BAC-WT - Bank of America Warrants

[ERICOPOLY]

I also don't think people understand the severity of the operational challenges that BAC is facing.  A lot of people say ESL has a difficult job/plan on liquidating 100s of stores.  Well, consider the challenges of liquidating millions of mortgages.  You are foreclosing on people's houses and kicking them out.  Everyone knows about the huge legal battles. but there are thousands of people creating legal problems and trying not to get foreclosed on.  I believe that NY and NJ are particularly challenging where the liquidation timelines are averaging ~4-5 years.  We are only one half of the way back to a normal amount of delinquent loans and we probably won't be at a normal rate until ~2016 to 2017.    BAC has it the worst amongst all the big banks on this front.

 

 

I had to read your post several times, and I still can't figure out which way you intended it.

 

Either A or B was your intended message (or perhaps I'm missing "C").

 

A)  People don't understand how highly profitable BAC really is.  Just wait until they see the earnings power after these mortgages are run off!

B)  People should be more bearish -- it's going to take so long to run off these expenses that it's not really that cheap at all.

C)  ?

 

 

I'm figuring you probably meant "A", because:

1)  naturally, these ongoing expenses already exist in the current quarterly earnings. 

2)  We've only been talking about the runoff of NewBAC expenses and LAS costs. 

3)  Once these mortgages are also off the books and capital is redeployed in profitable loans, people will be positively surprised.

 

Sorry, for note being clear.  The option was actually C.  The posters above me were discussing Moniyhan's tenor at the company and said he did an average job.  I don't believe they know how challenging his job is operationally.

 

I think people miss what running off those mortgages actually mean.  It means foreclosing on families and repossessing their house.  It means thousands of small lawsuits from people that don't want to be kicked out their house (which also counters some of the critique on why they can't run these off faster.  It's hard to run something off when you have a 4 year court case).  At the same time, I think people grasp the operational difficulties of ESL's liquidation strategy with Sears. 

 

It wasn't a comment on the financial performance, but on the operational challenges.  Granted once these operational challenges are behind BAC, then I think Option A.

 

By the way, during the interview with Charlie Rose Brian Moynihan indicated that they were 60% to 70% through those mortgage issues not 50%.  Don't ask me exactly where but I remember that clearly.

 

I believe he said they started with 6 million delinquent mortgages in LAS and entered 2013 with 2.5 million left.  By the end of 2013 he said they expect to have 750k left.  So they are 60% through and will be 88% through the problem loans by the end of this year.  Costs will come down dramatically.

 

I thought they were already hitting the ~750k number at the end of 2012.

 

End of 2013 will be 400k left.

 

Quoting from the Q4 12 CC transcript:

 

We believe our serviced 60 plus day delinquent loans at the end of 2013 may be around 400,000 units versus 773,000 units at the end of 2012, a decrease of approximately 50%. That implies an additional decrease of 150,000 units beyond the 232,000 units that are expected to go with the scheduled transfers. Given the projected declines in 60 plus day delinquent loans, and notwithstanding there being a one to two quarter lag between delinquent loan transfers and expense decrease, we believe we can get expenses in the fourth quarter of 2013, down by more than $1 billion from the $3.1 billion in the fourth quarter of 2012, excluding the impact of IFR and litigation.

 

[mankap]

I am wondering if the common buyback also started today.

 

Bank of America Announces Redemption of All Outstanding Depositary Shares Representing Interests in Its 8.20% Non-Cumulative Preferred Stock, Series H, and Its 8.625% Non-Cumulative Preferred Stock, Series 8

 

http://seekingalpha.com/news-article/6102301-bank-of-america-announces-redemption-of-all-outstanding-depositary-shares-representing-interests-in-its-8-20-non-cumulative-preferred-stock-series-h-and-its-8-625-non-cumulative-preferred-stock-series-8

[MYDemaray]

Another good piece by Alison Frankel: http://newsandinsight.thomsonreuters.com/Legal/News/2013/04_-_April/In_BofA_death_match,_MBIA_wins_a_round_at_N_Y__appeals_court/

[HJ]

Anybody knows where MBIA CDS trades today? 

[fareastwarriors]

http://www.bloomberg.com/news/2013-04-03/bofa-chief-moynihan-said-to-summon-managers-for-revenue-push.html

 

 

 

.BofA Chief Moynihan Said to Summon Managers for Revenue Push

 

[Yours Truly]

The LEAPs are looking interesting by the day... hmmmmmmmm

[Guest Dazel]

 

 

Anyone have any idea when the $8.5b large countrywide settlement is supposed to be settled?

 

 

Dazel.

 

 

[hyten1]

this is interesting

 

http://www.cnbc.com/id/100613807

 

why didn't this apply to BAC :)

[kevin4u2]

 

 

Anyone have any idea when the $8.5b large countrywide settlement is supposed to be settled?

 

 

Dazel.

 

This is from the annual report. Page 210.

