BAC-WT - Bank of America Warrants

[PlanMaestro]

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.

 

Jamie Dimon took good care of him today.

[Liberty]

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.

 

Jamie Dimon took good care of him today.

 

Can you elaborate on what you mean? What happened?

[ERICOPOLY]

Isn't Mayo just out for publicity?  He didn't just put out $30b in a private research note to clients, he said $30b in a press conference.

 

He learned, in March 2011, that he was largely ignored by the press when he put a $2+ per share earnings power number on BAC's core business.  So then six months later he puts out a $7 or $8 price on the stock and his name is in lights.  Same company, six months later.

 

Fortunately these days BAC could throw down another $30b by this year's end and still be above 8.5% Basel III 2019 capital levels.  So whether Mayo is right or not, the stock is still going up.

 

 

 

 

 

[PlanMaestro]

http://www.valuewalk.com/2013/02/jpmorgan-ceo-dimon-explains-why-hes-richer-than-mike-mayo/

 

And last year.

 

http://www.bloomberg.com/news/2012-01-30/jamie-dimon-sucker-punches-analyst-mayo-hedge-fund-riches-beckon-books.html

[valuecfa]

I'd focus on the message and not the messenger in determining whether it has any validity

[PlanMaestro]

Isn't Mayo just out for publicity?

 

Yep, always going with the news flow.

[PlanMaestro]

I'd focus on the message and not the messenger in determining whether it has any validity

 

With Mayo? Not really. There are better contrarian sources.

[valuecfa]

I'd focus on the message and not the messenger in determining whether it has any validity

 

With Mayo? Not really. There are better contrarian sources.

 

With anyone...be it an analyst, respected portfolio manager, a board member, my grandmother...the source isn't really as important as what that person is saying and whether it makes sense or not

[PlanMaestro]

 

With Mayo? Not really. There are better contrarian sources.

 

With anyone...be it an analyst, respected portfolio manager, a board member, my grandmother...the source isn't really as important as what that person is saying and whether it makes sense or not

 

There are so many hours of the day to listen to all the media whores when I could be reading Thucydides or a 10K, or listening to the JP Morgan's investors day. But that's just me.

[indythinker85]

Not sure about Mayo specifically (although Michael Price agrees with him which is boosts him in my eyes) but was just speaking to friend today who said all several of his colleagues at major research firm (everyone heard of) are "required" to give buy ratings. I doubt this colleague would lie or even exaggerate and that is really bad even from what i know. So Mayo has two pluses IMO. Dimon is much smarter than I am but from what I know he basically lied about Whale Trade.

[ERICOPOLY]

Not sure about Mayo specifically (although Michael Price agrees with him which is boosts him in my eyes)

 

What is Price's opinion of BofA today?  I tried to find it but I ran across some old news on him from Dec 2009.

 

At the close of 2009, Price was eager to purchase the shares at $15.

 

http://www.bloomberg.com/apps/news?pid=newsarchive&sid=aB1srD9ZAwyc

 

[jeffmori7]

Not sure about Mayo specifically (although Michael Price agrees with him which is boosts him in my eyes)

 

What is Price's opinion of BofA today?  I tried to find it but I ran across some old news on him from Dec 2009.

 

At the close of 2009, Price was eager to purchase the shares at $15.

 

http://www.bloomberg.com/apps/news?pid=newsarchive&sid=aB1srD9ZAwyc

 

Eric, for sure Price is not buying BAC...

 

http://www.dataroma.com/m/hist/hist.php?f=MFP&s=BAC

[ERICOPOLY]

Not sure about Mayo specifically (although Michael Price agrees with him which is boosts him in my eyes)

 

What is Price's opinion of BofA today?  I tried to find it but I ran across some old news on him from Dec 2009.

 

At the close of 2009, Price was eager to purchase the shares at $15.

 

http://www.bloomberg.com/apps/news?pid=newsarchive&sid=aB1srD9ZAwyc

 

Eric, for sure Price is not buying BAC...

 

http://www.dataroma.com/m/hist/hist.php?f=MFP&s=BAC

 

Wow, the poor guy sold more than 75% of his position in Q3 and Q4 of 2011.

 

No wonder he is negative.  Hell hath no fury like a woman spurned an investor burned.

