BAC-WT - Bank of America Warrants

[buylowersellhigh]

Parsad,

 

Any thoughts on the quarter? 

 

BLSH

[Parsad]

Parsad,

 

Any thoughts on the quarter? 

 

BLSH

 

Frankly...a hell of alot better than I expected!  Take a look at the numbers other than legacy loan servicing.  They are up across the board other than global banking...to be expected.  Each dollar of new business is driving more money to the bottom line compared to old business.  The balance sheet has gotten even stronger! 

 

People are complaining about revenue...do you want to make more revenue or more net profit?  Growth is only as good as the quality of the business...they are getting much better quality business, while growth is flat.  Look at the return on capital numbers in different lines of businesses...all improving pretty much.  Expenses are coming down, legacy issues will slowly disappear, good business will continue to drive profits and the company is leaner and stronger.  What the hell is there to complain about?  I'm buying LEAPS!  Cheers!

[racemize]

I'm buying LEAPS!  Cheers!

 

Yeah, the 10's I bought at 3.80 are a lot better priced now!

[Grenville]

2012 AR and 2013 Proxy are out.

 

http://investor.bankofamerica.com/phoenix.zhtml?c=71595&p=irol-reportsannual#fbid=2Z0fiEj_R5V

[jay21]

Parsad,

 

Any thoughts on the quarter? 

 

BLSH

 

Frankly...a hell of alot better than I expected!  Take a look at the numbers other than legacy loan servicing.  They are up across the board other than global banking...to be expected.  Each dollar of new business is driving more money to the bottom line compared to old business.  The balance sheet has gotten even stronger! 

 

People are complaining about revenue...do you want to make more revenue or more net profit?  Growth is only as good as the quality of the business...they are getting much better quality business, while growth is flat.  Look at the return on capital numbers in different lines of businesses...all improving pretty much.  Expenses are coming down, legacy issues will slowly disappear, good business will continue to drive profits and the company is leaner and stronger.  What the hell is there to complain about?  I'm buying LEAPS!  Cheers!

 

I share similar thoughts.  If .80 cents is the run rate earnings, then they are priced at <15x and they are significantly underperforming given their balance sheet.  Given time, the income statement will reflect the strength of the balance sheet.

[Parsad]

Parsad,

 

Any thoughts on the quarter? 

 

BLSH

 

Frankly...a hell of alot better than I expected!  Take a look at the numbers other than legacy loan servicing.  They are up across the board other than global banking...to be expected.  Each dollar of new business is driving more money to the bottom line compared to old business.  The balance sheet has gotten even stronger! 

 

People are complaining about revenue...do you want to make more revenue or more net profit?  Growth is only as good as the quality of the business...they are getting much better quality business, while growth is flat.  Look at the return on capital numbers in different lines of businesses...all improving pretty much.  Expenses are coming down, legacy issues will slowly disappear, good business will continue to drive profits and the company is leaner and stronger.  What the hell is there to complain about?  I'm buying LEAPS!  Cheers!

 

I share similar thoughts.  If .80 cents is the run rate earnings, then they are priced at <15x and they are significantly underperforming given their balance sheet.  Given time, the income statement will reflect the strength of the balance sheet.

 

80 cents is the current run rate with a large overhang of legacy issue expenses.  Run off those costs and you are looking at somewhere around $1.05-1.15 in earnings for 2013.  Add in what you think is adjusted decrease in global banking profits due to Europe...and you are looking at another 5 cents.  So a reasonable view of earnings for 2013 is somewhere around $1.10-1.20.  And this is all in a low interest rate environment with reduced spreads.  If they just keep doing what they are doing, slowly grow revenues but at acceptable levels of profitability, they will be priced accordingly.  Cheers!

[mankap]

Here are things that I like on today's report

LAS expense exclusing litigation is down to 2.6B/qtr.Bruce mentioned on the call that it will go down to $2.1B/qtr by end of 2013.

New BAC project is working. Bruce mentioned on the call that after taking out yearly compensation the expense is down to 13B.It will drop by another 300-400m/qtr by year end.

LAS expense and New BAC will provide savings of $800-900m/qtr by Year end.

 

Common equity increased by $4.1B in first qtr.We caould see 2013 TBN between 14-14.5 with the buybacks.

