BAC-WT - Bank of America Warrants

[wescobrk]

 

 

"It's a 10% position."

 

Hi Eric,

 

Is BAC 10% of your entire portfolio (dollar not notional)? If so, is this because of the house or other reasons? I recall not too long ago you though it should be at 16 now and use to have almost 100% of your net worth, granted stock is higher recently but they are aguably in a better position now even with the stock runup with ccar coming up and GSE is mostly behind them.

[ERICOPOLY]

 

 

"It's a 10% position."

 

Hi Eric,

 

Is BAC 10% of your entire portfolio (dollar not notional)? If so, is this because of the house or other reasons? I recall not too long ago you though it should be at 16 now and use to have almost 100% of your net worth, granted stock is higher recently but they are aguably in a better position now even with the stock runup with ccar coming up and GSE is mostly behind them.

 

75% of my net worth is in my BAC allocation.  The $10 strikes are 10% of my net worth.

[wescobrk]

Got it.

I don't know about everyone here but I'm looking forward to seeing what mr market does next fri and again on march 15th after ccar. I'm a tad surprised we haven't seen a bit of an increase with it 2 weeks away. With a 7 billion buyback/dividends the "dumb" money will no doubt pour in.

[sampr01]

Eric

 

Do you still have $10 2014s or you already rolled to 2015.

 

Thanks

 

 

"It's a 10% position."

 

Hi Eric,

 

Is BAC 10% of your entire portfolio (dollar not notional)? If so, is this because of the house or other reasons? I recall not too long ago you though it should be at 16 now and use to have almost 100% of your net worth, granted stock is higher recently but they are aguably in a better position now even with the stock runup with ccar coming up and GSE is mostly behind them.

 

75% of my net worth is in my BAC allocation.  The $10 strikes are 10% of my net worth.

[sampr01]

Here is the fresh rinse and repeat of mayo's story by street

 

http://www.thestreet.com/story/11855871/1/bank-of-americas-reserves-face-fresh-skepticism.html?puc=yahoo&cm_ven=YAHOO

 

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.

[MYDemaray]

Oh the desperation...let's discredit these guys because a four person firm in Manhattan chooses low-rent office space.  Good logic. (sarcasm)

[ERICOPOLY]

Eric

 

Do you still have $10 2014s or you already rolled to 2015.

 

Thanks

 

 

"It's a 10% position."

 

Hi Eric,

 

Is BAC 10% of your entire portfolio (dollar not notional)? If so, is this because of the house or other reasons? I recall not too long ago you though it should be at 16 now and use to have almost 100% of your net worth, granted stock is higher recently but they are aguably in a better position now even with the stock runup with ccar coming up and GSE is mostly behind them.

 

75% of my net worth is in my BAC allocation.  The $10 strikes are 10% of my net worth.

 

 

 

 

I have less than 1% in 2014 strikes.

[ourkid8]

Is anyone adding to their Warrant / Common positions?  I have added to my AIG position and really debating if I should add to my BAC position.  It is currently about 15% of my portfolio but it's cheap! 

[hyten1]

vol are light, everyone is waiting

[fareastwarriors]

bought some A warrants right before the close.

[fareastwarriors]

was this posted already?

 

 

Thomas Brown's write up on BAC and the A's

 

 

Thomas K. Brown has followed the banking industry for many years. He was the top-ranked banking analyst on Wall Street for ten years in the 1990s, and later ran the North American financial services group at Tiger Management in New York. He currently runs a hedge fund [second Curve] that invests solely in financial services companies. 

 

 

http://bankstocks.com/ArticleViewer.aspx?ArticleID=6632&ArticleTypeID=2

[ERICOPOLY]

Oh the desperation...let's discredit these guys because a four person firm in Manhattan chooses low-rent office space.  Good logic. (sarcasm)

 

That's why I'm richer than Mayo.  (As Dimon would say)

[hyten1]

http://www.reuters.com/article/2013/02/28/bofa-10k-idUSL1N0BSIU820130228?feedType=RSS&feedName=bondsNews&rpc=43

[wescobrk]

3.1 billion more than reserved for... On an after tax basis that's about 2 billion or about 2% of the delta between where the stock is and book value as Eric has pointed out in the past.

[nkp007]

3.1 billion more than reserved for... On an after tax basis that's about 2 billion or about 2% of the delta between where the stock is and book value as Eric has pointed out in the past.

 

How about they start reserving for what they need to so there's no more "more than they reserved for" liability!

[fareastwarriors]

BofA Posts Trading Profit 98% of Days With One $50 Million Loss

 

Bank of America Corp., the second- biggest U.S. bank by assets, said traders lost $50 million on their worst trading day of 2012, a rare blemish in a year in which the firm made money 98 percent of the time.

 

The lender showed a profit on 243 of the 249 trading days, with profit exceeding $25 million during 80 percent of the sessions, the Charlotte, North Carolina-based company said today in an annual regulatory filing. In 2011, Bank of America showed a profit 86 percent of the time, with the largest single-day loss of $119 million and losses topping $25 million on 12 days.

