BAC-WT - Bank of America Warrants

[obtuse_investor]

Also , if I’m  not mistaken , one cannot have investment in USD $ within your TFSA only CAD$. So, exchange risk applies

 

That isn't true. It depends if your broker allows you to trade in US.

 

Brokers could even allow you to hold USD in TFSA account; unfortunately that is rare. Brokers make too much money from the currency conversion fee.

[StubbleJumper]

Also , if I’m  not mistaken , one cannot have investment in USD $ within your TFSA only CAD$. So, exchange risk applies

 

That isn't true. It depends if your broker allows you to trade in US.

 

Brokers could even allow you to hold USD in TFSA account; unfortunately that is rare. Brokers make too much money from the currency conversion fee.

 

 

Yep, RBC Direct Investing has permitted $USD RRSPs and TFSAs for a couple of years now.  That's been a major help in saving the round-trip currency conversion vig.

 

 

[PlanMaestro]

Return on assets 2002-2012 for Bank of America, US Bancorp, Wells Fargo, and JP Morgan

 

http://farm9.staticflickr.com/8347/8217664076_f585161a46.jpg

[ECCO]

Return on assets 2002-2012 for Bank of America, US Bancorp, Wells Fargo, and JP Morgan

 

http://farm9.staticflickr.com/8347/8217664076_45e73df13e.jpg

 

 

So? Can we conclude that once BAC finish to clean the house they will come back to a ROA closed to WFC has it used to be?

[Parsad]

Return on assets 2002-2012 for Bank of America, US Bancorp, Wells Fargo, and JP Morgan

 

http://farm9.staticflickr.com/8347/8217664076_45e73df13e.jpg

 

 

So? Can we conclude that once BAC finish to clean the house they will come back to a ROA closed to WFC has it used to be?

 

Yes, I think you can conclude that it will get significantly closer.  Cheers!

[kevin4u2]

I have attached a summary of a recent blog post comparing US to Canadian Banks.  The first table is courtesy of TD Securities and shows average US and Canadian Bank P/BVPS. 

 

The second table shows the upside for both the common and the warrants for the US Banks if they sold at the same P/BVPS as the Canadian Banks.

 

The warrant upside assumes no upside from the dividend adjustments.  It only subtracts the strike price from the adjusted share price, determined by using the average P/BVPS for the Canadian Banks. 

[Uccmal]

 

I think that is correct.  You get all the benefits and none of the punishment, except if you sell at a loss. As in an RSP there is no tax loss claim available.  I am pretty conservative with my tax sheltered accounts to avoid permanent losses.  To the other thread, that is where most of my FFH is held now.

 

Now in my TFSA I hold AIG, BAC, and WFC, common and/or warrants.  I am actually so confident that these position will gain and not lose over the long term.  I'll just eat the 15% withhold tax on any dividends.  It is dwarfed by the capital gains I expect.

 

I wish the TFSA was around 25 years ago.  Adding up 5000 per yr. of contribution room would have been awesome.

 

Why wouldn't you put the US common shares (that pay a dividend) in a RRSP and the FFH in the TFSA?  Your giving away money.  Only US non-dividend and Canadian companies belong in a TSFA because of the dividend tax treatment.  I have my TFSA's stuffed with BAC warrants only.  I used to have some of my WFC commons in there but as soon as I discovered the tax treatment they were very quickly moved the RRSP. 

 

Swap the FFH out and the US common shares into the RRSP. 

 

Your allowed one free transfer out of TFSA per year and year end is a good time to do it.  I recommend wait till near the end of the trading year where you can transfer them out after the markets are closed and you can choose the high or the low of the day.  Naturally you want to choose the high price of the day coming out and the low price going into the TFSA.

 

Good ideas.  I hadn't got that far in my thinking.  Less than a year ago my TFSA was all Canadian content.. 

 

Can you swap in and out of an RSP without penalty? 

[ERICOPOLY]

I have attached a summary of a recent blog post comparing US to Canadian Banks.  The first table is courtesy of TD Securities and shows average US and Canadian Bank P/BVPS. 

 

The second table shows the upside for both the common and the warrants for the US Banks if they sold at the same P/BVPS as the Canadian Banks.

 

The warrant upside assumes no upside from the dividend adjustments.  It only subtracts the strike price from the adjusted share price, determined by using the average P/BVPS for the Canadian Banks.

 

 

I can't really determine anything from the P/B comparison for BAC because of all that goodwill.  What if they had grown organically?  The book value would just be $13.50, and 1.8x would be $24.30.  That's a country mile from the number used in that comparison, which was horrifically inflated by putting a multiple on goodwill.

[treasurehunt]

Return on assets 2002-2012 for Bank of America, US Bancorp, Wells Fargo, and JP Morgan

 

http://farm9.staticflickr.com/8347/8217664076_45e73df13e.jpg

 

 

So? Can we conclude that once BAC finish to clean the house they will come back to a ROA closed to WFC has it used to be?

