BAC-WT - Bank of America Warrants

[Parsad]

Late last year I sold my MBI to purchase more BAC.  When txlaw asked me why, I said it was because Jay Brown looks to be too greedy -- that he won't settle until BAC pays in full.  This may be just his public tough talk, negotiating for a settlement, but I think at the end of the day it will come out that he wants settlement terms for MBI far better than what others have settled for (such as the AGO settlement).

 

Jay Brown in those shareholder letters is always talking about getting paid in full.  Maybe he's not posturing, and that's why BAC had to break his balls like this.

 

Well that's pretty much it.  Why is MBIA going to get anything different than the precedents set.  I think they want considerably more, and BAC isn't going to give them more.  At some point, buyer beware comes into play and individuals have to take responsibilities for the decisions they made during the credit crisis.  Bank of America has...they've paid $108B in the last two years to clean up books and settle claims.  MBIA is in the mess they are in because they were just as reckless and greedy as everyone else. 

 

And by the way, when in the world are we going to fry the hell out of Mozillo?  He walks away because of the indemnity clause that he had with Countrywide...what a friggin' joke.  That guy should be hanged by his balls!  Cheers!

[Kraven]

Late last year I sold my MBI to purchase more BAC.  When txlaw asked me why, I said it was because Jay Brown looks to be too greedy -- that he won't settle until BAC pays in full.  This may be just his public tough talk, negotiating for a settlement, but I think at the end of the day it will come out that he wants settlement terms for MBI far better than what others have settled for (such as the AGO settlement).

 

Jay Brown in those shareholder letters is always talking about getting paid in full.  Maybe he's not posturing, and that's why BAC had to break his balls like this.

 

Well that's pretty much it.  Why is MBIA going to get anything different than the precedents set.  I think they want considerably more, and BAC isn't going to give them more.  At some point, buyer beware comes into play and individuals have to take responsibilities for the decisions they made during the credit crisis.  Bank of America has...they've paid $108B in the last two years to clean up books and settle claims.  MBIA is in the mess they are in because they were just as reckless and greedy as everyone else. 

 

And by the way, when in the world are we going to fry the hell out of Mozillo?  He walks away because of the indemnity clause that he had with Countrywide...what a friggin' joke.  That guy should be hanged by his balls!  Cheers!

 

Agreed.  No one was innocent in these matters.  No one is pure.  BAC breached its reps and owes money because of that.  A rep is a rep.  MBIA, like everyone else active during those days, was quite aware of what was going on and accepted the "business risk", just like everyone else.  I suspect that MBIA will now be more willing to take a market deal after this. 

[JRH]

I continue to say it is very poor judgement on the part of BAC and Moynihan to keep dragging this issue. Every court proceeding so far has gone MBI's way, the judges are pissed at BAC's delaying attempts and tactics. This maneuver may even be blocked by authorities. Remember that BAC does not have so many friends in the regulatory arena and this includes the NY insurance authorities.

 

Ultimately it is just game theory.  Many of the reasons that get thrown around for why BAC should pay have heuristic significance to us (essentially, "they're delaying, they're bad guys!"), but are not in any way binding constraints in a game theory framework.

 

Who was right or wrong only matters to the extent that it is reflected in a court or settlement outcome.

 

If BAC can compel settlement by holding MBIA up against the wall from a liquidity standpoint, it is no small point of leverage.  They can either pull the lever or they can't.  If they can, they can pull it good and tight!

[Arden]

Speaking of game theory, I bet when Berkowitz bought both MBIA and BAC he thought he was hedging since this seems like a zero sum game. I wonder if he considered that when it comes to courts, the game is a negative sum game,and the more stubborn both sides are the more negative it is. maybe betting on both sides silmultaniously is just making sure you lose.

[txlaw]

Late last year I sold my MBI to purchase more BAC.  When txlaw asked me why, I said it was because Jay Brown looks to be too greedy -- that he won't settle until BAC pays in full.  This may be just his public tough talk, negotiating for a settlement, but I think at the end of the day it will come out that he wants settlement terms for MBI far better than what others have settled for (such as the AGO settlement).

 

Jay Brown in those shareholder letters is always talking about getting paid in full.  Maybe he's not posturing, and that's why BAC had to break his balls like this.

 

It's posturing.  This is all posturing -- both by BAC and MBI -- to get the best settlement outcome possible.  BAC's motivation is more than just getting the best settlement they can get, though, as their approach with MBI is not simply directed at MBI, but at anyone else who decides to go after BAC/Countrywide. 

