BAC-WT - Bank of America Warrants

[fareastwarriors]

http://professional.wsj.com/article/SB10001424127887323291704578199552093208348.html?mod=WSJ_hp_LEFTWhatsNewsCollection

 

BofA Settlement Hits Snags

 

 

 

A big legal settlement usually marks the end of the bulk of the work for the Justice Department. But a year after a $335 million deal with Bank of America Corp. BAC to compensate minority borrowers for alleged discrimination, much remains to be done.

 

The department's settlement administrator just began notifying affected borrowers in November, about five months later than originally planned. Then, weeks after letters went out to more than 233,000 presumed victims, about 10% of those letters have been returned as undeliverable, according to Justice Department officials.

 

U.S. officials had warned that it might take two years for eligible borrowers to receive money from the settlement, but they also expressed hope that checks could be mailed out sooner. Those hopes have dimmed.

 

"There were a number of production and other delays in getting the letters out to borrowers. However, we believe that we should be able to meet our original two-year time frame," Justice Department spokeswoman Dena Iverson said.

 

The settlement covers lending during the height of the housing bubble from 2004 to 2008 by Countrywide Financial, the big mortgage lender acquired by Bank of America in 2008.

 

Announced in December 2011, the agreement was the department's largest fair-lending settlement in history. The department said Countrywide charged black and Hispanic borrowers higher mortgage-lending fees or steered them into costly subprime loans even though their credit histories qualified them for a mortgage with more favorable terms.

 

Bank of America said it reached the settlement "to resolve issues about Countrywide's alleged historic practices" before the acquisition. The bank also said it discontinued Countrywide products and practices that "were not in keeping" with its commitment to fair and equal treatment of customers. A bank spokesman said the company has a minimal supportive role in the administration of the settlement.

 

Ms. Iverson said the department has learned lessons that will boost its efforts to distribute payments in two similar lending-discrimination settlements announced in 2012, including a $175 million deal with Wells Fargo WFC & Co. "We have every expectation that those processes will move much quicker than Countrywide," she said.

 

Wells Fargo denied discrimination but said it agreed to the settlement to avoid lengthy litigation.

 

The Justice Department's letters give a minimum dollar amount that the recipient can expect to receive, ranging from $200 to more than $15,000. A Justice Department official said it took time to calculate minimum damages for each borrower, but the department believed people would be more likely to respond to the letters if specific dollar figures were quoted.

 

Emma Campbell of Maryland said she took out a Countrywide home loan in 2007 and has been following developments since the settlement was announced. She said she has already responded to her letter from the department, which said she can expect payment of at least $1,800, money she'd like to use to pay bills. "I think it's too long to have to wait," she said.

 

The higher payouts will go to 12,475 Countrywide borrowers who were allegedly steered into subprime loans despite their better credit histories. More than a third of the steering victims faced foreclosure, were seriously delinquent or entered into a short sale, the Justice official said, and those borrowers are entitled to receive extra money. The final payment amounts depend on how many eligible borrowers respond to the notifications.

 

The Justice Department hopes it will be able to locate more than 80% of the borrowers entitled to funds from the settlement, the official said. That number would be higher than the 78% who received and cashed checks from a far-smaller Justice Department fair-lending settlement with two American International Group Inc. AIG subsidiaries in 2010. The department has hired Rust Consulting Inc. as settlement administrator, and it is trying to track down hard-to-find borrowers.

 

Janis Bowdler, a policy director at National Council of La Raza, a Latino civil-rights group, said the Justice Department may need to be more creative because distressed homeowners get so much mail about their situation.

 

"With so many programs having come up short, people aren't jumping at opportunities," Ms. Bowdler said. "Form letters in the mail just aren't going to do it."

 

 

[ourkid8]

I really hope BAC can drag this out for the next 6 months to 1 year thus allowing the company to repurchase a significant amount of stock under TBV!!!!  Just imagine if they are able to repurchase $5-$10B in stock!  (4-8% of the float)

 

Once they agree on the sequester (only sticking point now) BAC will be at 12.50 within days. Maybe TBV for a short time.

[StubbleJumper]

http://professional.wsj.com/article/SB10001424127887323291704578199552093208348.html?mod=WSJ_hp_LEFTWhatsNewsCollection

 

The higher payouts will go to 12,475 Countrywide borrowers who were allegedly steered into subprime loans despite their better credit histories. More than a third of the steering victims faced foreclosure, were seriously delinquent or entered into a short sale, the Justice official said, and those borrowers are entitled to receive extra money. The final payment amounts depend on how many eligible borrowers respond to the notifications.

