BAC-WT - Bank of America Warrants

[wescobrk]

"I'll make a bet (gentleman's of course) that they return at least $7B of capital...$3.5B in dividends & $3.5B in buybacks.  "

 

For those that are willing to buy more, mr. Market, in effect, gave us a 7billion "buyback" in one afternoon today.:)

[compoundinglife]

By the way, I only knew of the Manfred Mann's version of "Blinded By The Light" and had no idea The Boss sang it.  And don't get me started on Iron Butterfly's "In-a-Gadda-Da-Vida" either.  Cheers!

 

Yup, little known fact that Bruce Springsteen wrote that song. l like his version much more than Manfred Mann version:

 

[ericd1]

Wow, all of the gains for the entire year wiped out in one day!

 

I hate it when that happens...LOL

 

The $10 & $11 Apr/May options look attractive...Maybe a little deeper ITM just in case...

[ERICOPOLY]

Eric

That was my point too.If the max hit from US attorney case is $1B, market is overreacting.

We will see on 17th where the 4Q book value is.

 

I read something a while back that was trying to describe Fannie/Freddie as an extension of a government body.  In which case, it's treble damages for fraud.

 

Anyway, so what.  Even $3b doesn't matter.  That's roughly 30 cents from a single year of earnings. 

 

On a 10x multiple and $2 earnings, stock should be $20.  Less 30 cents for this lawsuit, 30 cents for that one, blah blah blah.  It doesn't get us down to today's stock price.  Maybe it gets us down to about $18 including the costs for running down LAS.

 

 

 

[BRK7]

Buffett on the BofA preferreds Berkshire owns:  "Their condition has improved so significantly, and interest rates are so low, that they have the chance to do a number of things in that respect,” Buffett said. “I may like to keep it, but if it makes sense for them to call it, they’re going to call it.”

 

Nothing really new in the article, but some good confirming thoughts from WEB on BofA and US banking in general.

 

http://www.bloomberg.com/news/2013-01-10/buffett-says-banks-cleared-of-excess-risk-pose-no-threat-to-u-s-.html

 

 

[berkshiremystery]

Buffett on the BofA preferreds Berkshire owns:  "Their condition has improved so significantly, and interest rates are so low, that they have the chance to do a number of things in that respect,” Buffett said. “I may like to keep it, but if it makes sense for them to call it, they’re going to call it.”

 

Nothing really new in the article, but some good confirming thoughts from WEB on BofA and US banking in general.

 

http://www.bloomberg.com/news/2013-01-10/buffett-says-banks-cleared-of-excess-risk-pose-no-threat-to-u-s-.html

 

I myself wouldn't sell my a-warrants until perhaps 12 months before they mature, but also pay attention to the time decay already some more time before.

 

-----

 

 

“The banks will not get this country in trouble, I guarantee it,” Buffett, chairman and chief executive officer of Omaha, Nebraska-based Berkshire Hathaway Inc. (BRK/A), said in a phone interview last week. “The capital ratios are huge, the excesses on the asset side have been largely cleared out.”

 

“Our banking system is in the best shape in recent memory,” Buffett said.

 

Buffett said Berkshire would probably wait until near the end of the contracts’ life to exercise the options.

 

“We’re in no hurry,” he said. “Nine years from now I would think that Bank of America as well as Wells Fargo and probably the other major banks will be worth considerably more money than they are now.”

 

 

[valuecfa]

BAC's January 9, 2013 Slide Show Presentation on Successor Liability Summary Judgment Motions (Motion Sequences 60 & 61)  is available on the court website (MBIA vs Countrywide). Big decision coming soon, as it could embolden other plaintiffs and add billions to settlements/decisions.

 

article: http://www.law360.com/securities/articles/405834/bofa-not-liable-for-countrywide-s-misdeeds-judge-hears

 

BAC's arguements were yesterday, MBIA today. $1 says that New York law is applied

[Uccmal]

Buffett's comments are interesting.  He has made some 3 b from that investment, so far.  He will likely see a double on the options in under two years.

 

I am not sure I agree with his reference to Canada.  He is correct that the banks here control the entire market between 6 or 7 of them. However, they are/were much more tightly regulated, and easier to regulate since there are so few.  They also tend to be run more conservative in general.  Mortgage companies, not so much, but their slice of the total pie is tiny. 

