BAC-WT - Bank of America Warrants

[mankap]

Atlantic Equity Analyst Richard Staite expects BAC to pay 2B dividend and 4B buyback in 2013.He expects dividend to go up to 3.8B in 2014.He expects 1.23 EPS in 2013 and 1.53 in 2014.

He also expects that BAC will buyback 10% of the shares by 2015.

 

http://www.thestreet.com/story/11791670/2/bank-of-america-is-flush-with-capital-analyst.html

[ERICOPOLY]

Atlantic Equity Analyst Richard Staite expects BAC to pay 2B dividend and 4B buyback in 2013.He expects dividend to go up to 3.8B in 2014.He expects 1.23 EPS in 2013 and 1.53 in 2014.

He also expects that BAC will buyback 10% of the shares by 2015.

 

http://www.thestreet.com/story/11791670/2/bank-of-america-is-flush-with-capital-analyst.html

 

$6B total.

 

Just between now and April there is a fair chance that at least $6B of additional capital will pile up -- 2 quarters worth of earnings generation.

 

 

[JRH]

Thanks for the link. In the article, it states that

 

"A hearing on whether Bank of America should also be held liable is scheduled for January. Bank of America argues that MBIA’s argument for making the bank pay would “severely undermine the vital, long-established” principle that parent companies aren’t liable for the conduct of subsidiaries."

 

Does any lawyers on the board know if this 'principle' has any truth in it?

 

Those more knowledgeable than I have suggested it turns first on whether New York or Delaware state law is applied.  New York law would be more favorable to MBIA than Delaware.  Not sure I can cite that claim immediately (was probably Alison Frankel or the below blog).  See here for much more detail:

 

http://mbibaclitigtion.blogspot.com/2012/10/did-bank-of-america-asset-strip.html

[Kraven]

Thanks for the link. In the article, it states that

 

"A hearing on whether Bank of America should also be held liable is scheduled for January. Bank of America argues that MBIA’s argument for making the bank pay would “severely undermine the vital, long-established” principle that parent companies aren’t liable for the conduct of subsidiaries."

 

Does any lawyers on the board know if this 'principle' has any truth in it?

 

Those more knowledgeable than I have suggested it turns first on whether New York or Delaware state law is applied.  New York law would be more favorable to MBIA than Delaware.  Not sure I can cite that claim immediately (was probably Alison Frankel or the below blog).  See here for much more detail:

 

http://mbibaclitigtion.blogspot.com/2012/10/did-bank-of-america-asset-strip.html

 

I haven't looked closely enough at the facts in this aspect of the case to have any real view.  I would say that the lawyers' view on the "principle" that parent corps aren't liable for their subsidiaries is a bit misleading and narrowly focused.  Of course that's their job, to argue for their client. 

 

Take an extreme example.  Company A buys Company B, that is they bought 100% of the outstanding stock.  Nothing else changes.  Company B is exactly how it was before with a separate BOD, operations, etc.  As far as the public is concerned, most people would have no idea Company A even owns Company B.  Company B gets into trouble.  When the lawsuits start Company A will get sued, but argue that it's just a "passive" investment.  Theoretically, they could control Company B, but they haven't done anything other than collect the checks.

 

Take the opposite example.  Company A buys Company B.  They clean house, they fire the officers and directors, they control all aspects of the operations, and from a public perception standpoint they are one and the same and neither has done anything to dissuade that view.  Funds are commingled.  Company A has paid many things on behalf of Company B in the past.

 

Which example is closer to BAC/Countrywide?

[Kraven]

Just for giggles, I went to the Bank of America website and looked for what remains of Countrywide.  One, it's now called Bank of America Home Loans (although the Countrywide name still may be used in some places, I'm not sure).  Payments on any related loan can be made at any Bank of America branch.  Tax bills are sent to BAC Tax Services Corporation.  To speak to someone about your loan, one would call Bank of America.  When the deal was announced the press release stated that upon acquisition by BAC Countrywide "will benefit from the stability of being part of the largest and one of the most financially strong financial institutions in the United States".  A number of times BAC has retired Countrywide debt via tender offers.  This was from 2 minutes on the site. 

[StubbleJumper]

Atlantic Equity Analyst Richard Staite expects BAC to pay 2B dividend and 4B buyback in 2013.He expects dividend to go up to 3.8B in 2014.He expects 1.23 EPS in 2013 and 1.53 in 2014.

