BAC-WT - Bank of America Warrants

[Guest Dazel]

http://www.thestreet.com/story/11760852/3/bank-of-america-has-30-upside-analyst.html

 

 

Don't usually post this stuff...but really have not seen anyone besides this board be positive on bac!

 

Dazel.

[ERICOPOLY]

http://www.thestreet.com/story/11760852/3/bank-of-america-has-30-upside-analyst.html

 

 

Don't usually post this stuff...but really have not seen anyone besides this board be positive on bac!

 

Dazel.

 

They did however manage to find a very pessimistic return of capital estimate to throw in there from a separate analyst:

 

 

While Staite didn't offer any predictions on an increased return of capital to investors during 2013, Deutsche Bank analyst Matt O'Connor on Tuesday estimated that Bank of America would return a total of $2.981 billion to common shareholders next year, through $1.481 billion in dividends, plus $1.500 billion in share buybacks. The analyst expects Bank of America's 2013 dividend yield on common shares to be 1.3%.

[thomcapital]

Today ISI upgraded BAC to Buy from Hold - taking into account the excess capital / shareholder returns BAC will generate, the future cost cuts, and BAC having a better grasp of its potential legal issues. What I thought was interesting is the analyst acknowledges BAC could see $18b in cost cuts, but expects just $8b to be realized by FYE '15, net of core opex growth, retirement costs and $1b/yr. of ongoing legal expense.

 

I know the cost saves are a key part of the thesis and just wanted to put this out there (see attached).

[Parsad]

Today ISI upgraded BAC to Buy from Hold - taking into account the excess capital / shareholder returns BAC will generate, the future cost cuts, and BAC having a better grasp of its potential legal issues. What I thought was interesting is the analyst acknowledges BAC could see $18b in cost cuts, but expects just $8b to be realized by FYE '15, net of core opex growth, retirement costs and $1b/yr. of ongoing legal expense.

 

I know the cost saves are a key part of the thesis and just wanted to put this out there (see attached).

 

Thanks Thom!  If these guys were so accurate, then why did it take them so damn long to upgrade this thing from hold to buy?  ;D 

 

Analysts want to be perfect and accurate.  Investing is never perfect and accurate.  There is an innate disconnect from what analysts do and what actually happens in markets.  With BAC, like most stocks, the simple argument is often the correct one. 

 

They are running off poor loans, and settling litigation...those costs will decrease over time.  They are writing better quality loans, and tightening the corporate culture and how they do business...that will increase the operating income of the company over time.  In between, they are cutting costs to get the business as efficient as possible.  The stock will continue to go up until it comes close to book value, at which point, the value will be based on how the business is run hence forward relative to their peers.  Everything else is just an estimate until tested in the real world and the actual results come in.  Cheers! 

[ERICOPOLY]

What I thought was interesting is the analyst acknowledges BAC could see $18b in cost cuts, but expects just $8b to be realized by FYE '15, net of core opex growth, retirement costs and $1b/yr. of ongoing legal expense.

 

That's bizarre to say net of $1b/yr of ongoing legal expense.  Those legal expenses already exist, and will come down if anything, thus they don't drag on the future expense reduction that is unrelated to legal.

 

I get the feeling these analysts work for big buyers of stock who want to acccumulate at low prices.

[ERICOPOLY]

Today ISI upgraded BAC to Buy from Hold - taking into account the excess capital / shareholder returns BAC will generate, the future cost cuts, and BAC having a better grasp of its potential legal issues. What I thought was interesting is the analyst acknowledges BAC could see $18b in cost cuts, but expects just $8b to be realized by FYE '15, net of core opex growth, retirement costs and $1b/yr. of ongoing legal expense.

 

I know the cost saves are a key part of the thesis and just wanted to put this out there (see attached).

 

I read it now.

 

The analyst is basically saying that the NewBAC and LAS put together will save $18b, but other expenses in the business will grow as the business grows.

 

Well... duh.

 

Will Wells Fargo's expenses be higher in 10 years?  Yes. 

 

The big question is not whether or not any given business will see expenses rise over time, as they certainly will, it's whether they'll rise in excess of revenue gains.

 

And meanwhile, for the given present level of revenue can they squeeze out $18b of costs.  Yes, they can and more than that when you think of the opportunity in their funding costs.

 

 

 

[bennycx]

Today ISI upgraded BAC to Buy from Hold - taking into account the excess capital / shareholder returns BAC will generate, the future cost cuts, and BAC having a better grasp of its potential legal issues. What I thought was interesting is the analyst acknowledges BAC could see $18b in cost cuts, but expects just $8b to be realized by FYE '15, net of core opex growth, retirement costs and $1b/yr. of ongoing legal expense.