[value-is-what-you-get]

Buffett's comments are interesting.  He has made some 3 b from that investment, so far.  He will likely see a double on the options in under two years.

 

I believe he will see an infinty on the options as his cost was zero.

[A_Hamilton]

Buffett's comments are interesting.  He has made some 3 b from that investment, so far.  He will likely see a double on the options in under two years.

 

I believe he will see an infinty on the options as his cost was zero.

I don't know that they were zero cost. The yield on BAC's preferreds, particularly BACprL was around 10% when he agreed to do his prefs at 6%, so he got a below market rate on the prefs.

[ECCO]

PTPP for 4Q could be approx. 5B.

BAC said that it expects modestly positive 4Q earnings after the following provisions.

 

2.7 B negative  hit to Net Income from Fannie settlement.

2.5 B negative hit because of foreclosure reviews

700 m negative DVA valuation

1.3B positive tax impact

 

So in total total negative impact is 4.6B.

Despite $4.6B impact BAC will show positive earnings.

 

I come to the same conclusion that without settlement BAC made close to 5B$ this quarter...is there someting missing here? So that mean they are already pretty close to the 20B$ /year mark, right? Can someone confirm that?

 

On another point, its funny all those journalist comments about BAC 100% return in 2012. At the end of 2011, BAC was at a low (pretty low) price. Just 6-7 months before the end of 2011 the stock price was the same has it is now. Pretty spectacular to say the stock return was 100% last year instead of saying it is at the same price its was 18-19 months ago.

 

 

 

[value-is-what-you-get]

Buffett's comments are interesting.  He has made some 3 b from that investment, so far.  He will likely see a double on the options in under two years.

 

I believe he will see an infinty on the options as his cost was zero.

I don't know that they were zero cost. The yield on BAC's preferreds, particularly BACprL was around 10% when he agreed to do his prefs at 6%, so he got a below market rate on the prefs.

 

Agreed but . . . the 10% was a temporary phenomenon based on a depressed price at the time (the "L" is now around 6% yield by my calculation) and he does get an additional 5% kicker when they buy back so if they bought them back in a year he'd get 11%.  All that aside though, even if we assume the cost to be 4% of $5bil then he's at more like a 17X over two years and climbing!

[obtuse_investor]

On another point, its funny all those journalist comments about BAC 100% return in 2012. At the end of 2011, BAC was at a low (pretty low) price. Just 6-7 months before the end of 2011 the stock price was the same has it is now. Pretty spectacular to say the stock return was 100% last year instead of saying it is at the same price its was 18-19 months ago.

 

It is a curious human tendency to place so much importance to arbitrary time boundaries like the revolution of a wet rocky body around an obscure star in an average galaxy.

 

It is rather interesting that much of the people will make major investing decisions based on headlines like that. As a warrant holder, I am not complaining.

 

Howard Mark's memo, "Assessing Performance Records", on this topic is well worth the read =>

http://www.oaktreecapital.com/MemoTree/Assessing%20Performance%20Records%20-%20A%20Case%20Study%2002_15_12.pdf

 

 

 

[Kraven]

I understand that.  But to use your "inclement weather" analogy - which I agree with - surely the inclement weather was a lot worse last year? 

That's why a simple estimate is

this year's capital return = capital generated since last year. 

 

which basically assumes the inclement weather conditions are just as bad this year as last (even though, IMO, they're a lot better). 

 

I agree that the "inclement weather" was worse last year, but I fail to see how that supports your position.  Just because things might be better this year, how does that equate to being able to return all excess capital?  I think the point is that it isn't how bad the "weather" is, but how unclear it is.  Without some level of clarity (as determined by the regulators) they will act in a most conservative manner.  That's just my view and I've put my money where my mouth is.  I've got $1 riding on this with Sanjeev, so you know I feel pretty confident.

[racemize]

Sanjeev, please stop taking our christmas presents back!

[PlanMaestro]

 

http://seekingalpha.com/article/1104601-bank-of-america-reducing-balance-sheet-risk-ahead-of-expected-stock-buyback?source=email_portfolio&ifp=0

Settling litigation self-evidently reduces uncertainty around the balance sheet. However, the sale of $400 billion in mortgage-servicing rights, accounting for approximately one-quarter of the bank's servicing business, is also important.