BaseIII tier1 common is increased to 9.42%.It could increase to 10% by year end.BaselIII requirement is 8.5%.This could lead to higher buyback/dividend in 2014.

What I do not like is that they are issuing too many shares probably for compensation.Diluted is now more than 11B.Diluted has increased by around 400m in one year.

[MYDemaray]

People are complaining about revenue...do you want to make more revenue or more net profit?

 

Apparently lost on many that shrinking businesses can grow value per share....

[jay21]

Here are things that I like on today's report

LAS expense exclusing litigation is down to 2.6B/qtr.Bruce mentioned on the call that it will go down to $2.1B/qtr by end of 2013.

New BAC project is working. Bruce mentioned on the call that after taking out yearly compensation the expense is down to 13B.It will drop by another 300-400m/qtr by year end.

LAS expense and New BAC will provide savings of $800-900m/qtr by Year end.

 

Common equity increased by $4.1B in first qtr.We caould see 2013 TBN between 14-14.5 with the buybacks.

BaseIII tier1 common is increased to 9.42%.It could increase to 10% by year end.BaselIII requirement is 8.5%.This could lead to higher buyback/dividend in 2014.

What I do not like is that they are issuing too many shares probably for compensation.Diluted is now more than 11B.Diluted has increased by around 400m in one year.

 

Do share repurchases allow for warrant repurchases?  I think I remember seeing WFC repurchase some.

[vinod1]

80 cents is the current run rate with a large overhang of legacy issue expenses.  Run off those costs and you are looking at somewhere around $1.05-1.15 in earnings for 2013.  Add in what you think is adjusted decrease in global banking profits due to Europe...and you are looking at another 5 cents.  So a reasonable view of earnings for 2013 is somewhere around $1.10-1.20.  And this is all in a low interest rate environment with reduced spreads.  If they just keep doing what they are doing, slowly grow revenues but at acceptable levels of profitability, they will be priced accordingly.  Cheers!

 

Parsad,

 

Did not understand why you are getting such low run rate earnings if you exclude legacy expenses. Total costs associated with LAS are running at $13 billion (using 4x Q1 numbers and including litigation). They are projecting $2 billion as normalized run rate for these expenses, so even if you put this at $3 billion we are looking at $10 billion in savings annually or about $0.6 EPS right there assuming a 30% tax rate. That gets you to $1.4.

 

Vinod

[Parsad]

80 cents is the current run rate with a large overhang of legacy issue expenses.  Run off those costs and you are looking at somewhere around $1.05-1.15 in earnings for 2013.  Add in what you think is adjusted decrease in global banking profits due to Europe...and you are looking at another 5 cents.  So a reasonable view of earnings for 2013 is somewhere around $1.10-1.20.  And this is all in a low interest rate environment with reduced spreads.  If they just keep doing what they are doing, slowly grow revenues but at acceptable levels of profitability, they will be priced accordingly.  Cheers!

 

Parsad,

 

Did not understand why you are getting such low run rate earnings if you exclude legacy expenses. Total costs associated with LAS are running at $13 billion (using 4x Q1 numbers and including litigation). They are projecting $2 billion as normalized run rate for these expenses, so even if you put this at $3 billion we are looking at $10 billion in savings annually or about $0.6 EPS right there assuming a 30% tax rate. That gets you to $1.4.

 

Vinod

 

Hi Vinod,

 

I'm talking about what the reduction in LAS would through 2013 only.  Yes, going forward the amount of savings will be even larger.  I don't think they will get to the $2B LAS level until the end of 2014, but the costs should continue to come down considerably in 2014 as well.  Cheers!

[vinod1]

 

Hi Vinod,

 

I'm talking about what the reduction in LAS would through 2013 only.  Yes, going forward the amount of savings will be even larger.  I don't think they will get to the $2B LAS level until the end of 2014, but the costs should continue to come down considerably in 2014 as well.  Cheers!

 

Thanks Parsad!

[mankap]

2014 earnings should be 0.35-0.40 more than 2013 earnings based on LAS and new BAC savings that will be achieved by the end of 2013.

For 2014, BAC could have $1.50 in earnings.

[Uccmal]

Well, I sold the puts I bought Yesterday morning for a 15% gain....

 

and reinvested the proceeds in $12.00 Leaps which have already gone up. 

 

2014 earnings should be 0.35-0.40 more than 2013 earnings based on LAS and new BAC savings that will be achieved by the end of 2013.