 

I know the cost saves are a key part of the thesis and just wanted to put this out there (see attached).

 

Just want to inject in there. I work for one of the banks and most of the time analysts are looking for 12-month projection of target prices. Being a value investor would mean waiting out longer than a year and that's the reason why it would be difficult for an analyst to put a recommendation that is "against the trend". It would then seem that the target price is decided first, then the fundamentals used to justify the price, rather than the other way round.

 

That's also why you see some analysts agreeing with us "over the long term" but still recommend the other side of the trade.

 

Also an analyst is incentivise to put out a report that sells and sometimes that would subconsciously mean putting out a report that is popular rather than being right.

[thomcapital]

That's bizarre to say net of $1b/yr of ongoing legal expense. Those legal expenses already exist, and will come down if anything, thus they don't drag on the future expense reduction that is unrelated to legal.

 

I get the feeling these analysts work for big buyers of stock who want to acccumulate at low prices.

 

Agreed, I didn't really want to write it, but I'm just paraphrasing the analyst. I was hoping it might generate some discussion around BAC's core future expenses (and the real possibility that it will grow over time, but hopefully offset by revenue growth of course), but I admit it's probably just a big unknown at this point.

 

I'm pretty sure if ISI was working as you suggest, he wouldn't have upgraded the stock today, or put out those positive comments about the G-SIB capital requirement last week which were quoted earlier in this thread.  :)

[ERICOPOLY]

That's bizarre to say net of $1b/yr of ongoing legal expense. Those legal expenses already exist, and will come down if anything, thus they don't drag on the future expense reduction that is unrelated to legal.

 

I get the feeling these analysts work for big buyers of stock who want to acccumulate at low prices.

 

Agreed, I didn't really want to write it, but I'm just paraphrasing the analyst. I was hoping it might generate some discussion around BAC's core future expenses (and the real possibility that it will grow over time, but hopefully offset by revenue growth of course), but I admit it's probably just a big unknown at this point.

 

I'm pretty sure if ISI was working as you suggest, he wouldn't have upgraded the stock today, or put out those positive comments about the G-SIB capital requirement last week which were quoted earlier in this thread.  :)

 

I guess so it's just weird.  He could talk away any company's expense reductions by saying that over the years compensation costs will rise and thus there are really no annual expense reductions.

 

Nothing to see here, move along.

[Parsad]

Today ISI upgraded BAC to Buy from Hold - taking into account the excess capital / shareholder returns BAC will generate, the future cost cuts, and BAC having a better grasp of its potential legal issues. What I thought was interesting is the analyst acknowledges BAC could see $18b in cost cuts, but expects just $8b to be realized by FYE '15, net of core opex growth, retirement costs and $1b/yr. of ongoing legal expense.

 

I know the cost saves are a key part of the thesis and just wanted to put this out there (see attached).

 

Just want to inject in there. I work for one of the banks and most of the time analysts are looking for 12-month projection of target prices. Being a value investor would mean waiting out longer than a year and that's the reason why it would be difficult for an analyst to put a recommendation that is "against the trend". It would then seem that the target price is decided first, then the fundamentals used to justify the price, rather than the other way round.

 

That's also why you see some analysts agreeing with us "over the long term" but still recommend the other side of the trade.

 

Also an analyst is incentivise to put out a report that sells and sometimes that would subconsciously mean putting out a report that is popular rather than being right.

 

Hi Benny, that was my main point about the disconnect between analysts and investing.  They are incentivized to take the short-term view, which often involves time arbitrage on being correct...thus they have such terrible records.  Investors with a long-term horizon do not take on such risk, and thus behave very differently.  Cheers! 

[PlanMaestro]

Here he goes again. Whalen. At least he is backing down from his restructuring nonsense.

 

http://video.foxbusiness.com/v/1956232541001/

[CONeal]

I think ya'll are being to hard on analysts.  They do have a place in the market b/c if it weren't for them alot of us (including myself) would have been able to take 1.5 years to build a position.  ;D

[Parsad]

I think ya'll are being to hard on analysts.  They do have a place in the market b/c if it weren't for them alot of us (including myself) would have been able to take 1.5 years to build a position.  ;D

 

True!  This one was a slow build like Fairfax.  People had plenty of time to jump aboard.  They also had four years to jump on the Overstock wagon!  ;D  Cheers!

[xazp]

http://online.wsj.com/article/SB20001424127887323894704578107303661248088.html?ru=yahoo?mod=yahoo_itp

 

Bond insurer MBIA Inc. MBI -5.65% rolled out a new strategy to shore up its finances and said it is seeking a settlement with Bank of America Corp. BAC +1.73% over a web of lawsuits.