 

 

Co-chief Operating Officer Thomas K. Montag, 56, has curtailed trading risk the past two years amid subdued economic growth and uncertainty created by the European debt crisis. Bank of America’s global markets division earned about $1 billion in each of 2012 and 2011, compared with $4.2 billion in 2010.

 

JPMorgan Chase & Co. said this week that traders in its investment bank lost money on seven days in 2012, down from 26 the previous year. Average daily revenue in the trading unit was $69 million in 2012, up from $60 million in 2011, according to the New York-based bank, ranked first by assets in the U.S.

 

 

 

[PlanMaestro]

Falling sleep reading the 10–K. Has anyone found something unexpected or interesting?

[tng]

was this posted already?

 

 

Thomas Brown's write up on BAC and the A's

 

 

Thomas K. Brown has followed the banking industry for many years. He was the top-ranked banking analyst on Wall Street for ten years in the 1990s, and later ran the North American financial services group at Tiger Management in New York. He currently runs a hedge fund [second Curve] that invests solely in financial services companies. 

 

 

http://bankstocks.com/ArticleViewer.aspx?ArticleID=6632&ArticleTypeID=2

 

From the writeup:

 

The formulas to calculate the lowered exercise price and increased number of shares per warrant are somewhat complicated, and require assumptions of the company’s earnings, payout ratio, its stock price between now and January, 2019.  However, we conservatively model that the exercise price will fall below $11 per share (from $13.30 now), and the number of shares per warrant will raise over 1.2 from 1.0.  We do not believe investors are accounting for these quirky but investor-friendly adjustments in their current valuation of the warrants.

 

 

Has anybody figured out how the share adjustments work? I remember some discussion on it in the past and I don't know if there was a legalese expert that came to a definitive conclusion on it. I have some idea, but I don't trust my ability to correctly interpret legal-speak.

[wescobrk]

The 3.1 billion above reserved for was up 300 million from the third quarter.

[Investmentacct]

How do we factor in break up risk in case of bac options and in case of warrants?

 

http://www.marketwatch.com/story/banks-are-still-too-big-to-fail-too-big-to-ignore-2013-03-01?siteid=yhoof2

 

 

Thanks.

[racemize]

From the writeup:

 

The formulas to calculate the lowered exercise price and increased number of shares per warrant are somewhat complicated, and require assumptions of the company’s earnings, payout ratio, its stock price between now and January, 2019.  However, we conservatively model that the exercise price will fall below $11 per share (from $13.30 now), and the number of shares per warrant will raise over 1.2 from 1.0.  We do not believe investors are accounting for these quirky but investor-friendly adjustments in their current valuation of the warrants.

 

 

Has anybody figured out how the share adjustments work? I remember some discussion on it in the past and I don't know if there was a legalese expert that came to a definitive conclusion on it. I have some idea, but I don't trust my ability to correctly interpret legal-speak.

 

It is fairly straightforward.  I explained it to some friends of mine, here's what I sent (relative to A warrants, not B, in terms of adjustment):

 

First, the language from the SEC filing:

Pursuant to the terms of the warrants, the number of shares of our common stock issuable upon exercise of each warrant (the “warrant shares”) and the warrant exercise price will be adjusted upon occurrence of certain events as follows.

 

In the case of stock splits, subdivisions, reclassifications or combinations of common stock. If we declare and pay a dividend or make a distribution on our common stock in shares of our common stock, subdivide or reclassify the outstanding shares of our common stock into a greater number of shares, or combine or reclassify the outstanding shares of our common stock into a smaller number of shares, the number of warrant shares at the time of the record date for such dividend or distribution or the effective date of such subdivision, combination or reclassification will be proportionately adjusted so that the holder of a warrant after such date will be entitled to purchase the number of shares of our common stock that it would have owned or been entitled to receive in respect of the number of warrant shares had such warrant been exercised immediately prior to such date. The exercise price in effect immediately prior to the record date for such dividend or distribution or the effective date of such subdivision, combination or reclassification will be adjusted by multiplying such exercise price by the quotient of (x) the number of warrant shares immediately prior to such adjustment divided by (y) the new number of warrant shares as determined in accordance with the immediately preceding sentence.

 