 

Nobody really knows what has been put on the table, so when people say that MBI is being greedy or BAC is being obstinate in a way that will hurt them, it's not necessarily . . . informed. 

 

But people certainly show their biases one way or the other, don't they, when it comes to this litigation? ;D

 

Long BAC and MBI.

[JRH]

Speaking of game theory, I bet when Berkowitz bought both MBIA and BAC he thought he was hedging since this seems like a zero sum game. I wonder if he considered that when it comes to courts, the game is a negative sum game,and the more stubborn both sides are the more negative it is. maybe betting on both sides silmultaniously is just making sure you lose.

 

He was pretty adamant that "it's in both parties' best interests to just settle up and move on."  That was ~18 months ago.

 

Given external characterizations of Jay Brown (on this board and elsewhere), that is ironic, given that Berkowitz's investment in MBIA seems to have relied on him being the jockey.

[txlaw]

Given external characterizations of Jay Brown (on this board and elsewhere), that is ironic, given that Berkowitz's investment in MBIA seems to have relied on him being the jockey.

 

Characterizations of Jay Brown depend on who's doing the talking, of course.

 

Berkowitz --> Positive

Prem Watsa --> Positive

Jack Byrne --> Presumably positive, as Brown succeeded him at Fireman's Fund

Ackman --> Negative

Hempton --> Negative

Board members --> Negative and Positive

 

Brian Moynihan has also been panned and lauded.

 

Safe to say that for any investment in BAC or MBI, management matters, as these are financials we're talking about.

[txlaw]

I have to say, though, that these types of contentious fights between strong personalities can often lead to poorer outcomes because sometimes the rational moves aren't made.

 

In other words, great deals can easily get blown up by clients.

[Guest Dazel]

 

Don't get emotional...this is what business people do...this is the real deal playing out in

Public usually it is behind closed doors...

 

Jay brown took on a giant in Bac and for a couple of years it looked like he had them in check bu he was using the knights and bishops....BAC has just brought up the queen...not check mate yet

 

But if Brown is smart he will recognize that he has 2 more moves...weigh his options and take the offer on the table. A game well played...but Brown should have taken the offer when Bac was in check. This will last the end of the month...

 

Dazel.

[Parsad]

 

Don't get emotional...this is what business people do...this is the real deal playing out in

Public usually it is behind closed doors...

 

Jay brown took on a giant in Bac and for a couple of years it looked like he had them in check bu he was using the knights and bishops....BAC has just brought up the queen...not check mate yet

 

But if Brown is smart he will recognize that he has 2 more moves...weigh his options and take the offer on the table. A game well played...but Brown should have taken the offer when Bac was in check. This will last the end of the month...

 

Dazel.

 

I think you are right.  A settlement will be made before the month is out.  Cheers!

[txlaw]

 

Don't get emotional...this is what business people do...this is the real deal playing out in

Public usually it is behind closed doors...

 

Jay brown took on a giant in Bac and for a couple of years it looked like he had them in check bu he was using the knights and bishops....BAC has just brought up the queen...not check mate yet

 

But if Brown is smart he will recognize that he has 2 more moves...weigh his options and take the offer on the table. A game well played...but Brown should have taken the offer when Bac was in check. This will last the end of the month...

 

Dazel.

 

I think you are right.  A settlement will be made before the month is out.  Cheers!

 

I would add to my above comments, not just "posturing" but "maneuvering," and boy was this an interesting maneuver.

 

Will be interesting to see what this does to the timetable for this litigation.

[CONeal]

What it does is prevent the ring fence around the parent.  MBIA was using the ring fence to prevent insolvency, and then using the putbacks to maintain liquidity.  If BAC buys the debt, they can call the loan directly...you aren't going to get any ring fence, because those assets are ours.  MBIA is forced to settle, as there is nothing else they can do other than litigation to see if there is any way to stop BAC, and they will not have the liquidity to make it through 2013 without some settlement.  Cheers!

 

Yeah, my point too.  It basically means this issue needs to be resolved via the litigation process and only that.  Settlement would be more on the table, but there could be a decision sooner rather than later (not predicting, just saying).  However, BAC is almost certainly telegraphing that they will appeal until the end of eternity, or as long as they can, and MBIA can't survive that long.  So . . . settlement it likely is.

 

I think Moynihan came up with this one himself.  With his background on structuring deals, etc, this seems like something he came up with.  Cheers!