For 2014, BAC could have $1.50 in earnings.

 

That was about my guess.  15B next year.  May even be higher - repricing the prefs and debt will reduce cash flow drag as well as elimination of Legacy costs. 

[writser]

Here are things that I like on today's report

LAS expense exclusing litigation is down to 2.6B/qtr.Bruce mentioned on the call that it will go down to $2.1B/qtr by end of 2013.

New BAC project is working. Bruce mentioned on the call that after taking out yearly compensation the expense is down to 13B.It will drop by another 300-400m/qtr by year end.

LAS expense and New BAC will provide savings of $800-900m/qtr by Year end.

 

Common equity increased by $4.1B in first qtr.We caould see 2013 TBN between 14-14.5 with the buybacks.

BaseIII tier1 common is increased to 9.42%.It could increase to 10% by year end.BaselIII requirement is 8.5%.This could lead to higher buyback/dividend in 2014.

What I do not like is that they are issuing too many shares probably for compensation.Diluted is now more than 11B.Diluted has increased by around 400m in one year.

 

They granted 283 mio options / restricted stock in 2012. Seems pretty significant indeed on an oustanding base of ~ 11.300 shares.

[compoundinglife]

Do share repurchases allow for warrant repurchases?  I think I remember seeing WFC repurchase some.

 

Not sure if they can. Even if they could I think the liquidity might make it hard. I believe WFC repurchased in a large block from the Treasury before the auction.

[wescobrk]

For those that are posting eps estimates (such as 1.40 next year or 1.1-1.2 this year from Sanjeev)

what are you assuming for outstanding shares when you are providing those numbers?

Thanks.

[mankap]

My assumption for diluted is 10.8 Billion.

[Cardboard]

Wow! I think that some of you guys really need to take a look at these earnings and try to rethink why you are holding this stock. It is not $1.20, $1.30 or even $1.40 EPS that we need, but something around $2 and growing! We are at f...... $0.80 right now!

 

Here are some current P/E's to give you an understanding as to why I say it is important to drive these earnings higher, much higher:

 

WFC: 10.0 x

JPM: 8.5 x

C: 9.9 x

 

Shall I also mention that these companies are having respectable ROA's currently and strong balance sheets. And that is all they are worth to the market?

 

So is it an industry bet that you are making being in BAC? Because based on current earnings and what you guys are expecting in a year or two, then it is not worth a penny more than the current price based on its competitors. Is that really what you are investing your life savings into with even many buying calls expiring in not even 2 years from now? You are looking for what? A 10 or 20% pop from here in 2 years?

 

Or is it a company bet combined with an industry bet that will drive this pig quite a bit above $20 a share? For that we need earnings, $2 or more. That is why we need a more creative and kick ass type of leader than one who just relies on static cost savings like BAC Phase 1 and 2. By the time these are in place, I guarantee you that new costs that are not visible today will be added and earnings will still be subpar. Some have pointed out large issuance of restricted stocks and the like, guess what that does to EPS?

 

The other thing that I hate about the way this is managed, is there a division in there that you are truly proud of? That you can say: "If the entire company could be like this one crown jewel." or "There is nothing better out there than these guys". I see none. Are they leader in anything? Every division seems to be average to subpar.

 

I don't think it should be like that, but that is how the numbers are. Hence why I am calling out Moynihan. It's time for fresh blood to re-energize this company and instead of having this mentality of trying to catch up the other guys, it should be leading now! Time is running out and that it is never good enough.

 

Cardboard

[meiroy]

Cardboard,

 

Thank you for your push-back about this, very helpful to also hear someone with an opposite view, maybe someone with a short thesis could also join in... (I'm saying this as a current BAC shareholder.)

 

 

[vinod1]

Wow! I think that some of you guys really need to take a look at these earnings and try to rethink why you are holding this stock. It is not $1.20, $1.30 or even $1.40 EPS that we need, but something around $2 and growing! We are at f...... $0.80 right now!

 

Here are some current P/E's to give you an understanding as to why I say it is important to drive these earnings higher, much higher:

 

WFC: 10.0 x

JPM: 8.5 x

C: 9.9 x

 

Shall I also mention that these companies are having respectable ROA's currently and strong balance sheets. And that is all they are worth to the market?