 

On August 10, 2012 the court issued an order setting a schedule for discovery and other proceedings, and setting May 30, 2013 as the date for the final court hearing on the settlement to begin. However, there may be changes to the schedule for the final court hearing and any appeals could take a substantial period last time. Accordingly, it is not possible to predict when the court approval process will be completed.

[Guest Dazel]

 

 

Thanks Kevin4U2!

 

I had forgotten...big dates.

[valuecfa]

 

 

Anyone have any idea when the $8.5b large countrywide settlement is supposed to be settled?

 

 

Dazel.

 

This is from the annual report. Page 210.

 

On August 10, 2012 the court issued an order setting a schedule for discovery and other proceedings, and setting May 30, 2013 as the date for the final court hearing on the settlement to begin. However, there may be changes to the schedule for the final court hearing and any appeals could take a substantial period last time. Accordingly, it is not possible to predict when the court approval process will be completed.

 

Still same date as of now

[Phaceliacapital]

http://www.foxbusiness.com/news/2013/04/02/bank-america-to-lay-off-1320-employees-in-upstate-new-york/

[fareastwarriors]

Bank of America $2.4 Billion Settlement Approved by Judge

 

Bank of America Corp.’s $2.4 billion settlement with investors who lost money as a result of the bank’s acquisition of Merrill Lynch & Co. was approved by a federal judge.

 

 

 

 

http://www.bloomberg.com/news/2013-04-05/judge-approves-2-4-billion-bank-of-america-class-settlement.html

[meiroy]

 

http://www.bloomberg.com/news/2013-04-05/senators-to-propose-higher-capital-for-banks-over-400-billion.html

 

"The current draft of the legislation would require U.S. regulators to replace Basel III requirements with a higher capital standard: 10 percent for all banks and an additional surcharge of 5 percent for institutions with more than $400 billion in assets. Senators Sherrod Brown, a Democrat from Ohio, and David Vitter, a Republican from Louisiana, have said they intend to introduce the bill this month."

 

 

[Parsad]

 

http://www.bloomberg.com/news/2013-04-05/senators-to-propose-higher-capital-for-banks-over-400-billion.html

 

"The current draft of the legislation would require U.S. regulators to replace Basel III requirements with a higher capital standard: 10 percent for all banks and an additional surcharge of 5 percent for institutions with more than $400 billion in assets. Senators Sherrod Brown, a Democrat from Ohio, and David Vitter, a Republican from Louisiana, have said they intend to introduce the bill this month."

 

It will never pass.  Don't they realize that banks have more capital today than necessary, and are reluctant to lend it out because they are required to hold excess capital?  You want banks to be rock-solid, crack down on lending products, require minimum downpayments of 20% for residential property with maximum 25 year amortizations, and reduce off-balance sheet leverage.  Cheers! 

[meiroy]

 

http://www.bloomberg.com/news/2013-04-05/senators-to-propose-higher-capital-for-banks-over-400-billion.html

 

"The current draft of the legislation would require U.S. regulators to replace Basel III requirements with a higher capital standard: 10 percent for all banks and an additional surcharge of 5 percent for institutions with more than $400 billion in assets. Senators Sherrod Brown, a Democrat from Ohio, and David Vitter, a Republican from Louisiana, have said they intend to introduce the bill this month."

 

It will never pass.  Don't they realize that banks have more capital today than necessary, and are reluctant to lend it out because they are required to hold excess capital?  You want banks to be rock-solid, crack down on lending products, require minimum downpayments of 20% for residential property with maximum 25 year amortizations, and reduce off-balance sheet leverage.  Cheers!

 

Just for fun, lets say it does and BAC decides to shrink down. They BK CW, Spin-Off ML and some other stuff. With sum of the parts would that actually be bad for current shareholders?

 

 

[xazp]

A couple of comments:

 

As others have said, this is unlikely to pass.  My reason is different: banking is a global activity now, and you are free to bank with U.S. or non-U.S. banks.  Now if you make an uneven playing field by subjecting U.S. banks to much harsher regulations, you will see global business move from the U.S. banks to other non-U.S. banks.  It's kind of like what would happen to the car industry if you insisted that all U.S. manufacturing workers receive double the wages of any other country.  Our workers would make more money right up until a month later when all U.S. factories closed and moved to Canada, Mexico, etc. 

 

The companies that seem like they'd hurt the most are the non-giant banks who'd have to get up to a 10% capital ratio.  Like with many other regulations, it's turned out that congress' ideas to help the little banks have actually done the opposite.  I'd expect that many community banks that have higher cost structures simply could not profitably operate at a 10% capital ratio.  So expect a lot of anger from them. 

 

Perversely, if you insist on a 15% flat level above $400Bn, that might encourage JPM to buy BAC and just go up to $4 trillion in assets.  Why not?  There's no penalty above $400Bn. 

 

Well this could turn into a long rant, but I'll enjoy the afternoon instead. 