 

Could be.  It's a very aggressive move and surprising to me.  Usually the big boys don't want to do this kind of thing.  It makes other counterparties wary of working with them.  Like "ok, if we work with you and we have a disagreement, are you going to try and buy up our debt and force us to do something too?"  Granted, this is an incredibly adversarial relationship between BAC and MBIA, but still.  I can almost guarantee that there will be some parties that think well, I can work with BAC or I can work with C, for example.  BAC has shown a lot of aggressiveness, so I'll pass this time around and see how it plays out.  Just my view.

 

Couldn't it also work against MBIA?  I have been viewing the whole thing as MBIA and others knew what they were doing by taking the shitty loans for the extra yield.  Once the loans blew up it became heads I win, tails I'm going to sue and pout like a baby to get my money back.  Why on earth would I ever want to deal with an organizaion like that again.

[Kraven]

What it does is prevent the ring fence around the parent.  MBIA was using the ring fence to prevent insolvency, and then using the putbacks to maintain liquidity.  If BAC buys the debt, they can call the loan directly...you aren't going to get any ring fence, because those assets are ours.  MBIA is forced to settle, as there is nothing else they can do other than litigation to see if there is any way to stop BAC, and they will not have the liquidity to make it through 2013 without some settlement.  Cheers!

 

Yeah, my point too.  It basically means this issue needs to be resolved via the litigation process and only that.  Settlement would be more on the table, but there could be a decision sooner rather than later (not predicting, just saying).  However, BAC is almost certainly telegraphing that they will appeal until the end of eternity, or as long as they can, and MBIA can't survive that long.  So . . . settlement it likely is.

 

I think Moynihan came up with this one himself.  With his background on structuring deals, etc, this seems like something he came up with.  Cheers!

 

Could be.  It's a very aggressive move and surprising to me.  Usually the big boys don't want to do this kind of thing.  It makes other counterparties wary of working with them.  Like "ok, if we work with you and we have a disagreement, are you going to try and buy up our debt and force us to do something too?"  Granted, this is an incredibly adversarial relationship between BAC and MBIA, but still.  I can almost guarantee that there will be some parties that think well, I can work with BAC or I can work with C, for example.  BAC has shown a lot of aggressiveness, so I'll pass this time around and see how it plays out.  Just my view.

 

Couldn't it also work against MBIA?  I have been viewing the whole thing as MBIA and others knew what they were doing by taking the shitty loans for the extra yield.  Once the loans blew up it became heads I win, tails I'm going to sue and pout like a baby to get my money back.  Why on earth would I ever want to deal with an organizaion like that again.

 

Sure it could.  But on both sides of things there are limited choices.  If you want to wrap a deal, there aren't many insurers out there so you have to pick one and there will typically be limitations on how much any one holder can be exposed to a specific insurer.  So by default it almost requires using them.  On the other hand, and this simply relates to BAC's status as an underwriter, there is no requirement that any one underwriter be used. 

 

Imagine the following scenario.  Issuer wants to do a deal and requires a wrap to sell it.  Due to the constraints I mention above MBIA or Assured has to be the insurer.  BAC was pegged as the underwriter.  MBIA says sorry, won't do a deal with BAC.  Assured says sorry, we're not doing this deal either since if there's a dispute, BAC is going to attack us.  Issuer says sorry BAC, we're going to C or GS on this one.  Not this scenario, but underwriters getting bounced because someone can't stand them happens all the time.  I doubt that this will cause Moynihan any great heartburn as it's probably a limited amount of business as far as he's concerned and doesn't outweigh the larger issues, but guaranteed there's folks on at least a few desks who are thinking "oh shit, this just made my life harder."

[Kraven]

 

Don't get emotional...this is what business people do...this is the real deal playing out in

Public usually it is behind closed doors...

 

Jay brown took on a giant in Bac and for a couple of years it looked like he had them in check bu he was using the knights and bishops....BAC has just brought up the queen...not check mate yet

 

But if Brown is smart he will recognize that he has 2 more moves...weigh his options and take the offer on the table. A game well played...but Brown should have taken the offer when Bac was in check. This will last the end of the month...

 

Dazel.

 

As they say, don't bring a knife to a gunfight.  MBIA just discovered that BAC's a charter member of the NRA.

[fareastwarriors]

This is probably crazy and outrageous and I’m sure against some kind law/regulation But can BofA just buy out all of MBIA?

 

 

 

[ERICOPOLY]

This latest move I don't think will change Jay Brown's mind about ever doing business with BofA again.

