BAC-WT - Bank of America Warrants

[wescobrk]

 

Re: BAC-WT - Bank of America Warrants

« Reply #3025 on: Today at 10:02:31 AM »

Quote

http://www.bloomberg.com/news/2013-02-22/fattened-margins-seen-shrinking-40-at-banks-mortgages.html

 

Mr market has sent wells and JPM up after this article but BAC down. There is now a 65 billion dollar difference with BAC and JPM even though BAC is 12 months away from the same cash flows.

[Kraven]

There is now a 65 billion dollar difference with BAC and JPM even though BAC is 12 months away from the same cash flows.

 

How do you know this?  It's fact?

[wescobrk]

 

Re: BAC-WT - Bank of America Warrants

« Reply #3027 on: Today at 10:40:19 AM »

Quote

Quote from: wescobrk on Today at 10:17:49 AM

There is now a 65 billion dollar difference with BAC and JPM even though BAC is 12 months away from the same cash flows.

 

How do you know this?  It's fact?

 

Hi Kraven,

I'm basing it on the people running the company. They have every

90 days to revise it and they haven't yet. They have been working on these expense

Reductions for almost 3 years.

It's there for everyone to see. Headcount declining, lawsuits settled, authorization

For buyback in 2 weeks. I think 1.65 a share by summer 2014 is conservative.

That will equal wells and almost jpm today.

Of course nothing is "certain" I'm assuming certain epistemological assumptions

for this conversation.

 

Please excuse grammar as I'm using phone to type.

[Kraven]

 

Re: BAC-WT - Bank of America Warrants

« Reply #3027 on: Today at 10:40:19 AM »

Quote

Quote from: wescobrk on Today at 10:17:49 AM

There is now a 65 billion dollar difference with BAC and JPM even though BAC is 12 months away from the same cash flows.

 

How do you know this?  It's fact?

 

Hi Kraven,

I'm basing it on the people running the company. They have every

90 days to revise it and they haven't yet. They have been working on these expense

Reductions for almost 3 years.

It's there for everyone to see. Headcount declining, lawsuits settled, authorization

For buyback in 2 weeks. I think 1.65 a share by summer 2014 is conservative.

That will equal wells and almost jpm today.

Of course nothing is "certain" I'm assuming certain epistemological assumptions

for this conversation.

 

Please excuse grammar as I'm using phone to type.

 

Hopefully you're right.  I worry too much about "certainties" and known unknowns and unknown unknowns to ever think things are in the bag.  We had a long discussion on this thread about what might be expected in terms of buybacks, etc.  I was in the camp that preached caution and that things may not be coming quite as quickly as some believe.  In the future, yes, most likely.  Now?  Uncertain.  I hope I am wrong. 

[wescobrk]

If we go from plus 2 GDP to negative GDP that

Is definitely a scenario that I think the 1.65 would seriously undershoot.

If we are still plus 2 GDP then thesis should hold but as you pointed out there are risks

The question is how probable is negative GDP in US in 2014?

I would wager low and baseline is we are still positive at least 1%

[MrB]

 

Re: BAC-WT - Bank of America Warrants

« Reply #3027 on: Today at 10:40:19 AM »

Quote

Quote from: wescobrk on Today at 10:17:49 AM

There is now a 65 billion dollar difference with BAC and JPM even though BAC is 12 months away from the same cash flows.

 

How do you know this?  It's fact?

 

Hi Kraven,

I'm basing it on the people running the company. They have every

90 days to revise it and they haven't yet. They have been working on these expense

Reductions for almost 3 years.

It's there for everyone to see. Headcount declining, lawsuits settled, authorization

For buyback in 2 weeks. I think 1.65 a share by summer 2014 is conservative.

That will equal wells and almost jpm today.

Of course nothing is "certain" I'm assuming certain epistemological assumptions

for this conversation.

 

Please excuse grammar as I'm using phone to type.

 

Hopefully you're right.  I worry too much about "certainties" and known unknowns and unknown unknowns to ever think things are in the bag.  We had a long discussion on this thread about what might be expected in terms of buybacks, etc.  I was in the camp that preached caution and that things may not be coming quite as quickly as some believe.  In the future, yes, most likely.  Now?  Uncertain.  I hope I am wrong.