 

 

[Parsad]

http://online.wsj.com/article/SB20001424127887323894704578107303661248088.html?ru=yahoo?mod=yahoo_itp

 

Bond insurer MBIA Inc. MBI -5.65% rolled out a new strategy to shore up its finances and said it is seeking a settlement with Bank of America Corp. BAC +1.73% over a web of lawsuits.

 

Both will be up if there is a settlement.  But a settlement for BAC has little to no impact on their finances (already provisioned).  For MBIA, it could mean the difference between success and failure.  In fact, I think they are getting concerned enough now where they are moving into a defensive position and trying to pretty much target BAC into a settlement.  I'd like to see BAC continue to settle more cases if favorable.  Cheers!

[meiroy]

 

Bank of America Loses Bid to Dismiss FHFA Mortgage Bonds

http://www.bloomberg.com/news/2012-11-09/bank-of-america-loses-bid-to-dismiss-fhfa-mortgage-bonds.html?cmpid=yhoo

 

"

Bank of America Loses Bid to Dismiss FHFA Mortgage Bonds

By Edvard Pettersson - Nov 9, 2012 1:01 PM GMT+0800

 

Bank of America Corp.’s Merrill Lynch & Co. unit must face a lawsuit by the Federal Housing Finance Agency, the conservator for Fannie Mae and Freddie Mac, over mortgage-backed securities sold by the investment bank.

 

U.S. District Judge Denise Cote in New York yesterday denied Merrill’s request to dismiss the FHFA’s securities law and fraud claims, except for fraud claims based on loan-to-value ratios and ownership-occupancy reporting. The judge said FHFA had failed to sufficiently allege fraudulent intent for those claims. "

 

[MrB]

I think ya'll are being to hard on analysts.  They do have a place in the market b/c if it weren't for them alot of us (including myself) would have been able to take 1.5 years to build a position.  ;D

 

Ditto! More power to them!

[MrB]

Possible contributors to Lollapalooza Effect at BofA over the long run?

This is not to ignore the risks/downside. Let's assume for a moment it works out beyond our wildest expectations. If we look back in 10 years, what would we say we could have seen now that would have pointed to BofA possibly working out fantastically?

 

• Economic recovery, slowly but surely
  
• Fundamental shift in the business model of BofA. More like Wells Fargo
  
• O'Neal and his predecessor's dream of marrying BofA and Merrill's. Turns out to be a great idea.
  
• Countrywide's contribution once its fixed.
  
• Business wins from European banks as they still have to deleverage massively.
  
• Big banks come out stronger at the expense of smaller banks and end up with a bigger piece of the pie.
  
• Moynihan ends up being an astute capital allocator, even in the good times.
  
• General sentiment changes towards the banks leading to P/BV multiples of 2 and above again.
   
  

 

Agree, disagree? Care to add any?

 

 

[Sunrider]

Add:

- regulators (and their political overlords) coming to their senses with respect to creating regulatory certainty that banks can manage to (and that permits them to earn returns above CoC on larger capital requirements)

[dcollon]

New Basel bank regulations will not be implemented in Jan 2013 as previously scheduled -- CNBC

Friday, November 09, 2012 02:36:28 PM (GMT)

 

 

New Basel III capital rules will not be implemented in Jan 2013 due to industry concerns

StreetAccount notes the FSB announced on 5-Nov that fewer than one-third of banks on the FSB's list would be able to implement the new regulations in time (see attached comment)

[MrB]

Add:

- regulators (and their political overlords) coming to their senses with respect to creating regulatory certainty that banks can manage to (and that permits them to earn returns above CoC on larger capital requirements)

 

I picked this up from the following TMF post. http://boards.fool.com/bac-29413181.aspx?sort=whole#29413181

 

 

"Business History

 

Bank of America traces its roots back over 100 years to 1904, when Amadeo Giannini founded the Bank of Italy in San Francisco to cater to immigrants who were denied service by other banks. When the 1906 San Francisco earthquake struck, Giannini was able to get all of the deposits out of the bank and away from the fires while almost every other bank was destroyed in the disaster. Giannini was able to use the rescued funds to start lending to people looking to rebuild. Deposits rose quickly from $8,750 to over $700,000 in the first year of operation.

