BAC-WT - Bank of America Warrants

[ourkid8]

Eric, you seem to be getting active in the BAC thread. Have you started buying leaps?

 

Looks like I picked the wrong week:

 

[indirect]

Crip,

 

Bac is getting close to its strike price so all the warrant price is for time value and leverage. Leaps may be cheaper

[ERICOPOLY]

Eric, you seem to be getting active in the BAC thread. Have you started buying leaps?

 

Looks like I picked the wrong week:

 

 

No, just riding it out. 

 

[AzCactus]

Eric, you seem to be getting active in the BAC thread. Have you started buying leaps?

 

Looks like I picked the wrong week:

 

 

The better question is would you be buying leaps. 

[rkbabang]

Crip,

 

Bac is getting close to its strike price so all the warrant price is for time value and leverage. Leaps may be cheaper

 

The leaps are pretty damn cheap, I should know I'm heavily invested in them.  :(

The market clearly thinks BAC is on the verge of a very, very bad year or two. What is this bear case everyone is apparently expecting to play out?  Bernie gets elected and throws Moynihan in jail without a trial, then seizes all BAC assets to pay for his socialist schemes (or 0.001% of them anyway)?  Short of that, I can't imagine why it should be trading under tangible book value right now.

 

[wescobrk]

I bought some april 2016 options with a strike price of $15.

I will either make a killing or get killed, ha.

[Guest Grey512]

Short of that, I can't imagine why it should be trading under tangible book value right now.

 

It's probably trading where's its trading due to concerns over the energy book exposure.

In addition, when general liquidity comes out of the market, it tends not to be great for FIs levered 10-to-1. Magical write-downs appear on the balance sheet and before long the TBV that you see turns out to be ephemeral. A 10-to-1 levered investment bank is the ultimate reflexive investment vehicle. The value is not one that you can touch & feel; it's all about perception. In an environment like the one we're entering today, reflexive things like i-banks, MLPs / drop-down stories, M&A advisors etc - all get crushed.

Another reason why it's trading here is because the bull thesis of 2014/15 was a rate lift-off. The market is now increasingly moving towards the idea that the Fed can't meaningfully raise rates and may even have to go and do QE again due to stubbornly low inflation and a coming blow-up in China + EM devaluations.

 

 

[ERICOPOLY]

Buy your LEAPS, and then get a copy of The Coldest Winter.

 

As your LEAPS get destroyed, keep reading -- the book will remind you that your suffering could be a lot worse, and it will never be as bad as what those men had to endure.  No matter how bad your losses, you'll understand that your suffering isn't really suffering.

[Guest Grey512]

Or go see The Revenant.

[CorpRaider]

Getting schlonged over here......with equanimity.  :o

[undervalued]

Buy your LEAPS, and then get a copy of The Coldest Winter.

 

As your LEAPS get destroyed, keep reading -- the book will remind you that your suffering could be a lot worse, and it will never be as bad as what those men had to endure.  No matter how bad your losses, you'll understand that your suffering isn't really suffering.

 

Or just buy the book and come back later to this thread or to the ZINC thread.

[meiroy]

 

Got some BAC leaps at yesterday's lows.  I really wanted this year to be the first year in a long time without any financials and to do more work on small caps... *bows head in shame*

[Hoodlum]

I moved a chunk of my common to LEAPs this morning.

[benchmark]

I moved a chunk of my common to LEAPs this morning.

 

What LEAP did you get?

[ERICOPOLY]

Stop buying LEAPS, it goes down every time you do that.  I want to see the stock go up for once.

 

[wescobrk]

I checked it this morning and saw wells up 2%. naturally I thought BAC would be up as well. Shows what i know for the short term (nothing, ha!).

BAC was down 2% this morning.

Unfortunately I can' add to my position for a couple of weeks. I intend to add as I think 15% below TBV when it is earning around 12% tbv should be transitory. As of this morning, my logic was inverted though.

[gary17]

this will either be the brightest or the worst decision of my life lol

bought some BAC today ....

 

I'm constant faced with buying for quality (Wfc) vs buying for Graham sticks (BAC).  time will tell.  ideally I like BAC to be a graham stock transitioning towards a quality franchise , and it seems like it is happening now. 

[Hoodlum]

I moved a chunk of my common to LEAPs this morning.

 

What LEAP did you get?

 

'17 @ $13.  I paid $2.15 but you can get it for less now.  LOL

[Viking]

I listened to all 4 earnings conference calls: BAC, C, WFC and JPM.

 

Of the 4, my takeaway is JPM is currently doing the best job; they are working the plan (have been for years) and are confident and executing very well. Legacy issues have been cleaned up and the future looks bright. The one big watch out is if the US government decides that the big US banks need to be broken up. JPM is medium risk good total return (12-15%).

 

WFC is a close second. Great management. I view WFC like a bond; you will get 8-10% per year but they do not have the upside of a JPM. WFC is low risk decent total return.

 

The last two C conference calls have my spidey senses tingling. The 'easy' fixes to their business have largely been completed (not easy but good on management for getting this far). C challenge is what do they do now? They are at a crossroads and it looks like to me that they are a deer in the headlights. I hope not. The stock is crazy cheap trading way below tangible book value. My guess is they may be the first to break up (forced).