 

 

 

 

 

 

 

http://www.bloomberg.com/news/2013-04-05/senators-to-propose-higher-capital-for-banks-over-400-billion.html

 

"The current draft of the legislation would require U.S. regulators to replace Basel III requirements with a higher capital standard: 10 percent for all banks and an additional surcharge of 5 percent for institutions with more than $400 billion in assets. Senators Sherrod Brown, a Democrat from Ohio, and David Vitter, a Republican from Louisiana, have said they intend to introduce the bill this month."

 

It will never pass.  Don't they realize that banks have more capital today than necessary, and are reluctant to lend it out because they are required to hold excess capital?  You want banks to be rock-solid, crack down on lending products, require minimum downpayments of 20% for residential property with maximum 25 year amortizations, and reduce off-balance sheet leverage.  Cheers!

 

Just for fun, lets say it does and BAC decides to shrink down. They BK CW, Spin-Off ML and some other stuff. With sum of the parts would that actually be bad for current shareholders?

[Kiltacular]

These numbers / ratios they say they're contemplating are next to ridiculous for a lot of reasons other posters have mentioned.  And, as xazp points out, unless the U.S. is going to shut off international banks from competing, they can't happen.

 

What's the point of the stress tests if, even after passing the "really, really bad worst case", they still need to raise capital to levels that are uneconomic?

 

So, what is happening?

 

In all likelihood, these guys are just lining up for some mid-term campaign donations. 

 

Frankly, I thought most of this would end after the 2012 pres. election.  Looks like, however, that too many people have been able to both (1) make political careers out of this and (2) get some big donations.

 

 

[MrB]

Here is a thought. The stronger US banks become the more business they will win from weak European banks.

So I am all for raising capital requirements even more.

 

[ERICOPOLY]

Here is a thought. The stronger US banks become the more business they will win from weak European banks.

So I am all for raising capital requirements even more.

 

Higher p/e as well given the lower risk

[Liberty]

Here is a thought. The stronger US banks become the more business they will win from weak European banks.

So I am all for raising capital requirements even more.

 

Up to a point. You'd get diminishing returns past a certain level, I think.

[meiroy]

 

 

 

It will never pass.  Don't they realize that banks have more capital today than necessary, and are reluctant to lend it out because they are required to hold excess capital?  You want banks to be rock-solid, crack down on lending products, require minimum downpayments of 20% for residential property with maximum 25 year amortizations, and reduce off-balance sheet leverage.  Cheers! 

 

This seems more like an argument of why it will pass, the situation with the banks limiting loans already exist, and then you have the austerity measures which is possibly what the last thing the USA needs. This is a result of regulations. On the other hand you have that possibly new regulation mentioned on the other thread for limiting IRA to 3m, which would increase consumption and help fix the economy (ignoring any law of unintended consequences for the moment.)

 

As for global banking, shadow banking is already absolutely huge.  Global business put their money and investments in US banks for reasons that will only strengthen if they get higher capital reserves. Then there's that the USD is the global reserve currency and the US, if it wants to, can use it as leverage. 

[ERICOPOLY]

On the other hand you have that possibly new regulation mentioned on the other thread for limiting IRA to 3m, which would increase consumption and help fix the economy (ignoring any law of unintended consequences for the moment.)

 

Considering the very few people who meet the 3m criteria, I'm not expecting much "fix" to the economy.

[meiroy]

On the other hand you have that possibly new regulation mentioned on the other thread for limiting IRA to 3m, which would increase consumption and help fix the economy (ignoring any law of unintended consequences for the moment.)

 

Considering the very few people who meet the 3m criteria, I'm not expecting much "fix" to the economy.

 

What's relevant is the surplus in the aggregate, not the number of people.  Either way, it's not a complete "fix" all by itself, it's a step in a certain direction.

 

[Kiltacular]

I seem to be stuck on the political angle of this issue.  Perhaps wrongly.  But, if it is political, it could also be posturing in order to get some buy in on this issue.  Frankly, if this is what the chattering of ever high capital requirements is about, I don't see a problem with (from the banks perspective) as long as the banks are indemnified this time around.  And we'd have to think they will be, right?  Or, am I missing a part of this.

 

http://www.thedailybeast.com/articles/2013/04/03/the-obama-administration-wants-banks-to-stop-being-so-uptight-about-their-mortgage-underwriting-how-crazy-is-that.html

 

 

This morning, the Washington Post reports that the administration is pushing for banks to loosen their lending standards in order to make more home loans to buyers with poorer credit and lower incomes.  If you're anything like me, you probably said to yourself, "Oh my stars and garters!  What sort of daffy wisenheimer came up with this crackpot scheme?" 

 

Seven years on, we're still marinating in the hangover of our last attempt to make the boon of homeownership available to people who can't really afford a home.  Why on earth would we do this again?

 

I'm not sure it's quite as crazy as it sounds.  The administration seems to be making the basically fair argument that banks are putting all their energy into refinancings, made attractive by the low-low rates currently on offer at the Federal Reserve.  It's nearly impossible for someone with a credit score below 680 to get a mortgage.  A 680 credit score is not "deadbeat" territory; it's someone who's had trouble in the last few years, but is now current on everything.