He also expects that BAC will buyback 10% of the shares by 2015.

 

http://www.thestreet.com/story/11791670/2/bank-of-america-is-flush-with-capital-analyst.html

 

$6B total.

 

Just between now and April there is a fair chance that at least $6B of additional capital will pile up -- 2 quarters worth of earnings generation.

 

 

Yep, the guy might ultimately be correct that there'll be only $2b in divvies and $4b in buybacks, but the logical result is that the Basel III capital levels will get even sillier...if only $6b is returned to shareholders during 2013, it's not inconceivable that BAC would finish the year at 9.5% tier I capital.  At that point, the regulators would not be in any position to restrict distributions during 2014.

 

 

SJ

[ECCO]

http://finance.yahoo.com/news/bank-america-announces-completion-cash-220400974.html;_ylt=AtAfDkxPNYQ1c0ugNSUge0aiuYdG;_ylu=X3oDMTIxdmYzYjNrBG1pdANXaWRlIFF1b3RlcyBNb2R1bGUEcG9zAzMzBHNlYwNNZWRpYVJlY2VudFF1b3Rlc1BvcnRmb2xpb3NXaWRl;_ylg=X3oDMTFpNzk0NjhtBGludGwDdXMEbGFuZwNlbi11cwRwc3RhaWQDBHBzdGNhdANob21lBHB0A3NlY3Rpb25z;_ylv=3

 

Bank of America Corporation (“Bank of America”) announced today that it has completed its previously announced offer to purchase for cash (the “Tender Offer”) any and all of the outstanding 5.70% Senior Notes due 2034 (the “Notes”) which were issued by MBIA Inc., a Connecticut corporation (“MBIA”), under an indenture dated November 24, 2004 (the “Indenture”).

 

Bank of America said that, as of the expiration of the Tender Offer, it received tenders from holders of approximately $136 million in aggregate principal amount of the Notes and that Blue Ridge Investments, L.L.C. (“Blue Ridge”), a wholly owned subsidiary of Bank of America, has accepted for purchase and paid for all such tendered Notes.

 

Bank of America also announced that, in a letter to MBIA and the trustee for the Notes, Blue Ridge has issued a notice of default under the Indenture caused by MBIA’s violation of its covenants under the Indenture through, among other things, the purported adoption of a proposed amendment in violation of the terms of the Indenture.

 

 

[Parsad]

http://finance.yahoo.com/news/bank-america-announces-completion-cash-220400974.html;_ylt=AtAfDkxPNYQ1c0ugNSUge0aiuYdG;_ylu=X3oDMTIxdmYzYjNrBG1pdANXaWRlIFF1b3RlcyBNb2R1bGUEcG9zAzMzBHNlYwNNZWRpYVJlY2VudFF1b3Rlc1BvcnRmb2xpb3NXaWRl;_ylg=X3oDMTFpNzk0NjhtBGludGwDdXMEbGFuZwNlbi11cwRwc3RhaWQDBHBzdGNhdANob21lBHB0A3NlY3Rpb25z;_ylv=3

 

Bank of America Corporation (“Bank of America”) announced today that it has completed its previously announced offer to purchase for cash (the “Tender Offer”) any and all of the outstanding 5.70% Senior Notes due 2034 (the “Notes”) which were issued by MBIA Inc., a Connecticut corporation (“MBIA”), under an indenture dated November 24, 2004 (the “Indenture”).

 

Bank of America said that, as of the expiration of the Tender Offer, it received tenders from holders of approximately $136 million in aggregate principal amount of the Notes and that Blue Ridge Investments, L.L.C. (“Blue Ridge”), a wholly owned subsidiary of Bank of America, has accepted for purchase and paid for all such tendered Notes.

 

Bank of America also announced that, in a letter to MBIA and the trustee for the Notes, Blue Ridge has issued a notice of default under the Indenture caused by MBIA’s violation of its covenants under the Indenture through, among other things, the purported adoption of a proposed amendment in violation of the terms of the Indenture.

 

You knew this was coming...hardball against that ring fence.  I think they settle this month.  Cheers!