 

Kraven, I think you're on the money. In fact I am hoping for a surprise on the downside, because it will hit the stock which is not a bad thing for truly long term holders and at this point money under BAC's bed is worth more because of the unknowns. In particular on the legal front...it ain't over until its over. Let Brian hang onto the money for another year; it won't kill us.

[Kraven]

If we go from plus 2 GDP to negative GDP that

Is definitely a scenario that I think the 1.65 would seriously undershoot.

If we are still plus 2 GDP then thesis should hold but as you pointed out there are risks

The question is how probable is negative GDP in US in 2014?

I would wager low and baseline is we are still positive at least 1%

 

It's not just GDP that is going to determine the level of buybacks and/or dividends.  There are things particular to BAC that have nothing to do with anything other than themselves which will weigh heavily. 

[Kraven]

Kraven, I think you're on the money. In fact I am hoping for a surprise on the downside, because it will hit the stock which is not a bad thing for truly long term holders and at this point money under BAC's bed is worth more because of the unknowns. In particular on the legal front...it ain't over until its over. Let Brian hang onto the money for another year; it won't kill us.

 

Agreed, there are uncertainties on the legal front which will, among other things, weigh on what regulators permit them to do. 

[ERICOPOLY]

Prices of BAC puts:

2014 $7 strike:  18 cents

2015 $7 strike:  54 cents

 

I find this rather odd.  The cost of insurance rises dramatically after 2014.

 

Thoughts on why this is?

 

Only 18 cents for the first 11 months, but an additional 36 cents if you want 12 more months beyond that?

 

 

[HJ]

Prices of BAC puts:

2014 $7 strike:  18 cents

2015 $7 strike:  54 cents

 

I find this rather odd.  The cost of insurance rises dramatically after 2014.

 

Thoughts on why this is?

 

Only 18 cents for the first 11 months, but an additional 36 cents if you want 12 more months beyond that?

 

Any put/call parity type of arbitrage perhaps?  Ought to work out the same as shorting the stock and buying a call, so the more people buys the call, instead of buying stock, the higher the puts ought to price?

[StubbleJumper]

Prices of BAC puts:

2014 $7 strike:  18 cents

2015 $7 strike:  54 cents

 

I find this rather odd.  The cost of insurance rises dramatically after 2014.

 

Thoughts on why this is?

 

Only 18 cents for the first 11 months, but an additional 36 cents if you want 12 more months beyond that?

 

 

The short answer is theta.  However, I agree with your unspoken observation that the 2015 puts will probably be worthless when they expire and look like free money.

 

SJ

[LC]

Prices of BAC puts:

2014 $7 strike:  18 cents

2015 $7 strike:  54 cents

 

I find this rather odd.  The cost of insurance rises dramatically after 2014.

 

Thoughts on why this is?

 

Only 18 cents for the first 11 months, but an additional 36 cents if you want 12 more months beyond that?

 

Were they liquid at those prices? Probably theta or perhaps someone making a large purchase as a hedge?

[racemize]

Anyone started buying B warrants?  I got a few today at 0.71 cents. 

[berkshiremystery]

Prices of BAC puts:

2014 $7 strike:  18 cents

2015 $7 strike:  54 cents

 

I find this rather odd.  The cost of insurance rises dramatically after 2014.

 

Thoughts on why this is?

 

Only 18 cents for the first 11 months, but an additional 36 cents if you want 12 more months beyond that?

 

ERICOPOLY,...

 

I know it seems odd,... but have a look at other long dated puts for the 2014/15 cycle (i.e. leaps in GE, SD, KO, or MSFT), they all have increased insurance cost, this is "normal" in puts, the longer they run the higher the insurance costs. But I already feel your mind is tickling you about the logical contradiction,... in logic terms it doesn't make sense, because we feel that by then BAC's share price might be higher.

 

But I might add,... BAC carries a steeper premium between the 2014 and 2015 cycles compared with GE or KO,... that is surely for the anticipated fictional volatility in the heads of investors.