 

Mergers and acquisitions are nothing new in the banking space and Giannini made his first in 1918, buying Banca dell'Italia Meridionale to form Bank of America and Italy. In 1928 Giannini acquired Bank of America, Los Angeles and renamed the entire company Bank of America. What followed over the next century showcases the cyclical nature of the banking industry, where rapid growth was followed by either disaster or regulation to curb that growth, and disaster was of course followed by yet more regulation to curb future disasters, followed by recovery:

 

 

                                                rapid growth

                                              /

                                      recovery

                                      /

            regulation to curb growth

            /

rapid growth

            \

            disaster

                    \

                      regulation

                                \

                                recovery

                                        \

                                          rapid growth

 

 

Regulation in the 50's forced BAC to spin off their insurance business, forming Transamerica in the process. More regulation forced them to spin off their domestic banks, creating First Interstate Bankcorp. Also in the 50's BAC created what would later become the Visa card, later setting the segment up as a separate entity in the 70's. Changes in regulations in the late 60's allowed BAC to once again own out-of-state banks if it was restructured as a bank holding company, and so BAC set out to again expand across the United States in the 70's and early 80's.

 

BAC's overexposure to Third World Debt hammered them in the late 80's and the company survived only by selling off large parts of itself. By the early 90's the company had recovered and started on one of its biggest acquisition and expansion sprees ever until disaster struck once again in 1998 with the Russian bond default, and Bank of America had to be acquired to be saved. Though NationsBank acquired Bank of America in 1999, NationsBank decided to keep the Bank of America name for the merged company. The merged company started out to yet again grow through acquisition, reaching mammoth proportions in the 2000's as it acquired FleetBoston, MBNA, LaSalle Bank Corporation, US Trust Corporation, and others under the leadership of CEO Ken Lewis.

 

That brings us to BAC's current financial crisis which, as we can see, is only one of many in the company's history. The stage for disaster was set with two acquisitions. Bank of America acquired Countrywide in 2007 for $4.1 billion, making BAC the largest mortgage originator and servicer in the US, controlling 25% of the market. Then in 2008 Bank of America bought Merrill Lynch in an all-stock deal for $50 billion. The rest is history. Shortly after both acquisitions it was revealed that both Countrywide and Merrill were suffering from massive losses, requiring large writedowns and the infusion of large amounts of new capital. BAC's stock price plummeted from the pre-crisis $50 range to $3.14 a share in March 2009. The stock has since recovered to only the $10-$11 range."

[Sunrider]

:)

 

Boom and Bust ... so let's hope Mr. Moynihan is also a student of history.

[MrB]

New Basel bank regulations will not be implemented in Jan 2013 as previously scheduled -- CNBC

Friday, November 09, 2012 02:36:28 PM (GMT)

 

 

New Basel III capital rules will not be implemented in Jan 2013 due to industry concerns

StreetAccount notes the FSB announced on 5-Nov that fewer than one-third of banks on the FSB's list would be able to implement the new regulations in time (see attached comment)

 

Also, it makes it a heads I win, tails I win on this one. That is what why fixing the balance sheet is first and foremost. Even before buying back stock, because it creates options.

 

Consider BofA's position in light of the following from this article http://www.moneyweek.com/investments/stock-markets/us/is-it-time-to-buy-american-banks-22400

 

 

http://www.flickr.com/photos/88455974@N02/8169753698/

 

Attached it if you cannot view the pic

 

If Basel lll is implemented BofA wins more business because the non-US banks have to raise capital/shrink BS and if it is not then BofA wins more business because it can grow/lever up faster.

 

I doubt Basel lll in its current form will be implemented, because the question is with European banks levered as they are, how is it possible for Basel lll to be implemented? Take the UK banks in the pic. Implement Basel lll in that scenario? Good luck. The European banks are levered even more.

[PlanMaestro]

Great points MrB.

 

My question now, if we are 10y into the future and Bank of America was a disaster of an investment. What could have happened?

 

Also, it makes it a heads I win, tails I win on this one. That is what why fixing the balance sheet is first and foremost. Even before buying back stock, because it creates options.

…

 

If Basel lll is implemented BofA wins more business because the non-US banks have to raise capital/shrink BS and if it is not then BofA wins more business because it can grow/lever up faster.

[xazp]

capital returns just got a lot easier:

http://www.federalreserve.gov/newsevents/press/bcreg/20121109b.htm

 

"In a change from prior years, following the Federal Reserve's assessment of the initial capital plans, CCAR firms will have one opportunity to make a downward adjustment to their planned capital distributions from their initial submissions before a final Federal Reserve decision is made. "

 

i.e. if you asked for $10Bn in capital returns, and you missed by $500MM, you can just ask for a $9.5Bn capital return. 

 

Pandit would still have a job if this rule were enacted last year; but it also means that the banks will be pretty close to max capital returns allowable without so much guessing.