 

Yes, I think you can conclude that it will get significantly closer.  Cheers!

 

No doubt the ROA will get closer to WFC's ROA, but perhaps not as close as it used to be pre-crisis. I believe Merrill Lynch constitutes about thirty percent of BofA by assets. Merrill's ROA ranged between 0.4% and 0.9% between 2002 and 2006 (the ROA was negative in 2001, 2007 and 2008). So Merrill will probably drag down BofA's ROA going forward. I'll be happy if BofA's normalized ROA exceeds that of JPM.

[ERICOPOLY]

It's interesting how disconnected some analysts are from what Moynihan is saying:

 

 

http://www.thestreet.com/story/11775041/2/bank-of-america-to-fall-off-cliff-then-bounce-analyst.html

 

From Guggenheim Securities analyst Marty Mosby:

 

In its quarterly 10-Q filing with the Securities and Exchange Commission, Bank of America reported that the total unresolved mortgage repurchase claims against the company had risen to $15.5 billion as of Sept. 30, from $12.6 billion at the end of last year. Mosby said that "we have calculated a range for potential remaining after-tax losses of $15-50 billion. While our best-case scenario could be funded with about one year's earnings, the worst-case scenario could create a $2 haircut to BAC's year-end estimated tangible book value per share of $14."

 

...

 

Mosby said that "that until short-term rates begin to rise, BAC's earnings power is between $10 billion and $12.5 billion a year."

[kevin4u2]

I have attached a summary of a recent blog post comparing US to Canadian Banks.  The first table is courtesy of TD Securities and shows average US and Canadian Bank P/BVPS. 

 

The second table shows the upside for both the common and the warrants for the US Banks if they sold at the same P/BVPS as the Canadian Banks.

 

The warrant upside assumes no upside from the dividend adjustments.  It only subtracts the strike price from the adjusted share price, determined by using the average P/BVPS for the Canadian Banks.

 

 

I can't really determine anything from the P/B comparison for BAC because of all that goodwill.  What if they had grown organically?  The book value would just be $13.50, and 1.8x would be $24.30.  That's a country mile from the number used in that comparison, which was horrifically inflated by putting a multiple on goodwill.

 

Eric, your absolutely right.  The analysis was quick and dirty.  Obviously more work would be needed to compare price to tangible common equity and what types of returns each bank can make.  The detailed research is not free. 

 

I will say that TD Bank, which sells for 1.7x BVPS has a same breakdown of tangible/intangible BVPS (66%/34%) to that of BAC.  BAC is also 66%/34% as of the third quarter.  As you know BAC sells for 0.5x BVPS. 

 

CIBC, on the other hand, has the lowest amount of goodwill/intangibles (84%/16%) sells for the highest P/BVPS of 2.1x.

[xazp]

Looks like MBIA bought the bonds that BAC tendered for, and completed their tender offer. 

 

Wonder what happens next.  Did MBIA have enough resources to buy those bonds at above market?  You would think for a company at risk of default, spending $170MM on bonds might be a problem.  Or did BAC screw up by not just buying the bonds on the open market? 

[MrB]

More quick and dirty. Double check Goodwill/(Goodwill + TBV) MV/TBV

 

[ShahKhezri]

Anything that MBIA does from a balance sheet standpoint has to be approved by NYSDFS. 

 

Not buying them back and dealing with default amortization of $900MM would have placed a greater chance of default.  There are deep pockets behind MBIA (Warburg/Fairholme).

[Kraven]

Looks like MBIA bought the bonds that BAC tendered for, and completed their tender offer. 

 

Wonder what happens next.  Did MBIA have enough resources to buy those bonds at above market?  You would think for a company at risk of default, spending $170MM on bonds might be a problem.  Or did BAC screw up by not just buying the bonds on the open market?

 

I suspect they didn't have to quite pay par for them.  The way the release was worded was that it was all reverse inquiry based.  So the votes counted then the bonds were sold back.  A lot of votes probably came in last Wed and Friday.  Some of the big push in the stock on Wed into Friday was probably due to some of these bond holders going long (or adding to existing positions) after they sold their bonds back and understanding that MBIA was likely to get enough.  I am sure in negotiations they were made to realize that whatever points they lost on selling the bonds back to MBIA instead of to BAC would be made up in gains on the equity.  Just my thoughts.

[treasurehunt]

More quick and dirty. Double check Goodwill/(Goodwill + TBV) MV/TBV

 

Interesting table. Does your definition of TBV differ from what is listed in the companies' financials? According to BofA's latest 10-Q, the TBV per share is 13.48. At yesterday's closing stock price of 9.90, MV/TBV is about 0.73. JPM's MV/TBV works out to 1.09 at yesterday's close of 41.09, quite a bit less than the 1.33 listed in the table. MV does stand for market value, right?