 

When BAC, or any other firm, acts as a "servicer" of mortgages it collects payments from the borrower and remits these payments to the appropriate holders of claims related to the mortgage. In return, BAC receives a "servicing fee" which is related to the outstanding balance on the mortgage. Accounting standards require that the expected stream of servicing fees be capitalized on the balance sheet as a "mortgage servicing right" or MSR.

 

As of the end of last quarter, BAC's MSR balance stood at $5.1 billion. MSR balances contribute towards capital but the allowed contribution will decline to a maximum of 10% of the MSR balance, from 100% presently, under proposed Basel 3 guidelines. This does not appear to be an issue for BAC since its MSR balance is less than 5% of "Tier 1" capital of $135 billion.

 

However, the MSR can induce meaningful variation in earnings and, given CEO Brian Moynihan's linkage of earnings consistency to regulatory approval of the bank's capital plan, the bank has an incentive to reduce the impact.

 

Technically, the valuation of the MSR involves discounting expected future servicing fees and this involves assumptions regarding the average life of the mortgage (which is, in turn, affected by the rate at which borrowers choose to prepay), the default and delinquency rate, and the prevailing level of interest rates. Changes in these assumptions give rise to changes in the fair value of the MSR which flow through earnings.

 

Like other mortgage-servicers, BAC attempts to manage the resulting earnings variability through the use of derivatives but the process is not precise and gives rise to meaningful swings in earnings. For example, in the second quarter, there was more than a $1 billion swing (pre-tax) from the prior year as the change in the MSR valuation, net of hedges, was a positive ~$200 million versus the year-ago compare of negative ~$900 million - see below.

 

Fair Value Change of MSR ($mm), Net of Economic Hedge

1Q11 2Q11 3Q11 4Q11 1Q12 2Q12 3Q12

3 (873) 360 1,166 194 194 560

 

The "MSR" asset created by BAC's mortgage servicing business can create meaningful swings in earnings - for example of nearly $1 billion (pre-tax) on a year-on-year basis in Q2 2012. This would be a large variation even if BAC were generating normalized earnings of ~$5 billion/quarter (after-tax).

 

With the bank earning significantly lower returns, and with a regulatory focus on "earnings consistency" during the capital plan discussions, it is understandable management is attempting to reduce the earnings impact of MSRs. Hedging is imprecise to the extent that the $1 billion swing referred to above is net of hedging.

 

[Parsad]

Sanjeev, please stop taking our christmas presents back!

 

Hi Racemize, I gave a little of it back to you today.  But don't worry, you'll get it all back tomorrow, when Wells Fargo reports record earnings...and alot more through next week as most banks continue to show huge improvement and earnings power.  Cheers!

[treasurehunt]

PTPP for 4Q could be approx. 5B.

BAC said that it expects modestly positive 4Q earnings after the following provisions.

 

2.7 B negative  hit to Net Income from Fannie settlement.

2.5 B negative hit because of foreclosure reviews

700 m negative DVA valuation

1.3B positive tax impact

 

So in total total negative impact is 4.6B.

Despite $4.6B impact BAC will show positive earnings.

 

I come to the same conclusion that without settlement BAC made close to 5B$ this quarter...is there someting missing here? So that mean they are already pretty close to the 20B$ /year mark, right? Can someone confirm that?

 

I believe Mankap missed a one-time positive item of 300 million or so related to the sale of MSRs. From the BofA press release: "The transactions are expected to have a benefit over the book value of the mortgage servicing rights of approximately $650 million; about one-half of this amount is expected to be recorded in the fourth quarter of 2012 related to valuation adjustments to the MSR asset." But maybe this is something that only affects the balance sheet and not earnings?

 

Even so we end up with pre-tax earnings of at least 4.3 billion in Q4 once we remove all these special charges. But I think it is unrealistic to think that the reps and warranties provision will immediately go to zero from 2.7 billion. Maybe in a few quarters this provision will be at zero. Until then, I think pre-tax income will be less than 5 billion. Of course this also depends on what BofA means by "modestly positive".