 

 

 

Fascinating article. 

 

1) A business is sued for attempting to charge the highest price that it thinks that a customer might be foolish enough to pay.  If car dealerships and mechanics charge a premium to white collar workers who are less well versed in that aspect of life, does that mean I can launch a class action on behalf of white collar workers because we are too stupid to know what work actually needs to be done our cars?

 

2) One-third of the people who were allegedly "steered" into sub-prime lending vehicles actually ran into financial trouble.  To me, that pretty much indicates that those people were exactly where they belonged and should not have been included in the prime class!

 

Am I the only person who wonders whether this whole issue should have instead fallen under the category of caveat emptor?

 

 

SJ

[rkbabang]

http://professional.wsj.com/article/SB10001424127887323291704578199552093208348.html?mod=WSJ_hp_LEFTWhatsNewsCollection

 

The higher payouts will go to 12,475 Countrywide borrowers who were allegedly steered into subprime loans despite their better credit histories. More than a third of the steering victims faced foreclosure, were seriously delinquent or entered into a short sale, the Justice official said, and those borrowers are entitled to receive extra money. The final payment amounts depend on how many eligible borrowers respond to the notifications.

 

 

 

Fascinating article. 

 

1) A business is sued for attempting to charge the highest price that it thinks that a customer might be foolish enough to pay.  If car dealerships and mechanics charge a premium to white collar workers who are less well versed in that aspect of life, does that mean I can launch a class action on behalf of white collar workers because we are too stupid to know what work actually needs to be done our cars?

 

2) One-third of the people who were allegedly "steered" into sub-prime lending vehicles actually ran into financial trouble.  To me, that pretty much indicates that those people were exactly where they belonged and should not have been included in the prime class!

 

Am I the only person who wonders whether this whole issue should have instead fallen under the category of caveat emptor?

 

 

SJ

 

You are not the only one.  If someone is too dim witted to shop around for a good rate on a loan that isn't any ones fault but there own.  Every time I've needed a mortgage, to buy or refinance, I've spent an enormous amount of time finding the right lender and loan.  If your rate isn't important to you, than why is that your lenders fault?

[fareastwarriors]

U.S. Mortgage Firms Said to Near $10 Billion Settlement

 

U.S. regulators led by the Office of the Comptroller of the Currency will replace a largely fruitless effort to find victims of botched foreclosures at the 14 biggest mortgage servicers with flat penalties, five people briefed on the talks said.

 

Bank of America Corp., Wells Fargo & Co. (WFC), JPMorgan Chase & Co. (JPM) and New York-based Citigroup Inc. © are among servicers that may make concessions totaling about $10 billion, said the people, who requested anonymity because the discussions are private. The funds would compensate borrowers whose homes were wrongfully seized using faulty paperwork and aid homeowners in danger of default, the people said.

 

...

 

http://www.bloomberg.com/news/2012-12-31/u-s-mortgage-firms-said-to-near-10-billion-settlement.html

[mankap]

 

Fannie Mae, Freddie Mac Mortgage Serious Delinquency rates declined in November.

 

I will be looking for 60+ delinquency rate in the Jan 17 report with a magnifying glass together with LAS reserves.

I think drop in 60+ delinquency rate will have the biggest impact on BAC's non interest expense in 2013.

I would like to see 60+ delinquency rate drop to 800k in 4Q report.

 

Fannie Mae reported that the Single-Family Serious Delinquency rate declined in November to 3.30% from 3.35% October. The serious delinquency rate is down from 4.00% in November last year, and this is the lowest level since March 2009.

 

 

http://www.calculatedriskblog.com/2012/12/fannie-mae-freddie-mac-mortgage-serious.html#hVqR2u67Yl317pUf.99

[fareastwarriors]

http://professional.wsj.com/article/SB10001424127887323635504578213642873544644.html?mod=WSJ_Heard_LeadStory&mg=reno64-wsj

 

Time for BofA to Bid Warren Buffett Adieu?

 

Bringing Warren Buffett on board as an investor during a crisis is meant to instill confidence in a company. The real show of strength, though, is seeing him off.

