have to pay to go start your own bank from scratch -- if you actually knew how to do something like that. 

 

I am back in with a fair size Leaps bet.  Actually got some Leaps really cheap this morning before things rebounded some - I think the stock was below tangible then. 

 

Do you suppose tangible book value accounts for the billions in regulatory expenses to start up a beast like BAC?

 

I have never invested in BAC warrant before.. I am wondering what make you so sure that you can make money on the warrant? Is this more a short term holding (making money on the up/down of the stock) when it hits tangible book value?

 

Are you talking about the warrants or Leap options?  The warrants will track the stock price pretty much dollar for dollar now that they are in the money, very slowly decaying in value as they approach expiration.  The value decline will be offset by the dividend adjustments. 

 

The Leaps (2017 expiry) will jump around.  They are more meant for trading.  If the stock rises to the high $17/18 dollar value I will be out and ready for the next "correction".  I have held Leaps to maturity a couple of times to push off the tax man when they were so deep in the money there was no prospect of loss, a couple of times out of hundreds.  The reason to use Leaps versus short term options is on case you get caught on the wrong side you have time to recover.  Always be prepared to lose money using derivatives. 

[Uccmal]

I wonder of Moynihan will resign if he is turfed as Chairman? 

[benchmark]

I wonder of Moynihan will resign if he is turfed as Chairman?

 

I don't think he will, he is well-paid and he won't find another gig like this.

[Uccmal]

BAC exits parallel run:

 

http://www.marketwatch.com/story/regulators-allow-bank-of-america-to-use-own-calculations-for-capital-2015-09-03

 

Recall that BAC had to resubmit capital plans for August.  Now its all in the rear view. 

[benchmark]

@Uccmal, a question on the leaps, I still have some $15  Jan 16 leaps (didn't sell all with the last run-up), as the time value decrease each day -- is there a good way to hedge that risk of BAC side ways till expiration?

[tylerdurden]

I wonder of Moynihan will resign if he is turfed as Chairman?

 

Why would he resign? If they lose the voting, BAC won't be the first company which has chairman and CEO positions separated. It's annoying to see the Board making this huge mistake of ignoring shareholders' previous decision and now they are trying to clean their mess. It could have been an easy transition if they have consulted the investors right at the beginning when they wanted to change the structure again. Now some investors understandably are pissed off and shareholder advisory firms are attacking like sharks. No idea what the outcome would be but assuming no major impact on financial performance of the company.

[Uccmal]

@Uccmal, a question on the leaps, I still have some $15  Jan 16 leaps (didn't sell all with the last run-up), as the time value decrease each day -- is there a good way to hedge that risk of BAC side ways till expiration?

 

Not anything I have found.  I generally am long gone from near date options (< 1 year) before expiry. 

 

I will be out of the 2017s by January 2016 and into the 2018s when/if the opportunity is there.  I had to get rid of the buy and hold mentality with derivatives.  When I get good gains I get out of the way.  Experience has taught me that opportunity nearly always presents itself again along the way.  This has certainly been true with BAC.  I was out of BAC Leaps until the recent pullback.

 

This is not to say I dont practice buy and hold in other ways.  90% of my stocks I seldom trade. 

[benchmark]

@Uccmal, a question on the leaps, I still have some $15  Jan 16 leaps (didn't sell all with the last run-up), as the time value decrease each day -- is there a good way to hedge that risk of BAC side ways till expiration?

 

Not anything I have found.  I generally am long gone from near date options (< 1 year) before expiry. 

 

I will be out of the 2017s by January 2016 and into the 2018s when/if the opportunity is there.  I had to get rid of the buy and hold mentality with derivatives.  When I get good gains I get out of the way.  Experience has taught me that opportunity nearly always presents itself again along the way.  This has certainly been true with BAC.  I was out of BAC Leaps until the recent pullback.

 

This is not to say I dont practice buy and hold in other ways.  90% of my stocks I seldom trade.

 

Thanks. One thing that I'm curious is if there is a Sept./Oct. rate hike, why haven't all the big banks' share gone up?

[TwoCitiesCapital]

@Uccmal, a question on the leaps, I still have some $15  Jan 16 leaps (didn't sell all with the last run-up), as the time value decrease each day -- is there a good way to hedge that risk of BAC side ways till expiration?

 

Not anything I have found.  I generally am long gone from near date options (< 1 year) before expiry. 

 

I will be out of the 2017s by January 2016 and into the 2018s when/if the opportunity is there.  I had to get rid of the buy and hold mentality with derivatives.  When I get good gains I get out of the way.  Experience has taught me that opportunity nearly always presents itself again along the way.  This has certainly been true with BAC.  I was out of BAC Leaps until the recent pullback.

 

This is not to say I dont practice buy and hold in other ways.  90% of my stocks I seldom trade.

 

Thanks. One thing that I'm curious is if there is a Sept./Oct. rate hike, why haven't all the big banks' share gone up?

 

Because short term rates don't affect long-term rates. Just because short term rates rise 25 bps doesn't tell you anything about the rate on a 30 year mortgage where the money is actually made. The short end only affects the cost of funding. Also, you have to consider that there's never been a country that made it off the 0 bound without having to reverse course on rates. Markets know this so why would you give the banks a big boost if you think it's likely to be reversed.

[benchmark]

Because short term rates don't affect long-term rates. Just because short term rates rise 25 bps doesn't tell you anything about the rate on a 30 year mortgage where the money is actually made. The short end only affects the cost of funding.

It may not impact 30yr mortgage, but it should help their bottom line. For example, I think all the variable mortgage and home equity loan, etc will bring in more money.

Also, you have to consider that there's never been a country that made it off the 0 bound without having to reverse course on rates. Markets know this so why would you give the banks a big boost if you think it's likely to be reversed.

Are you talking about Japan and Sweden's rate increase, then subsequent decrease recently?

[ERICOPOLY]

There is a huge short term securities portfolio.

[Mephistopheles]

Moynihan has said their income is levered 2/3 to short term rates and 1/3 to long term. Also that 100bps is $3-4 billion change in income, all else being equal.

[TwoCitiesCapital]

Moynihan has said their income is levered 2/3 to short term rates and 1/3 to long term. Also that 100bps is $3-4 billion change in income, all else being equal.

 

Sure, but that's BofA. The question wasn't why haven't all big banks rallied. In general, the shorter end of rates will more impact on the cost of funding while the movement of the long-end rates will determine how profitable banks are. It's the steepness of the curve that matters - not so much the absolute level of rates (the the higher rates are, the easier it is to get away with wider NIMs). In a rate rising cycle, the steepness of the curve generally flattens so this isn't necessarily bullish for traditional banking earnings.

 

That being said - if other units, or asset stockpiles, benefit from rising rates, it can offset the impact to the traditional banking profits. None of this really matters though if the Fed has to reverse course in 12-18 months.

[Uccmal]

I am generally assuming no changes in rates in the foreseeable future.  Bac is getting stronger with each quarter without any rate increase.  An increase in NIMs would be gravy at this point. 

[gary17]

I wonder how exposed BAC is to all the financial stuff going on in China  & Europe .....

 

 

I am waiting, and still waiting, to receive my first meaningful BAC dividend....  hope USD to CAD stays strong LOL

[Uccmal]

I sold 20% of my Leaps going into this morning. 

 

After the feds non announcement I bought them all back at a discount in the last 30 minutes.

 

To think people actually thought the fed might raise rates. ...