[Uccmal]

On another point, its funny all those journalist comments about BAC 100% return in 2012. At the end of 2011, BAC was at a low (pretty low) price. Just 6-7 months before the end of 2011 the stock price was the same has it is now. Pretty spectacular to say the stock return was 100% last year instead of saying it is at the same price its was 18-19 months ago.

 

It is a curious human tendency to place so much importance to arbitrary time boundaries like the revolution of a wet rocky body around an obscure star in an average galaxy.

 

It is rather interesting that much of the people will make major investing decisions based on headlines like that. As a warrant holder, I am not complaining.

 

Howard Mark's memo, "Assessing Performance Records", on this topic is well worth the read =>

http://www.oaktreecapital.com/MemoTree/Assessing%20Performance%20Records%20-%20A%20Case%20Study%2002_15_12.pdf

 

 

 

 

No kidding.  I was buying warrants when BAC was valued at 14$ per share thereabouts - since the start of this thread.  Now I didn't really load the truck until a year ago, and have just kept on piling ever since. 

 

I felt it was a deal at 14$, perhaps not a steal, but a deal, especially the warrants.  And the future was far murkier then.  I still hold a few of those original warrants that cost around 7$ each.

[valuecfa]

comments from BTIG analyst:

 

While Justice Bransten yesterday explained that a ruling in favor of summary judgment for one of the parties could be appealed and that a trial likely would not occur until 2013, we believe that those who are focusing on a trial date are overlooking the significant ramifications of a summary judgment ruling against BAC on the issue of successor liability. Even though such a ruling would be subject to appeal, the headlines from the case would blare out to everyone who wants a piece of BAC that the bank had been found to have liability for Countrywide’s debts.

 

Moreover, the investors in 530 mortgage trusts (as well as the attorneys general of New York and Delaware) who are objecting to the $8.5bn settlement with BAC agreed to by Bank of New York Mellon as trustee would be able to point to the ruling when the stand before New York State Supreme Court Justice Barbara Kapnick in May during the Article 77 proceeding. Given that BNY Mellon’s view that the size of the settlement was fair was predicated on its belief that BAC did not have successor liability for Countrywide, the objectors’ case would be given a tremendous boost by a ruling from Bransten against BAC.

 

We cannot fathom how BAC’s reserve for future mortgage putback losses could remain anywhere near its current $16.3bn if that settlement was imperiled. In fact, a proper number likely would be a multiple of that $16.3bn. With that kind of adverse outcome potentially in the not-too-distant future for BAC, any thoughts by bank management that they will be able to drag the proceedings out until a 2013 trial without first sustaining significant damage could fall into the category of “wishful thinking.”

 

Read more: http://www.btigresearch.com/2013/01/10/mbia-legal-trench-warfare-over-assumption-of-liabilities-doctrine-marks-day-2-of-successor-liability-arguments/#ixzz2HcLoHGTO

 

 

[Parsad]

comments from BTIG analyst:

 

While Justice Bransten yesterday explained that a ruling in favor of summary judgment for one of the parties could be appealed and that a trial likely would not occur until 2013, we believe that those who are focusing on a trial date are overlooking the significant ramifications of a summary judgment ruling against BAC on the issue of successor liability. Even though such a ruling would be subject to appeal, the headlines from the case would blare out to everyone who wants a piece of BAC that the bank had been found to have liability for Countrywide’s debts.

 

Moreover, the investors in 530 mortgage trusts (as well as the attorneys general of New York and Delaware) who are objecting to the $8.5bn settlement with BAC agreed to by Bank of New York Mellon as trustee would be able to point to the ruling when the stand before New York State Supreme Court Justice Barbara Kapnick in May during the Article 77 proceeding. Given that BNY Mellon’s view that the size of the settlement was fair was predicated on its belief that BAC did not have successor liability for Countrywide, the objectors’ case would be given a tremendous boost by a ruling from Bransten against BAC.

 

We cannot fathom how BAC’s reserve for future mortgage putback losses could remain anywhere near its current $16.3bn if that settlement was imperiled. In fact, a proper number likely would be a multiple of that $16.3bn. With that kind of adverse outcome potentially in the not-too-distant future for BAC, any thoughts by bank management that they will be able to drag the proceedings out until a 2013 trial without first sustaining significant damage could fall into the category of “wishful thinking.”