 

Bank of America should keep that in mind as it, along with other big U.S. banks, in coming days submits its capital plan for 2013 to the Federal Reserve. As part of this, it and other banks will also undergo stress tests.

 

BofA investors are hankering for a return of capital: Buying back stock now would be accretive to earnings since the shares trade below tangible book value. But BofA is likely to be conservative on this front.

 

Two years ago, its request was rebuffed by the Fed, leaving Chief Executive Brian Moynihan with egg on his face.

 

This time around, analysts expect the bank may ask the Fed's permission for a slight dividend increase along with modest buyback authority.

 

"BofA seems to recognize that it is still in the early stages of proving its turnaround to both regulators and Wall Street," John McDonald of Sanford C. Bernstein wrote in a recent note.

 

But BofA shouldn't forget about Mr. Buffett. Back in 2011, during a particularly bleak period for the bank, the legendary investor purchased $5 billion in preferred stock in BofA. That show of support didn't come cheap.

 

The preferred shares carried a 6% dividend, and Mr. Buffett was also given 700 million warrants with a strike price of $7.14 a share, just a slight premium to the then-prevailing price. At current prices, a $3 billion buyback would only offset the dilution caused by issuing those warrants.

 

Now, BofA is in a far better place. The bank has boosted its Tier 1 common ratio under new Basel capital rules, while it appears poised to show improved profitability in 2013. Despite continued worries about the fiscal cliff and persistent legal issues, BofA's stock doubled in 2012. Moreover, the stock is closing in on its tangible book value. It hasn't traded at that level since early 2011.

 

Granted, retiring Mr. Buffett's preferred shares might cause BofA to cut back on plans to ask for capital returns. That could cause unease for common shareholders, especially since Mr. Buffett's preferred stock is also equity.

 

Yet the particular structure of the preferred shares means it doesn't qualify toward the bank's Tier 1 ratio under the new Basel rules. So it is akin to debt for capital purposes.

 

On that basis, 6% is expensive. The average yield on BofA's long-term debt as of the third quarter was 3.07%. And the bank, awash with deposits, has been aggressively reducing long-term debt as it seeks to bolster its net interest margin.

 

So it wouldn't be tough for BofA to replace Mr. Buffett's preferred stock with cheaper, long-term debt. The catch: Any additional debt issuance chips away at the bank's net interest margin, while the preferred payment doesn't because it is deducted from net income.

 

Still, for shareholders this shouldn't be such an issue. Buying back the preferred would result in a savings of $300 million a year, even if BofA would have to pay $250 million for the privilege.

 

Also, one reason for bringing in Mr. Buffett, to assuage fears among the bank's creditors, is no longer an issue. In August 2011, the cost of insuring $10 million of BofA debt against default had soared to about $370,000, according to Markit. As of Dec. 31, it had fallen to about $132,000.

 

And there is precedent for showing Mr. Buffett out. In 2011, Goldman Sachs repurchased the $5 billion in preferred stock it had sold to Mr. Buffett at the height of the crisis.

 

The benefit of bringing Mr. Buffett on board was questionable for BofA shareholders given the terms of the deal. Buying him out now would be yet another step in cleaning up the balance sheet.

 

Just as important, it could underscore Mr. Moynihan's message that the bank really has turned a corner.

[meiroy]

 

fareastwarriors,

 

Thanks for the article.  Who is the author?

 

 

[rkbabang]

BAC>12 :)

 

[fareastwarriors]

 

fareastwarriors,

 

Thanks for the article.  Who is the author?

 

From WSJ, David Reilly at david.reilly@wsj.com

[PlanMaestro]

BofA raises lending after years of cuts

http://www.ft.com/intl/cms/s/0/f75a58a6-54f8-11e2-a220-00144feab49a.html#axzz2Glh78llf

 

Bank of America is ramping up mortgage and corporate lending after two years of focusing on capital levels and cost-cutting under chief executive Brian Moynihan.

 

Mr Moynihan said the company should overtake JPMorgan Chase in direct-to-consumer mortgage lending in the next six months and he had directed bankers to be “more aggressive” in lending to companies.

 

His comments to the Financial Times come amid new-found confidence at a bank hit harder than most by the ­financial crisis, aggravated by a crippling acquisition and the devastation of the US mortgage market.