[nkp007]

http://finance.yahoo.com/news/bank-america-announces-completion-cash-220400974.html;_ylt=AtAfDkxPNYQ1c0ugNSUge0aiuYdG;_ylu=X3oDMTIxdmYzYjNrBG1pdANXaWRlIFF1b3RlcyBNb2R1bGUEcG9zAzMzBHNlYwNNZWRpYVJlY2VudFF1b3Rlc1BvcnRmb2xpb3NXaWRl;_ylg=X3oDMTFpNzk0NjhtBGludGwDdXMEbGFuZwNlbi11cwRwc3RhaWQDBHBzdGNhdANob21lBHB0A3NlY3Rpb25z;_ylv=3

 

Bank of America Corporation (“Bank of America”) announced today that it has completed its previously announced offer to purchase for cash (the “Tender Offer”) any and all of the outstanding 5.70% Senior Notes due 2034 (the “Notes”) which were issued by MBIA Inc., a Connecticut corporation (“MBIA”), under an indenture dated November 24, 2004 (the “Indenture”).

 

Bank of America said that, as of the expiration of the Tender Offer, it received tenders from holders of approximately $136 million in aggregate principal amount of the Notes and that Blue Ridge Investments, L.L.C. (“Blue Ridge”), a wholly owned subsidiary of Bank of America, has accepted for purchase and paid for all such tendered Notes.

 

Bank of America also announced that, in a letter to MBIA and the trustee for the Notes, Blue Ridge has issued a notice of default under the Indenture caused by MBIA’s violation of its covenants under the Indenture through, among other things, the purported adoption of a proposed amendment in violation of the terms of the Indenture.

 

You knew this was coming...hardball against that ring fence.  I think they settle this month.  Cheers!

 

 

LOLOLOL. I chuckled.

 

Hey MBIA we own a bunch of your notes. And in other news, here's a notice of default.

[Parsad]

http://finance.yahoo.com/news/bank-america-announces-completion-cash-220400974.html;_ylt=AtAfDkxPNYQ1c0ugNSUge0aiuYdG;_ylu=X3oDMTIxdmYzYjNrBG1pdANXaWRlIFF1b3RlcyBNb2R1bGUEcG9zAzMzBHNlYwNNZWRpYVJlY2VudFF1b3Rlc1BvcnRmb2xpb3NXaWRl;_ylg=X3oDMTFpNzk0NjhtBGludGwDdXMEbGFuZwNlbi11cwRwc3RhaWQDBHBzdGNhdANob21lBHB0A3NlY3Rpb25z;_ylv=3

 

Bank of America Corporation (“Bank of America”) announced today that it has completed its previously announced offer to purchase for cash (the “Tender Offer”) any and all of the outstanding 5.70% Senior Notes due 2034 (the “Notes”) which were issued by MBIA Inc., a Connecticut corporation (“MBIA”), under an indenture dated November 24, 2004 (the “Indenture”).

 

Bank of America said that, as of the expiration of the Tender Offer, it received tenders from holders of approximately $136 million in aggregate principal amount of the Notes and that Blue Ridge Investments, L.L.C. (“Blue Ridge”), a wholly owned subsidiary of Bank of America, has accepted for purchase and paid for all such tendered Notes.

 

Bank of America also announced that, in a letter to MBIA and the trustee for the Notes, Blue Ridge has issued a notice of default under the Indenture caused by MBIA’s violation of its covenants under the Indenture through, among other things, the purported adoption of a proposed amendment in violation of the terms of the Indenture.

 

You knew this was coming...hardball against that ring fence.  I think they settle this month.  Cheers!

 

 

LOLOLOL. I chuckled.

 

Hey MBIA we own a bunch of your notes. And in other news, here's a notice of default.

 

It will all depend on what a judge thinks, as BAC as a creditor can now proceed through the courts to try and win a judgement against them to retain the convenants, or petition them into bankruptcy going forward if the covenants are amended without BAC's approval.  It's in both their interests to come to a reasonable settlement and put this all behind them.  Cheers!

[PlanMaestro]

Fed begins stress tests on bank liquidity

http://goo.gl/OGbl3

 

The US Federal Reserve is carrying out its first ever system-wide stress test of bank liquidity in a move that could force banks to change their funding sources.

 

Known internally as “C-Lar” – the liquidity version of the Fed’s annual “comprehensive capital analysis and review” – the examination only began recently.

 

The techniques are similar to the capital stress tests, though the results will not dictate stock repurchases or dividends.

 

Some senior bank executives were unaware the test was being conducted.