[racemize]

I've been thinking about the various banks and their prices in terms of dividends/dividend yield this morning.  Here is a chart of dividend yield for JPM and WFC over the last couple of years:

 

http://ycharts.com/companies/WFC/chart#series=type%3Acompany%2Cid%3AWFC%2Ccalc%3Adividend_yield%2C%2Cid%3AJPM%2Ctype%3Acompany%2Ccalc%3Adividend_yield&format=real&recessions=false&zoom=custom&startDate=2%2F27%2F2010&endDate=2%2F27%2F2013

 

It seems to me that we could reasonably expect to BAC to trade at no more than 3 or 3.5% yield as we get to warrant expiry (which is also in line with the historical dividend yields for WFC/JPM I looked at on valueline), so that leads us to ask what dividend amount we could expect (granted this is really just the normalized earnings conversation we've had in the past).  Assuming a 1/3 payout of 15% ROTE of current TE, that gets us to ~66 cents dividend or $22 with a 3% yield.  Presumable we could get TE up a bit more than that in the 2018 range.  At $20 TE, the same calculation gets you to $33. 

 

Anyway, just some random thoughts from a slightly different angle than what I've been thinking before.  Probably old news for everyone on the thread though.

[Guest wellmont]

Price usually takes a 1% starter position. he was never going to make bac a big position. Ordinarily he would never invest in a bank like bac. but he was hoping for a capital return event and didn't get it. like a lot investors, he was wrong about that. the thing about price though is he probably took that capital and invested in 4 or 5 other small banks that did have an event of one sort or another like recaps, buyouts, or conversions, and made a lot of money. Billionaire investors make plenty of mistakes. They usually stay billionaires, however.

[Guest wellmont]

Not sure about Mayo specifically (although Michael Price agrees with him which is boosts him in my eyes) but was just speaking to friend today who said all several of his colleagues at major research firm (everyone heard of) are "required" to give buy ratings. I doubt this colleague would lie or even exaggerate and that is really bad even from what i know. So Mayo has two pluses IMO. Dimon is much smarter than I am but from what I know he basically lied about Whale Trade.

 

there is a growing sense, or meme, in hedge fund land that the bac story is going to take longer to play out than many hope.

[ERICOPOLY]

Not sure about Mayo specifically (although Michael Price agrees with him which is boosts him in my eyes) but was just speaking to friend today who said all several of his colleagues at major research firm (everyone heard of) are "required" to give buy ratings. I doubt this colleague would lie or even exaggerate and that is really bad even from what i know. So Mayo has two pluses IMO. Dimon is much smarter than I am but from what I know he basically lied about Whale Trade.

 

there is a growing sense, or meme, in hedge fund land that the bac story is going to take longer to play out than many hope.

 

There was that sense apparently in late 2011 as well.

 

[thomcapital]

Price usually takes a 1% starter position. he was never going to make bac a big position. Ordinarily he would never invest in a bank like bac. but he was hoping for a capital return event and didn't get it. like a lot investors, he was wrong about that. the thing about price though is he probably took that capital and invested in 4 or 5 other small banks that did have an event of one sort or another like recaps, buyouts, or conversions, and made a lot of money. Billionaire investors make plenty of mistakes. They usually stay billionaires, however.

 

How can you say 'ordinarily' he would never invest in a bank like bac, and that he wouldn't make it a big position? C is a top five holding for him.

[ERICOPOLY]

Price usually takes a 1% starter position. he was never going to make bac a big position. Ordinarily he would never invest in a bank like bac. but he was hoping for a capital return event and didn't get it. like a lot investors, he was wrong about that. the thing about price though is he probably took that capital and invested in 4 or 5 other small banks that did have an event of one sort or another like recaps, buyouts, or conversions, and made a lot of money. Billionaire investors make plenty of mistakes. They usually stay billionaires, however.

 

How can you say 'ordinarily' he would never invest in a bank like bac, and that he wouldn't make it a big position? C is a top five holding for him.

 

Or maybe he only invests in BAC when the capital levels are low (likely to build capital), the risks are still high, but then dumps it after the price plunges and capital levels are high (likely to return capital).

 

[Guest wellmont]

 

How can you say 'ordinarily' he would never invest in a bank like bac, and that he wouldn't make it a big position? C is a top five holding for him.

 

because he is an event driven investor and primarily a small and mid cap investor. under normal conditions bac does not present opportunities for him. but the crisis changed that. he is invested in citi because it's cheap on the numbers, he believes it's a cleaner story, capital return potential is there, and he likes the international exposure. he probably like the new ceo as well.

[ERICOPOLY]

 

How can you say 'ordinarily' he would never invest in a bank like bac, and that he wouldn't make it a big position? C is a top five holding for him.