 

Read more: http://www.btigresearch.com/2013/01/10/mbia-legal-trench-warfare-over-assumption-of-liabilities-doctrine-marks-day-2-of-successor-liability-arguments/#ixzz2HcLoHGTO

 

Valuecfa, what is the name of that BTIG analyst?  Cheers!

[valuecfa]

comments from BTIG analyst:

 

While Justice Bransten yesterday explained that a ruling in favor of summary judgment for one of the parties could be appealed and that a trial likely would not occur until 2013, we believe that those who are focusing on a trial date are overlooking the significant ramifications of a summary judgment ruling against BAC on the issue of successor liability. Even though such a ruling would be subject to appeal, the headlines from the case would blare out to everyone who wants a piece of BAC that the bank had been found to have liability for Countrywide’s debts.

 

Moreover, the investors in 530 mortgage trusts (as well as the attorneys general of New York and Delaware) who are objecting to the $8.5bn settlement with BAC agreed to by Bank of New York Mellon as trustee would be able to point to the ruling when the stand before New York State Supreme Court Justice Barbara Kapnick in May during the Article 77 proceeding. Given that BNY Mellon’s view that the size of the settlement was fair was predicated on its belief that BAC did not have successor liability for Countrywide, the objectors’ case would be given a tremendous boost by a ruling from Bransten against BAC.

 

We cannot fathom how BAC’s reserve for future mortgage putback losses could remain anywhere near its current $16.3bn if that settlement was imperiled. In fact, a proper number likely would be a multiple of that $16.3bn. With that kind of adverse outcome potentially in the not-too-distant future for BAC, any thoughts by bank management that they will be able to drag the proceedings out until a 2013 trial without first sustaining significant damage could fall into the category of “wishful thinking.”

 

Read more: http://www.btigresearch.com/2013/01/10/mbia-legal-trench-warfare-over-assumption-of-liabilities-doctrine-marks-day-2-of-successor-liability-arguments/#ixzz2HcLoHGTO

 

Valuecfa, what is the name of that BTIG analyst?  Cheers!

 

Mark Palmer at BTIG. He has been covering MBIA and following their litigation efforts from the beginning.

[CONeal]

comments from BTIG analyst:

 

While Justice Bransten yesterday explained that a ruling in favor of summary judgment for one of the parties could be appealed and that a trial likely would not occur until 2013, we believe that those who are focusing on a trial date are overlooking the significant ramifications of a summary judgment ruling against BAC on the issue of successor liability. Even though such a ruling would be subject to appeal, the headlines from the case would blare out to everyone who wants a piece of BAC that the bank had been found to have liability for Countrywide’s debts.

 

Moreover, the investors in 530 mortgage trusts (as well as the attorneys general of New York and Delaware) who are objecting to the $8.5bn settlement with BAC agreed to by Bank of New York Mellon as trustee would be able to point to the ruling when the stand before New York State Supreme Court Justice Barbara Kapnick in May during the Article 77 proceeding. Given that BNY Mellon’s view that the size of the settlement was fair was predicated on its belief that BAC did not have successor liability for Countrywide, the objectors’ case would be given a tremendous boost by a ruling from Bransten against BAC.

 

We cannot fathom how BAC’s reserve for future mortgage putback losses could remain anywhere near its current $16.3bn if that settlement was imperiled. In fact, a proper number likely would be a multiple of that $16.3bn. With that kind of adverse outcome potentially in the not-too-distant future for BAC, any thoughts by bank management that they will be able to drag the proceedings out until a 2013 trial without first sustaining significant damage could fall into the category of “wishful thinking.”

 

Read more: http://www.btigresearch.com/2013/01/10/mbia-legal-trench-warfare-over-assumption-of-liabilities-doctrine-marks-day-2-of-successor-liability-arguments/#ixzz2HcLoHGTO

 

Valuecfa, what is the name of that BTIG analyst?  Cheers!

 

Mark Palmer at BTIG. He has been covering MBIA and following their litigation efforts from the beginning.

 

My vote is to just bankrupt Countrywide.  Getting tired of everyone trying to milk the cow for everything it's worth. 