 

BofA ended 2012 as the best performer in the Dow Jones Industrial Average, with a 109 per cent increase in the stock, which rose an additional 3 per cent on Wednesday after the fiscal deal in Washington.

 

 

[rranjan]

BofA raises lending after years of cuts

http://www.ft.com/intl/cms/s/0/f75a58a6-54f8-11e2-a220-00144feab49a.html#axzz2Glh78llf

 

Bank of America is ramping up mortgage and corporate lending after two years of focusing on capital levels and cost-cutting under chief executive Brian Moynihan.

 

Mr Moynihan said the company should overtake JPMorgan Chase in direct-to-consumer mortgage lending in the next six months and he had directed bankers to be “more aggressive” in lending to companies.

 

His comments to the Financial Times come amid new-found confidence at a bank hit harder than most by the ­financial crisis, aggravated by a crippling acquisition and the devastation of the US mortgage market.

 

BofA ended 2012 as the best performer in the Dow Jones Industrial Average, with a 109 per cent increase in the stock, which rose an additional 3 per cent on Wednesday after the fiscal deal in Washington.

 

Mortgage origination in 3Q for WFC was around 140B. JPM was around 50B. JPM/WFC have been growing their loans and BAC was reducing it at the same time. BAC was around 21B. I expect JPM to continue growing loans in next 6 months. BAC has lot of catching up to do if they are planning to cross JPM in next 6 months. About time to get involved in old fashioned banking.

 

In house Mortgage origination margin is very high right now when compared to historical average. I don't think high margin will last for more than few quarters. BAC better ramp up quickly to capture some high margin business.

[PlanMaestro]

Battle-weary Moynihan finds comfort at last

http://www.ft.com/intl/cms/s/0/2b0cd318-54f9-11e2-a220-00144feab49a.html#axzz2Glh78llf

 

The gradual return to a state of normality after the upheaval and shrinking of the last few years should see earnings stream in from multiple sources, Mr Moynihan says. For example, the bank has a large operation in Calabasas, California, dealing with troubled mortgages. As the loans recover or homeowners default, the more than 40,000 staff will be cut, some of them to be redeployed into writing new loans. “Legacy asset servicing is unique to us,” says Mr Moynihan. “That adds earnings leverage to us that I don’t think other people have. It’s a good thing going forward; it’s a tough thing looking backwards.”

 

He is looking forward to a legacy loan book of $70bn running off. “If we replace that with a good loan book, that is plenty of room to grow the company over the next couple of years,” he says. Despite the new emphasis on growth opportunities Mr Moynihan is not embarrassed about his feat of shrinking the bank, pointing to the smaller credit card business as a job well done. “Sure the revenue shrank because we got rid of $50bn-100bn of credit card balance over the last five years,” he says, adding drily: “There was a lot of revenue; there was no profit attached.”

 

Cost-cutting has been the defining strategy of Mr Moynihan’s leadership, sometimes attracting criticism, mixed with delight among rivals, that the company has retrenched too much, losing ground on mortgages and failing to take advantage of the boom in refinancing.

 

Mr Moynihan says there is method behind each example of pruning. He promises the mortgage business is on track for growth with good-quality homegrown loans.

 

In trading, “the opportunity in Asia that was going up to the sky has come back down, so we’ve brought down the cost. That doesn’t mean we don’t have the opportunity to take advantage in Asia if Asia opens back up again”.

 

 

[ERICOPOLY]

$12 is still very, very, cheap  8)

[stahleyp]

eric, are you weighted most toward options, warrants or common these days?

[racemize]

$12 is still very, very, cheap  8)

 

I wonder though, if we were in charge of the price right now, what do you think it should be?  I tend to think it should be under book value given all of the uncertainty on litigation and the amount of time we will need to wait for the earnings power to emerge.  Perhaps 0.8 of book?  I'm curious what others would put it at, if everyone were as "rational" as we are.

[ERICOPOLY]

I figure if they earn a dollar this year as the analysts expect, then it really earns $1.40-$1.50 considering the usage of NOLs.  Then if earning $1.40 next year, then really it's roughly $2 in earnings.  Then for 2015 if the issues are cleaned up, it can still go on earning $2.

 

So, the stock should probably be at least $14 already if valued at 10x forward, yet that leaves it too cheap because it needs to jump to $20 the very next year in order to remain at 10x forward. 