 

 

 

 

[Kraven]

http://finance.yahoo.com/news/bank-america-announces-completion-cash-220400974.html;_ylt=AtAfDkxPNYQ1c0ugNSUge0aiuYdG;_ylu=X3oDMTIxdmYzYjNrBG1pdANXaWRlIFF1b3RlcyBNb2R1bGUEcG9zAzMzBHNlYwNNZWRpYVJlY2VudFF1b3Rlc1BvcnRmb2xpb3NXaWRl;_ylg=X3oDMTFpNzk0NjhtBGludGwDdXMEbGFuZwNlbi11cwRwc3RhaWQDBHBzdGNhdANob21lBHB0A3NlY3Rpb25z;_ylv=3

 

Bank of America Corporation (“Bank of America”) announced today that it has completed its previously announced offer to purchase for cash (the “Tender Offer”) any and all of the outstanding 5.70% Senior Notes due 2034 (the “Notes”) which were issued by MBIA Inc., a Connecticut corporation (“MBIA”), under an indenture dated November 24, 2004 (the “Indenture”).

 

Bank of America said that, as of the expiration of the Tender Offer, it received tenders from holders of approximately $136 million in aggregate principal amount of the Notes and that Blue Ridge Investments, L.L.C. (“Blue Ridge”), a wholly owned subsidiary of Bank of America, has accepted for purchase and paid for all such tendered Notes.

 

Bank of America also announced that, in a letter to MBIA and the trustee for the Notes, Blue Ridge has issued a notice of default under the Indenture caused by MBIA’s violation of its covenants under the Indenture through, among other things, the purported adoption of a proposed amendment in violation of the terms of the Indenture.

 

You knew this was coming...hardball against that ring fence.  I think they settle this month.  Cheers!

 

 

LOLOLOL. I chuckled.

 

Hey MBIA we own a bunch of your notes. And in other news, here's a notice of default.

 

It will all depend on what a judge thinks, as BAC as a creditor can now proceed through the courts to try and win a judgement against them to retain the convenants, or petition them into bankruptcy going forward if the covenants are amended without BAC's approval.  It's in both their interests to come to a reasonable settlement and put this all behind them.  Cheers!

 

I quickly skimmed through the indenture.  It appears to be a pretty standard form.  I am puzzled as to what BAC is claiming the default is.  I don't see anything.  The only thing I could come up with is that if any amendment adversely affects the right of repayment of any holder, it requires the consent of each holder, not just a majority.  However, in this case, given that the debt is of the parent not only is the right of repayment not impaired, it's improved!  However, they could probably attempt to torture the language and come up with some kind of claim.

 

A couple further thoughts.  In terms of whether BAC can just go to court now, of course anyone has access to the courts, but there are specific provisions in an indenture that would need to be followed long before a court would (should) entertain anything here.  First, a holder of more than 25% of the outstanding notes (which BAC has) must give a notice of default to the trustee and direct that the trustee take action.  There's all kinds of time involved in this.  Months.  So this is noise to some extent.  It plays well in the press, but the hoops haven't been jumped through and I can't imagine any court addresses this any time soon.

 

Also, trustees are notoriously risk averse.  Risk averse isn't even the right term for it, but it will have to do.  They want no risk, and given the state of things between these parties guaranteed before the trustee agreed to sign the amendment they and their counsel quadruple checked it to make sure it was good.  While that is not proof of anything and doesn't mean there won't be some further action, in my mind, it was done correctly.  This just makes for good theater. 

[jay21]

This guy is delusional

 

http://www.bloomberg.com/news/2012-12-13/angelo-mozilo-unbowed-says-countrywide-was-world-class-company-.html?cmpid=yhoo

[Parsad]

Another article on the BAC move to claim default on the MBIA notes.  Cheers!

 

http://finance.yahoo.com/news/bank-america-claims-mbia-default-000932505.html

[fareastwarriors]

http://www.bloomberg.com/news/2012-12-14/u-s-must-reset-housing-expectations-moynihan-says.html

 

 

U.S. Must Rethink Housing Ambitions, BofA’s Moynihan Says

 

...

The housing market is in the midst of a “real, sustained recovery,” Moynihan said. At the same time, he said, unemployment is limiting the reach of mortgage modification programs and other aid that lenders and the government are providing for troubled borrowers.

 

Bank of America has provided such aid to about 1.5 million borrowers and has about 50,000 of its 270,000 employees dedicated to working on about 900,000 delinquent loans, down from a peak of 1.6 million delinquent loans at the height of the crisis, he said.