 

BAC is a head scratcher for me. I think management is weak. I think they are still being held back a little by legacy issues. Their challenge may be that JPM and WFC have such a head start (years) that BAC may never catch up. It is strange to me that BAC has sold off as aggressively as C; BAC does not have C's emerging markets exposure. BAC's road forward also looks much simpler than C's. However, I think BAC's capital position is currently not as good as C's.

 

As an investor do you buy the cheapest (BAC and C?) or the best managed (JPM and WFC). Looking at stock performance the past 12 months the answer was buy quality.

[CorpRaider]

The schlonging intensifies...upside there's a 60% chance I will die in this blizzard, according to the weather channel.

 

Yeah I mean norwest is a good bank and all, but damn their wealth management bidness is sucking wind and they're trading at like 2.0 times TB.  I mean ken lewis was a moron and bryan moynihan is....but eventually we might get like number three at JPM, or USB or one of those CFOs that bailed for silicon valley or someone.

[ERICOPOLY]

For all the trillionaires their energy exposure is very small, losses are very manageable. 

 

As far as which trillionaire bank has the most risk averse culture, our opinions don't matter.

 

Those who must be obeyed (the FED) have spoken.  Projected loan losses and loan loss rate in severely adverse condition over 9 quarter stress period (only BAC use the same 9 quarter in stressing their energy portfolio, WFC use 12 mo, JPM use 18 mo) for 2015 DFAST:

 

BAC $45.7 Billion (4.9%)

C $48.3 Billion (7.2%)

JPM $49.7 Billion (6.4%)

WFC $48.8 Billion (5.8%)

 

Any idea what "severely adverse" oil price the FED used? 

 

 

[Rasputin]

severely adverse scenario for DFAST 2015 (stressed period began in Q4 2014), includes a rise in oil prices (Brent crude) to approximately $110 per barrel.

 

Severely adverse scenario:

Deep and prolonged recession in which unemployment rises by 4% from its level in Q3 2014, peaking at 10% in the middle of 2016.  By the end of 2015, level of real GDP is approximately 4.5% lower than its level in the 3rd quarter of 2014; it begins to recover thereafter.  Despite this decline in real activity, higher oil prices cause the annualized rate of change in the Consumer Price Index to reach 4.3% in the near term, before subsequently falling back.  In terms of both the peak level reached by the unemployment rate and its total increase, this shock is of similar magnitude to those experienced in severe US contractions during the past half century. 

 

In response to this economic contraction - and despite the higher near term path of CPI inflation - short term interest rates remain near zero through 2017; long term Treasury yields drop to 1% in Q4 2014 and then edge up slowly over the remainder of the scenario period.  Driven by the assumed decline in corporate credit quality, spreads on investment grade corporate bond jump from about 170 bp to 500 bp at their peak.  As a result, despite lower long-term Treasury yields, corporate financial conditions tighten significantly in 2015 and the yield on investment grade corporate bonds is higher than the baseline until Q4 2016.  Mortgage rates also increase over the course of 2015, driven by widening in spreads.

 

Consistent with these developments, asset prices contract sharply in the scenario.  Equity prices fall by 60% from Q3 2014 to Q4 2015, and equity market volatility increases sharply.  House prices decline by approximately 25% during the scenario period relative to their level in Q3 2014, while CRE prices are more than 30% lower at their trough. 

 

The international component features severe recessions in the euro area, the UK, and Japan; and below trend growth in developing Asia.  For economies that are heavily dependent on imported oil - including developing Asia, Japan, and the euro area - the economic weakness is exacerbated by the rise in oil prices feature in this scenario.  The euro-area recession begins in Q4 2014, the economy continues to contract through Q4 2015; the level of euro-area real GDP contracts by 5% during the recession.  The UK also experiences a recession in 2015, and its real GDP falls by 3.5% relative to level in Q3 2014.  Economic activity is assumed to weaken materially for 2 quarters in developing Asia before rebounding strongly, while the adverse effects on Japan real GDP are assumed to persist so that level of Japan's real GDP is approximately 10.5% lower by the end of Q2 2016 than in Q3 2014. 

 

There is also Global Market shock components for severely adverse scenario with most declines comparable to those experienced in 2008.  Products with favorable current market valuations are assumed to experience greater declines.  Notably, mortgage backed securities are among the assets being liquidated by distressed, leveraged entities, causing significant increases in the option-adusted spreads on agency mbs. 

[mankap]

Why is BAC trading at such a big discount to TBV

Does the market expect that BAC will have to write down the assets by $20B?

[ERICOPOLY]

Why is BAC trading at such a big discount to TBV

Does the market expect that BAC will have to write down the assets by $20B?

 

Try $34 billion in write-downs (at a 31% tax rate).

[redskin]

What are you expecting for the buyback request this year?  Last year BAC exceeded the minimum capital levels in the severely adverse scenario by $20 billion.  Correct me if I'm wrong, but I think the Fed restricts capital return to no more than the previous 12 months earnings.  Even though they had a lot more excess capital, BAC only returned $4.5B through stock buybacks and dividends since 2014 net income was only $4.8B. 

 

Since BAC started with $20 billion in excess capital and added another $10B+ over the last 12 months, do you think BAC will request the full amount of the past 12 months earnings?  They earned close to $16B last year.