 

So perhaps it should somewhat above $14 today -- maybe $16+?

 

[ERICOPOLY]

eric, are you weighted most toward options, warrants or common these days?

 

Notional position is comprised of:

12.5% common

warrants and options the rest of it

 

That's basically why my performance went from 120% to 200% relatively quickly towards the end of the year.

 

[stahleyp]

ah, makes sense. thanks man. You are a true gangsta. ;)

[Aberhound]

I have been thinking about what will happen with the big banks after the bond bubble collapses.

 

I expect the bond market to revert to more ordinary interest rates. You can't starve bond investors forever. So I expect all the moat stocks like Walmart, Intel etc. will do well for at least a few years as some bond investors look for alternatives to holding bonds. I like BAC because you buy for a big discount to book and the litigation, loan loss, and dilution risks are all abating. Bond investors love long term dependable cash flows. But perhaps a rise in interest rates to norm and a fall in bond prices will hurt BAC's earnings?

 

Will BAC be a lifeboat when the bond market storm arrives? My guess is that all bond prices will rise including BAC's bonds so that more of BAC's great cash flows are captured by the bond investors while BAC will suffer temporary losses on their bond and derivative holdings. BAC's recovery to book value may be delayed, but the storm will eliminate many smaller competitors, cheap deposits will continue to flood and loan rates will rise following the increase in bond rates.  Overall BAC's long term earnings will increase. Thoughts?

[vinod1]

I have been thinking about what will happen with the big banks after the bond bubble collapses.

 

I expect the bond market to revert to more ordinary interest rates. You can't starve bond investors forever. So I expect all the moat stocks like Walmart, Intel etc. will do well for at least a few years as some bond investors look for alternatives to holding bonds. I like BAC because you buy for a big discount to book and the litigation, loan loss, and dilution risks are all abating. Bond investors love long term dependable cash flows. But perhaps a rise in interest rates to norm and a fall in bond prices will hurt BAC's earnings?

 

Will BAC be a lifeboat when the bond market storm arrives? My guess is that all bond prices will rise including BAC's bonds so that more of BAC's great cash flows are captured by the bond investors while BAC will suffer temporary losses on their bond and derivative holdings. BAC's recovery to book value may be delayed, but the storm will eliminate many smaller competitors, cheap deposits will continue to flood and loan rates will rise following the increase in bond rates.  Overall BAC's long term earnings will increase. Thoughts?

 

Only a sudden increase in bond yields would have a major impact on the big banks. Since the Federal Reserve's increased rates suddenly in 1994 and the impact it had on the banks and economy, they have been communicating any increase in rates ahead of time giving banks ample time to react. I would think most of the big banks would position their securities portfolio accordingly, lowering durations, adding hedges, etc when the Fed starts telegraphing their intention to raise rates. As long as Ben is at the Fed, I am less concerned about this issue.

 

This might be more of a problem for the insurers (P&C and Life co's) who are pretty much forced to look for yield and have less leeway in terms of hedging.

 

Vinod

[wescobrk]

Two weeks tomorrow we get to see Q4. Maybe Basel 3 at 9.5. a full 100 basis buffer!

Wfc and JPM probably still haven't even met their Basel when they report.

[treasurehunt]

Two weeks tomorrow we get to see Q4. Maybe Basel 3 at 9.5. a full 100 basis buffer!

Wfc and JPM probably still haven't even met their Basel when they report.

 

It looks like BAC will become ridiculously overcapitalized as we go through 2013. Should make for substantial returns of capital in later years.

 

JPM is a long way away from meeting its 9.5% capital requirement, but WFC has already met its requirement. Their Tier 1 ratio was at 8.02% as of Q3, and the requirement is only 8%.

[wescobrk]

Thanks for the correction on Wells Basel. I should have said Citi. I'm assuming they are still short.

[ERICOPOLY]

BAC is earning perhaps $2 currently (underneath all the noise) so it's worth $20 (before adjustments) on a 10x forward earnings basis.  But if it's only going to generate $1.40 in 2013 then one should knock 60 cents off of the purchase price.

 

So a $19.40 stock before other adjustments, assuming they generate (with help of NOLs) $2 per share in 2014 and beyond.

 

Subtract another 50 cents for worst case putback settlement assumptions -- so it's $18.90.

 

Market cap is currently discounted by about $77b in excess of that right now.  That's a huge amount.