[ERICOPOLY]

Okay, I see the pattern that was surprising me.  But it's not specific to BAC, the same holds for others (like KO for example).

 

I was expecting the 2014 BAC puts to be at least 1/2 of the cost of the 2015 strike puts (because it was like that back when the stock was at $8 a few months ago).  But I was surprised that they (the 2014s) now cost only 1/3 as much as the 2015s.  Suddenly the ratio between their respective prices changed as the price of the underlying moved up.

 

Compare that to strike closer to the money.  For example,  the BAC puts with $10 strike today will cost you less than double for the 2015s vs the 2014s. 

 

So I guess all my chattering is just that I noticed/learned a put will decay at a faster pace if the expiration is nearer (in this case roughly 1/2 the time). 

 

So if you were expecting another fast movement down in the stock, you would want to buy the 2014 strike put and trade it for the 2015 after the ratio fell back near the prior level.

 

I guess this is just "duh" for some of you -- but I hardly ever look at puts.  I guess under the put/call parity theory this should be expected -- normally I expect nearer-strike calls to appreciate at a faster pace, so it should work in reverse too I suppose (with puts).

 

[bargainman]

Eric, one way to look at this is to take it to the extremes.

 

Say the stock is at $10

What would you pay for a put at 5 strike if it expired in a week?  what about in 2 years?

 

In the first case, the further OTM it goes the less it's worth cause there's very little time to make it up.  But if there is a lot of time, you can make the case that it would be worth something.

 

[MrB]

BofA Affirms Buffett Bet as Moynihan Recovers From Gaffes

http://www.bloomberg.com/news/2013-02-26/bofa-affirms-buffett-bet-as-moynihan-recovers-from-gaffes.html?cmpid=yhoo

[MrB]

Few errors found in ‘robosigning’ review

 

http://www.ft.com/cms/s/0/cc4b844c-7fc2-11e2-8d96-00144feabdc0.html#ixzz2Lzg4vgXx

 

Leading US banks accused of breaking government rules when seizing the homes of delinquent customers may have harmed as few as 4.2 per cent of borrowers, according to people familiar with the matter.

The disclosure of the percentage of borrowers who allegedly suffered financial harm due to foreclosure irregularities follows agreements in principle last month between US bank regulators and 13 financial groups involving $9.3bn to settle accusations that the groups engaged in illegal behaviour such as so-called “robosigning”.....

 

[Olmsted]

Another litigation settlement is in - this is from the docket of a special situation I have been watching.  I have no idea how big it is (probably quite small to BAC) - the details are hidden behind a "motion to seal" since BAC does not want to give ammunition to other litigants:

 

Plaintiffs allege that Defendants breached certain contractual representations and warranties with respect to residential mortgage loans sold by Countrywide to TMHL that were eventually deposited into a securitization trust that TMHL sponsored: the Zuni Mortgage Loan Trust 2006-OA1 (the “Zuni Trust”). This suit is now pending in the United States District Court for the Central District of California (the “California District Court”), as Civil Case No. 2:12-cv-07289.

7.  Following comprehensive negotiations, Plaintiffs and Defendants have resolved their dispute by entering into the Settlement Agreement. 

 

as a condition of entering into the Settlement Agreement, Defendants requested that the Settlement Agreement include the following confidentiality provision, to which the Trustee and the Zuni Parties agreed

 

http://dm.epiq11.com/TMI/Document/GetDocument/2248553

 

[vpagano]

I do wonder how many of us retail holders actually are in that play Olmsted  :P

 

Between that, MBI, BAC, and AIG my positions all just love to sue each other at some point haha.

[racemize]

article on the 8.5 billion dollar settlement--Mayo has come out with it going to 30 billion it seems.  I think the board was more exhaustive in the analysis though...

 

http://finance.fortune.cnn.com/2013/02/26/bank-of-america-mike-mayo/?source=yahoo_quote

[valuecfa]

article on the 8.5 billion dollar settlement--Mayo has come out with it going to 30 billion it seems.  I think the board was more exhaustive in the analysis though...