[berkshiremystery]

comments from BTIG analyst:

 

While Justice Bransten yesterday explained that a ruling in favor of summary judgment for one of the parties could be appealed and that a trial likely would not occur until 2013, we believe that those who are focusing on a trial date are overlooking the significant ramifications of a summary judgment ruling against BAC on the issue of successor liability. Even though such a ruling would be subject to appeal, the headlines from the case would blare out to everyone who wants a piece of BAC that the bank had been found to have liability for Countrywide’s debts.

 

Moreover, the investors in 530 mortgage trusts (as well as the attorneys general of New York and Delaware) who are objecting to the $8.5bn settlement with BAC agreed to by Bank of New York Mellon as trustee would be able to point to the ruling when the stand before New York State Supreme Court Justice Barbara Kapnick in May during the Article 77 proceeding. Given that BNY Mellon’s view that the size of the settlement was fair was predicated on its belief that BAC did not have successor liability for Countrywide, the objectors’ case would be given a tremendous boost by a ruling from Bransten against BAC.

 

We cannot fathom how BAC’s reserve for future mortgage putback losses could remain anywhere near its current $16.3bn if that settlement was imperiled. In fact, a proper number likely would be a multiple of that $16.3bn. With that kind of adverse outcome potentially in the not-too-distant future for BAC, any thoughts by bank management that they will be able to drag the proceedings out until a 2013 trial without first sustaining significant damage could fall into the category of “wishful thinking.”

 

Read more: http://www.btigresearch.com/2013/01/10/mbia-legal-trench-warfare-over-assumption-of-liabilities-doctrine-marks-day-2-of-successor-liability-arguments/#ixzz2HcLoHGTO

 

Valuecfa, what is the name of that BTIG analyst?  Cheers!

 

Mark Palmer at BTIG. He has been covering MBIA and following their litigation efforts from the beginning.

 

Here are some Bloomberg videos of Mark Palmer (BTIG) ---->

 

Sorry,... was wrong link,... here's the right link

http://www.google.com/search?q=mark+palmer+BTIG&hl=en&safe=off&tbo=d&tbm=vid&source=lnms&sa=X&ei=e1rvUL_lMoGytAbJ3YCQCg&ved=0CAoQ_AUoAg&biw=768&bih=900

 

[valuecfa]

comments from BTIG analyst:

 

While Justice Bransten yesterday explained that a ruling in favor of summary judgment for one of the parties could be appealed and that a trial likely would not occur until 2013, we believe that those who are focusing on a trial date are overlooking the significant ramifications of a summary judgment ruling against BAC on the issue of successor liability. Even though such a ruling would be subject to appeal, the headlines from the case would blare out to everyone who wants a piece of BAC that the bank had been found to have liability for Countrywide’s debts.

 

Moreover, the investors in 530 mortgage trusts (as well as the attorneys general of New York and Delaware) who are objecting to the $8.5bn settlement with BAC agreed to by Bank of New York Mellon as trustee would be able to point to the ruling when the stand before New York State Supreme Court Justice Barbara Kapnick in May during the Article 77 proceeding. Given that BNY Mellon’s view that the size of the settlement was fair was predicated on its belief that BAC did not have successor liability for Countrywide, the objectors’ case would be given a tremendous boost by a ruling from Bransten against BAC.

 

We cannot fathom how BAC’s reserve for future mortgage putback losses could remain anywhere near its current $16.3bn if that settlement was imperiled. In fact, a proper number likely would be a multiple of that $16.3bn. With that kind of adverse outcome potentially in the not-too-distant future for BAC, any thoughts by bank management that they will be able to drag the proceedings out until a 2013 trial without first sustaining significant damage could fall into the category of “wishful thinking.”

 

Read more: http://www.btigresearch.com/2013/01/10/mbia-legal-trench-warfare-over-assumption-of-liabilities-doctrine-marks-day-2-of-successor-liability-arguments/#ixzz2HcLoHGTO

 

Valuecfa, what is the name of that BTIG analyst?  Cheers!

 

Mark Palmer at BTIG. He has been covering MBIA and following their litigation efforts from the beginning.

 

My vote is to just bankrupt Countrywide.  Getting tired of everyone trying to milk the cow for everything it's worth.

 

That is one of the main points of the successor liability judgement coming down the pipe soon.

 

Even if they put it into Countrywide into bankruptcy (the nuclear option), BAC is still liable for Countrywide if successor liability is proven.