 

because he is an event driven investor and primarily a small and mid cap investor. under normal conditions bac does not prevent opportunities for him. but the crisis changed that. he is invested in citi because it's cheap on the numbers, he believes it's a cleaner story, capital return potential is there, and he likes the international exposure. he probably like the new ceo as well.

 

Waiting a couple of years for a 50 cent a year dividend is only missing $1 in capital return.  You don't sell at $7 after paying $15 because of $1.  Count the buyback and it's $2.

 

But anyways, we all know they had to build capital and that's where it went.  Either it comes out of near-term capital return or late-term capital return.  Either way, it needs to be retained to build capital.  And now that it's over, he won't buy it.  Hah  :)

 

[ERICOPOLY]

It is worthwhile to point out that paying $11 with no capital return for two years is a better investment than paying $13 and getting $2 of capital return over the same period.

 

But this is apparently advanced reasoning.

 

 

[thomcapital]

 

because he is an event driven investor and primarily a small and mid cap investor. under normal conditions bac does not present opportunities for him. but the crisis changed that. he is invested in citi because it's cheap on the numbers, he believes it's a cleaner story, capital return potential is there, and he likes the international exposure. he probably like the new ceo as well.

 

What? He's been in C since at least early 2010 and went to a full position as early as 1Q11 - so it's not the CEO. You could say the exact same things about BAC with the exception of the intl. exposure, when comparing vs. C.

 

Look at his past holdings, I agree he's into event driven ideas (but also likes to buy cheap securities based on their private market values according to his profile in VI: Buffett & Beyond) and while he may have been a smid cap investor historically, it's probably fair to say that he's mkt. cap agnostic, maybe since back to '06 or prior: http://www.dataroma.com/m/hist/p_hist.php?f=MFP.

[xazp]

Can you go a bit deeper into your assumptions?  For example:

 

what earnings are you assuming each year?  Are you subtracting the dividends out of TE as they are paid? 

 

are you making assumptions about stock buybacks?  Because if you are saying that a $20TE/sh = $30/sh price, then buybacks have the impact of lowering TE/share.

 

For now, buybacks have the impact of boosting TE/share, but we are not far from the point where it will actually reduce TE/share.  So I think you have to be more explicit about your

capital return assumptions to show how we'd get to $33/share. 

 

 

I've been thinking about the various banks and their prices in terms of dividends/dividend yield this morning.  Here is a chart of dividend yield for JPM and WFC over the last couple of years:

 

http://ycharts.com/companies/WFC/chart#series=type%3Acompany%2Cid%3AWFC%2Ccalc%3Adividend_yield%2C%2Cid%3AJPM%2Ctype%3Acompany%2Ccalc%3Adividend_yield&format=real&recessions=false&zoom=custom&startDate=2%2F27%2F2010&endDate=2%2F27%2F2013

 

It seems to me that we could reasonably expect to BAC to trade at no more than 3 or 3.5% yield as we get to warrant expiry (which is also in line with the historical dividend yields for WFC/JPM I looked at on valueline), so that leads us to ask what dividend amount we could expect (granted this is really just the normalized earnings conversation we've had in the past).  Assuming a 1/3 payout of 15% ROTE of current TE, that gets us to ~66 cents dividend or $22 with a 3% yield.  Presumable we could get TE up a bit more than that in the 2018 range.  At $20 TE, the same calculation gets you to $33. 

 

Anyway, just some random thoughts from a slightly different angle than what I've been thinking before.  Probably old news for everyone on the thread though.

[racemize]

Can you go a bit deeper into your assumptions?  For example:

 

what earnings are you assuming each year?  Are you subtracting the dividends out of TE as they are paid? 

 

are you making assumptions about stock buybacks?  Because if you are saying that a $20TE/sh = $30/sh price, then buybacks have the impact of lowering TE/share.

 

For now, buybacks have the impact of boosting TE/share, but we are not far from the point where it will actually reduce TE/share.  So I think you have to be more explicit about your

capital return assumptions to show how we'd get to $33/share. 

 

It was by no means an elaborate model, but simply started with normalized earnings of 15% ROTE of current TE (~$2 per share), and presumed some growth of normalized earnings from there--I'm still tinkering with the idea in my head while working today. 

 

However, I do not think the TE should decrease if they are paying out 33% of the earnings--it should in fact go up by the remaining 66% of earnings, or 33% if the other 33% is used for buybacks, unless I'm missing something.  The TE would go up by $1.33 per year under the 33% dividend/no buyback model. 

 

I have generally not been considering that BAC will have a lower TE now than in the future--is that part of your understanding/modeling?

 

Edit: please punch holes in this if I'm making any bad assumptions!