In the case of cash dividends or other distributions. If we fix a record date for making a distribution to all holders of our common stock of securities, evidences of indebtedness, assets, cash, rights or warrants (excluding ordinary cash dividends (as defined below), dividends of our common stock and other dividends or distributions referred to in the preceding bullet point), the exercise price in effect prior to such record date will be reduced immediately thereafter to the price determined by multiplying the exercise price in effect immediately prior to the reduction by the quotient of (x) the market price (as defined below) of our common stock on the last trading day preceding the first date on which our common stock trades regular way on the principal national securities exchange on which our common stock is listed or admitted to trading without the right to receive such distribution, minus the amount of cash and/or the fair market value of the securities, evidences of indebtedness, assets, rights or warrants to be so distributed in respect of one share of our common stock (such amount and/or fair market value, the “per share fair market value”) divided by (y) such market price on the date specified in clause (x). Any such adjustment will be made successively whenever such a record date is fixed. The number of warrant shares will be increased to the number obtained by multiplying the number of warrant shares issuable upon exercise of a warrant immediately prior to such adjustment by the quotient of (a) the exercise price in effect immediately prior to the distribution giving rise to this adjustment divided by (b) the new exercise price as determined in accordance with the immediately preceding sentence. In the case of adjustment for a cash dividend that is, or is coincident with, a regular quarterly cash dividend, the per share fair market value would be reduced only by the per share amount of the portion of the cash dividend that would constitute an ordinary cash dividend. If, after the declaration of any such record date, the related distribution is not made, the exercise price and the number of warrant shares then in effect will be readjusted, effective as of the date when our board of directors determines not to make such distribution, to the exercise price and the number of warrant shares that would then be in effect if such record date had not been fixed.

 

Second, my interpretation:

 

For dividends greater than $0.01 in a quarter:

 

new warrant strike price = old warrant strike price * (common price - distribution amount in excess of threshold) / common price

 

additionally, the number of shares per warrant is changed by the following formula:

 

# shares per warrant = previous # shares per warrant * (prior warrant strike price / new strike price).

 

 

Example:

 

A $0.05 dividend is paid in 2013, the current common price is $13.00, the strike price is $13.30, and the # of shares per warrant is 1:

 

new strike price = $13.30 * ($13.00 - $0.04) / ($13.00) = $13.30 * 99.7% = 13.26

# shares per warrant = 1 * 13.30 / 13.26 = 1.003

 

This adjustment would happen every time the dividend is paid in excess of 0.01, so likely every quarter, starting next June or so.  It gets more extreme as the common share price remains low and the dividend amount is greater.

 

[JRH]

Bank of America under investigation by the New York Attorney General:

 

http://www.huffingtonpost.com/2013/02/28/bank-of-america-being-mortgage-investigation_n_2785268.html?utm_hp_ref=business

 

Christian Herzeca, who blogs on the MBIA/BoA litigation, anticipated this:

 

http://mbibaclitigtion.blogspot.com/2012/10/bank-of-americas-idiotic-litigation.html

 

FYI, no personal legal expertise at this level, so no opinion.  I do hold both BAC (more) and MBI (less).

[MYDemaray]

Bank of America under investigation by the New York Attorney General:

 

http://www.huffingtonpost.com/2013/02/28/bank-of-america-being-mortgage-investigation_n_2785268.html?utm_hp_ref=business

 

Christian Herzeca, who blogs on the MBIA/BoA litigation, anticipated this:

 

http://mbibaclitigtion.blogspot.com/2012/10/bank-of-americas-idiotic-litigation.html

 

FYI, no personal legal expertise at this level, so no opinion.  I do hold both BAC (more) and MBI (less).

 

Isn't this old news?  The article says that BAC "said in a securities filing Thursday that the New York State Attorney General is investigating the bank over the purchase, securitization and underwriting of home loans and mortgage-backed securities."

 

Which filing is this?  The last filing is their 10-K.  In the 10-K the NYAG is only mentioned 3 times:

 

NYAG Action

On February 4, 2010, the NYAG filed a civil complaint in New York Supreme Court entitled People of the State of New York v. Bank of America, et al. The complaint names as defendants the Corporation and the Corporation’s former CEO and CFO, and alleges violations of Sections 352, 352-c(1)(a), 352-c(1)© and 353 of the Martin Act, and Section 63(12) of the New York Executive Law. The complaint seeks an unspecified amount in disgorgement, penalties, restitution, and damages and other equitable relief.

 

And, what is referenced is a very old case.  We already know that damages sought here are ~$1Bn.  So miniscule relative to discount to intrinsic value.  Has anyone found evidence of another NYAG action in another securities filing?

 

UPDATE: Just checked the Merrill 10-K filed today....perhaps this is what the article was referring to?

 

Regulatory Investigations

Merrill Lynch has received a number of subpoenas and other requests for information from regulators and governmental authorities regarding MBS and other mortgage-related matters, including inquiries, investigations and potential proceedings related to a number of transactions involving Merrill Lynch's underwriting and issuance of MBS and its participation in certain CDO offerings.  These inquiries and investigations include, among others:  an investigation by the SEC related to Merrill Lynch's risk control, valuation, structuring, marketing and purchase of CDOs, and an investigation by the New York State Attorney General concerning the purchase, securitization and underwriting of mortgage loans and MBS. Merrill Lynch has provided documents and testimony and continues to cooperate fully with these inquiries and investigations.

 

Merrill Lynch may also be subject to contractual indemnification obligations in the MBS matter discussed above.

[JRH]

Isn't this old news?

 

Absolutely possible.  I can't provide any information or insight beyond the provided links - sorry about that.

[racemize]

I believe it is for Merrill--I'm curious as to how much they are pursuing in it.