 

Surely that line was already crossed long ago!

 

I think if there is a risk of other people not wanting to work with BAC due to this, then BAC now merely needs to offer the same terms to MBIA that they offered AGO and others.  Then it will look like BAC is just wanting to settle with MBIA on the terms that everyone else got.

 

Now if somehow MBIA walks away with a settlement much worse than the others got, well then it would look like dirty dealing by BAC.

 

Just an opinion. 

[vinod1]

 

Good point about the yield calculation. I do not think NPL is high enough to explain such a large variation. (4.51% vs 3.7%).

 

Vinod

 

I think xazp was the one who pointed out before that a non-performing loan is a heavily risk-weighted asset that has absolutely no yield.

 

Meaning, once you get the foreclosure pushed through and retrieve your 400k worth of capital you can then make some very high yield loans with it.

 

It was probably a relatively high yield part of the portfolio (sub prime) to begin with before it went sour.

 

But perhaps you are considering all of that and still wondering how it can possibly explain the difference.  I too wonder.

 

Agree.

 

Also PCI loans have some weird accounting associated with it and I would not be surprised that is artificially boosting the NIM for WFC since they have a quite a bit of those loans from Wachovia. So part of the noise in the NIM would be due to this.

 

Vinod

[claphands22]

 

And by the way, when in the world are we going to fry the hell out of Mozillo?  He walks away because of the indemnity clause that he had with Countrywide...what a friggin' joke.  That guy should be hanged by his balls!  Cheers!

 

Wait till you listen to this 3 minute and 45 second clip I made from the financial crisis inquiry commission when they interviewed Mozilo. The guy talks about how great it was in part because his stock did better than Warren Buffett's and how Countrywide never took any tarp. It's true but such a stupid thing to say...at the very end he even says "countrywide was one of the greatest companies in the history of this country"  ???

 

http://www.youtube.com/watch?v=Tj5h1PcLZO8

 

 

 

[ERICOPOLY]

The replay of Brian Moynihan speaking at today's conference is good:

http://www.veracast.com/baml/banking2012/main/player.cfm?eventName=1011_bankof

 

He says they only plan to operate at 9% Basel III.  Says they only want a 50 bps buffer over the required minimum of 8.5% (he says the buffer is for things like legal settlements).

 

He says it right at the 38 minute mark.

 

So that means from this day forward, everything generated can in theory be returned.

 

[ourkid8]

What this indirectly meas is the TARP warrants at under $4 are a backup the truck buy since we now know how much capital will be returned to shareholders in dividends and share repurchases since they plan to operate at 9% Basel 3!

 

S

 

The replay of Brian Moynihan speaking at today's conference is good:

http://www.veracast.com/baml/banking2012/main/player.cfm?eventName=1011_bankof

 

He says they only plan to operate at 9% Basel III.  Says they only want a 50 bps buffer over the required minimum of 8.5% (he says the buffer is for things like legal settlements).

 

He says it right at the 38 minute mark.

 

So that means from this day forward, everything generated can in theory be returned.

[Guest Dazel]

http://www.businesswire.com/news/home/20121113007077/en/Bank-America-Announces-Commencement-Cash-Tender-Offer

 

 

The early tender date is November 27 th...$50 bonus for early tender....

 

 

Dazel.

[ERICOPOLY]

the bank reinforced that it is on track to meeting its total financial obligations within the first year of the three-year agreement.

 

http://finance.yahoo.com/news/15-8-billion-mortgage-relief-173000332.html

 

So do expenses drop off a fair chunk in Q1 or Q2?

 

[jose]

The replay of Brian Moynihan speaking at today's conference is good:

http://www.veracast.com/baml/banking2012/main/player.cfm?eventName=1011_bankof

The link gave an "Access Error 102" for me. I didn't see an obvious way to get to the call off the veracast.com main page.

[Parsad]

Go directly to BAC's Investor page and look up presentations.  That link wasn't working for me either, but when I went to their website myself, it worked after registering.  Cheers!

[gokou3]

the bank reinforced that it is on track to meeting its total financial obligations within the first year of the three-year agreement.

 

http://finance.yahoo.com/news/15-8-billion-mortgage-relief-173000332.html

 

So do expenses drop off a fair chunk in Q1 or Q2?

 

What's the total amount of relief that BAC needs to go through?  Just wondering the % completion with this $15.8B figure.  I understand that the values of different programs are weighted differently, but just'd like a rough idea.