 

The bank modifies between 30,000 and 40,000 loans and approves about 20,000 short sales every quarter, he said. Bank of America has finished reducing principal on mortgage loans as required in a legal settlement with federal and state authorities over improper foreclosure practices, he said.

 

...

[doc75]

http://www.bloomberg.com/news/2012-12-14/bank-of-america-sued-by-dz-bank-over-mortgage-backed-securities.html?cmpid=yhoo

 

Just another day at the office.

[jay21]

Has anyone done an in depth valuation of warrants?  Or a relative valuation versus leaps?  Someone mentioned that the implied vol of a leap is lower than the warrant, which may mean the warrant is overvalued relative to the leap.  However, I was thinking that people aren't valuing the warrant correctly, specifically because of the strike adjustments.  You could look at the warrant as having an embedded derivative on the strike the price.

 

Basically, my point is that the warrant should not be valued using Black Scholes and looking at implied vol may not be meaningful.  However, that leaves me in a place where I am not sure if I could determine a value in relation to the leap.  I might be rambling here, but does anyone have any thoughts?

[rranjan]

Has anyone done an in depth valuation of warrants?  Or a relative valuation versus leaps?  Someone mentioned that the implied vol of a leap is lower than the warrant, which may mean the warrant is overvalued relative to the leap.  However, I was thinking that people aren't valuing the warrant correctly, specifically because of the strike adjustments.  You could look at the warrant as having an embedded derivative on the strike the price.

 

Basically, my point is that the warrant should not be valued using Black Scholes and looking at implied vol may not be meaningful.  However, that leaves me in a place where I am not sure if I could determine a value in relation to the leap.  I might be rambling here, but does anyone have any thoughts?

 

BS is not useful at all. In fact, at times warrants have traded lot different than what BS might suggest. I don't think too many of us do relative valuation using BS for buying decisions. You might have seen some comments here and there about warrants or leap being cheaper using BS but most of us simply make some assumptions about what will be Stock price, dividend and buyback( with rough impact on strike price and # of shares/warrants). That will allow you to project returns for commons, warrants and leaps in given time frame. Downside is also different under different scenario. Different risk/reward under different scenarios. Also, the comfort level of everyone won't be same even with exact same probability of downside/upside. I will suggest making a spreadsheet under different assumptions and see what you get and feel comfortable with.

 

Right now, I have only warrants and leaps.

[Packer16]

Attached is a spreadsheet based off another boardmember's base spreadsheet.  You can use this run various dividend scenarios.

 

Packer

TARP_Warrants_0211.xls

[Parsad]

Well, I let you guys down this week!  Three lunches and at the big office Christmas party right now...BAC did not go over $11.  I'll try and do better this week.  Cheers!

[finetrader]

Well, I let you guys down this week!  Three lunches and at the big office Christmas party right now...BAC did not go over $11.  I'll try and do better this week.  Cheers!

 

I appreciate your generosity, but if I were you I'd leave some room in my belly for those Christmas family party! :)

 

[berkshiremystery]

It seems that Sanjeev is out for lunch today  ;D

[Uccmal]

It seems that Sanjeev is out for lunch today  ;D

 

too early in Vancouver.  he must be on an overnight drunk.

[value-is-what-you-get]

Has anyone done an in depth valuation of warrants?  Or a relative valuation versus leaps?  Someone mentioned that the implied vol of a leap is lower than the warrant, which may mean the warrant is overvalued relative to the leap.  However, I was thinking that people aren't valuing the warrant correctly, specifically because of the strike adjustments.  You could look at the warrant as having an embedded derivative on the strike the price.

 

Basically, my point is that the warrant should not be valued using Black Scholes and looking at implied vol may not be meaningful.  However, that leaves me in a place where I am not sure if I could determine a value in relation to the leap.  I might be rambling here, but does anyone have any thoughts?

 

Haven't done an in-depth because the simple analysis was sufficient.  At today's price, my entire cash outlay for the warrant is likely to be returned to me prior to expiration in the form of dividends and buybacks.  Hence the option to purchase BAC for 13.30 is free.  I believe it will be above 13.30 at some point in the next 6 years.  That's my 1 foot hurdle analysis.  Currently own DITM Calls and Warrants.

[Parsad]

It seems that Sanjeev is out for lunch today  ;D

 

too early in Vancouver.  he must be on an overnight drunk.

 

No, a late breakfast today...that did the trick!  Cheers!