[Guest Dazel]

http://www.bloomberg.com/news/2012-11-26/bofa-wins-on-standing-of-countrywide-securities-investors.html?cmpid=yhoo

 

 

[rohitc99]

http://www.bloomberg.com/news/2012-11-26/bofa-wins-on-standing-of-countrywide-securities-investors.html?cmpid=yhoo

 

does this reduce the range of possible losses ? BAC has estimated it as 6 Bn ...does it go down ?

[obtuse_investor]

More quick and dirty. Double check Goodwill/(Goodwill + TBV) MV/TBV

 

Interesting comparison-- I am not sure if it is fair to compare the Canadian banks with the US counterparts.

 

Canadian economic outlook is still rosy. The housing market is inflated (and only slightly deflating). There is a lot of optimism priced in Canadian banks' valuation.

 

It wouldn't be fair to expect US banks to trade at Canadian banks' valuations... but somewhere higher should be expected as the outlook improves. Canadian banks' will likely reflect the new reality/expectations and revalued appropriately as time goes on.

[berkshiremystery]

 

Two Percent of S&P 500 Firms are Doing 88% of the Earnings Work

Barrons - November 26, 2012

 

with just four companies — Apple Inc. (AAPL), Bank of America Corp. (BAC), American International Group Inc. (AIG) and Goldman Sachs Group Inc. (GS) — contributing more than half of all the S&P 500′s earnings growth so far this year.

 

http://blogs.barrons.com/stockstowatchtoday/2012/11/26/two-percent-of-sp-500-firms-are-doing-88-of-the-earnings-work/?mod=yahoobarrons

 

 

 

[kevin4u2]

 

I think that is correct.  You get all the benefits and none of the punishment, except if you sell at a loss. As in an RSP there is no tax loss claim available.  I am pretty conservative with my tax sheltered accounts to avoid permanent losses.  To the other thread, that is where most of my FFH is held now.

 

Now in my TFSA I hold AIG, BAC, and WFC, common and/or warrants.  I am actually so confident that these position will gain and not lose over the long term.  I'll just eat the 15% withhold tax on any dividends.  It is dwarfed by the capital gains I expect.

 

I wish the TFSA was around 25 years ago.  Adding up 5000 per yr. of contribution room would have been awesome.

 

Why wouldn't you put the US common shares (that pay a dividend) in a RRSP and the FFH in the TFSA?  Your giving away money.  Only US non-dividend and Canadian companies belong in a TSFA because of the dividend tax treatment.  I have my TFSA's stuffed with BAC warrants only.  I used to have some of my WFC commons in there but as soon as I discovered the tax treatment they were very quickly moved the RRSP. 

 

Swap the FFH out and the US common shares into the RRSP. 

 

Your allowed one free transfer out of TFSA per year and year end is a good time to do it.  I recommend wait till near the end of the trading year where you can transfer them out after the markets are closed and you can choose the high or the low of the day.  Naturally you want to choose the high price of the day coming out and the low price going into the TFSA.

 

Good ideas.  I hadn't got that far in my thinking.  Less than a year ago my TFSA was all Canadian content.. 

 

Can you swap in and out of an RSP without penalty?

 

Yes you can swap in and out of a RSP without penalty.  For example you can swap cash out and securities in and vice versa (of the same value).  Call your broker.  Costs will vary (I think TD charges $40)  but I'm sure the tax savings will pay for it. 

[Olmsted]

Not sure if the context is entirely fair, but this is a pretty funny article:

 

http://www.rollingstone.com/politics/blogs/taibblog/no-evidence-he-was-stoned-but-bank-of-america-ceo-brian-moynihan-apparently-doesn-t-remember-much-of-the-last-four-years-20121127

[Grenville]

Not sure if the context is entirely fair, but this is a pretty funny article:

 

http://www.rollingstone.com/politics/blogs/taibblog/no-evidence-he-was-stoned-but-bank-of-america-ceo-brian-moynihan-apparently-doesn-t-remember-much-of-the-last-four-years-20121127

 

Thanks. There is a link to Moynihan's deposition that they are referring to as well in the article.

[PlanMaestro]

Not sure if the context is entirely fair, but this is a pretty funny article:

 

http://www.rollingstone.com/politics/blogs/taibblog/no-evidence-he-was-stoned-but-bank-of-america-ceo-brian-moynihan-apparently-doesn-t-remember-much-of-the-last-four-years-20121127

 

 

Looks like Moynihan did what he had to do with the fishing expedition.

[Parsad]

The question not asked is if these loans were like any other loan that the monolines insured, would there be any discussion by MBIA or any afterthought in the insurance premiums they charged?  Countrywide is guilty, but so is MBIA for not doing their due diligence.  They aren't suing because there was fraud, but because they failed to protect their shareholders and accepted inordinate amounts of risk for the premiums charged.  There was enough information available by 2007 that you knew many of these securities were shit.  Cheers!