 

http://finance.fortune.cnn.com/2013/02/26/bank-of-america-mike-mayo/?source=yahoo_quote

 

Unless they are near a settlement figure with this party,  I don't see how they let the next mbia decision rule out..and thereby increase the uncertainty to the upside.

[MYDemaray]

article on the 8.5 billion dollar settlement--Mayo has come out with it going to 30 billion it seems.  I think the board was more exhaustive in the analysis though...

 

http://finance.fortune.cnn.com/2013/02/26/bank-of-america-mike-mayo/?source=yahoo_quote

 

Unless they are near a settlement figure with this party,  I don't see how they let the next mbia decision rule out..and thereby increase the uncertainty to the upside.

 

Can you explain what you mean by "near a settlement figure with this party?"  To which party are you referring?

[valuecfa]

article on the 8.5 billion dollar settlement--Mayo has come out with it going to 30 billion it seems.  I think the board was more exhaustive in the analysis though...

 

http://finance.fortune.cnn.com/2013/02/26/bank-of-america-mike-mayo/?source=yahoo_quote

 

Unless they are near a settlement figure with this party,  I don't see how they let the next mbia decision rule out..and thereby increase the uncertainty to the upside.

 

Can you explain what you mean by "near a settlement figure with this party?"  To which party are you referring?

 

The investor group. We don't know what is going on behind closed doors, yet i suspect the current settlement figure won't get approved (and therefore a higher figure will be required), as i have said for a while now. We'll know soon enough.

 

I suspect it will need to be increased. I doubt it will be multiples of the settlement as some analysts have suggested, but there is little doubt that an adverse SL ruling in the mbia case would increase leverage of plaintiffs in the $8.5 settlement as well.

[xazp]

Well Mayo is the guy that put a sell on BAC at $7 or $8, soooo I dunno how much I'd be listening to his advice.

 

Two paths to recover money from BAC (absent a settlement). 

A)  Find 25%+ of each trust and assert R&W against BONY;

B)  Sue under securities laws, or fraud laws. 

 

"A" is constantly dwindling over time as those trusts are getting dispersed.  Example: Baupost made an attempt to attack BAC, then sold their position; Maiden Lane sold off their holdings too - including to BAC itself.  The problem remains, there just isn't the critical mass for the plaintiffs to go this route.  There wasn't enough in 2011 to make a real go at this, and I don't see their odds improving in 2013. 

 

"B" is also constantly dwindling.  Securities suits are well past the statute of limitations.  Fraud suits generally past, though NYC may still be available.  Again this is something where if you didn't sue in 2005-2011, I can't see why you'd sue in 2013 knowing that statute of limitations work against you. 

 

To me (and you'll see this throughout my analysis), these are the main issues.  The bit about whether BAC is responsible for CFC is really a tertiary issue and not the delta between $8.5Bn and $30Bn as Mayo suggests. 

 

Final data point:  FNM and FRE have much stronger R&W than any private mortgage, plus more leverage.  They're more or less completely settled on the ~$1 trillion of original balance.  I don't know the final total (which have been paid out over years), maybe $15Bn?

 

To me the $8.5Bn settlement is in-line with other settlements.  $30Bn is dreaming, IMO. 

 

 

article on the 8.5 billion dollar settlement--Mayo has come out with it going to 30 billion it seems.  I think the board was more exhaustive in the analysis though...

 

http://finance.fortune.cnn.com/2013/02/26/bank-of-america-mike-mayo/?source=yahoo_quote

 

Unless they are near a settlement figure with this party,  I don't see how they let the next mbia decision rule out..and thereby increase the uncertainty to the upside.

 

Can you explain what you mean by "near a settlement figure with this party?"  To which party are you referring?

 

The investor group. We don't know what is going on behind closed doors, yet i suspect the current settlement figure won't get approved (and therefore a higher figure will be required), as i have said for a while now. We'll know soon enough.

 

I suspect it will need to be increased. I doubt it will be multiples of the settlement as some analysts have suggested, but there is little doubt that an adverse SL ruling in the mbia case would increase leverage of plaintiffs in the $8.5 settlement as well.