 

So is it an industry bet that you are making being in BAC? Because based on current earnings and what you guys are expecting in a year or two, then it is not worth a penny more than the current price based on its competitors. Is that really what you are investing your life savings into with even many buying calls expiring in not even 2 years from now? You are looking for what? A 10 or 20% pop from here in 2 years?

 

Or is it a company bet combined with an industry bet that will drive this pig quite a bit above $20 a share? For that we need earnings, $2 or more. That is why we need a more creative and kick ass type of leader than one who just relies on static cost savings like BAC Phase 1 and 2. By the time these are in place, I guarantee you that new costs that are not visible today will be added and earnings will still be subpar. Some have pointed out large issuance of restricted stocks and the like, guess what that does to EPS?

 

The other thing that I hate about the way this is managed, is there a division in there that you are truly proud of? That you can say: "If the entire company could be like this one crown jewel." or "There is nothing better out there than these guys". I see none. Are they leader in anything? Every division seems to be average to subpar.

 

I don't think it should be like that, but that is how the numbers are. Hence why I am calling out Moynihan. It's time for fresh blood to re-energize this company and instead of having this mentality of trying to catch up the other guys, it should be leading now! Time is running out and that it is never good enough.

 

Cardboard

 

Hi Cardboard,

 

I think this might just be due to different set of expectations between us. The way I see it

 

1. BAC has never been a great company and I am not expecting them to turn into another WFC. They have a great deposit base and consumer footprint that would enable them to earn decent ROA. Return to mediocre or average is all I am really shooting for. So far Moynihan has laid out the back to basics approach and he has been delivering to that target.

 

2. I see $2 per share earnings in 2015. $7 billion in New BAC, $10 billion in LAS and $3 billion in LTD reduction would see to that. Why shoot for something like growth or other flashy stuff when you can deliver $20 billion to the bottom line (probably reduced by less than the tax rate due to DTA's) just doing what he has laid out?

 

3. I am just happy with the money we made from the bounce off the bottom. I can wait for some time for the next leg up. If it goes down again, I guess we just have to get down on our knees and count our blessings for a chance to reload again.

 

If there is one thing I am not happy about it is the lack of MBIA settlement. It bothers me but so far I would give him the benefit of the doubt.

 

Vinod

 

 

[wescobrk]

Good post cardboard.

 

It appears the consensus is close to 40 cents a share by q4 of this year or about 9 months until they report which translates to about 15-16 a share assuming 9-10x multiple or about 30-40% upside.

 

I can't speak to Citi but I believe JPM and Wfc don't have that kind of upside. Their growth might be more of 10-15% by q4.

 

If we agree with the above, then the logical question is 30-40% upside sufficient for 1) the time value of money and 2) the execution risk.?

 

It seems attractive to me but nothing to get super excited about.

[xazp]

I own BAC, C and JPM (in that order).  I think BAC is a pretty mediocre company, and JPM is a pretty good company.  As you state, JPM is cheaper on current year earnings - and, I have a lot more confidence in their management. 

 

So why do I own more BAC?  It comes down to this:  I think BAC and JPM are approximately the same size bank.  Roughly, they have similar asset levels, equity levels, deposits and market reach.  But, BAC's market cap would have to grow by about 50% to reach JPM's.  BAC has better capital levels/ratios.  JPM has better earnings. 

 

I don't expect BAC to ever earn what JPM does, even though the two banks are similarly sized.  But, I do expect BAC to catch up to a level where JPM is "only" earning 10 or 20% more than BAC.  Since BAC needs to increase by 50% to catch up to their market cap, I view this as a good deal. 

 

Conceivably buybacks could help BAC a lot.  BAC conceivably can buy just as many dollars as JPM (for a variety of reasons).  But BAC would be buying (for now) on a much lower market cap base than JPM - so they'd swallow more shares.  To me, buying below TBV is a rare gift.  I can see them buying $30Bn of shares from 2013-2015 ($5, $10 and $15Bn), which equates to about 1/4 of their current market cap.  JPM, similar buybacks, would only take out about 15% of their current market cap.  The extra 10% of shares removed conceivably would make up the 10% delta in earnings power. 

 

 

Wow! I think that some of you guys really need to take a look at these earnings and try to rethink why you are holding this stock. It is not $1.20, $1.30 or even $1.40 EPS that we need, but something around $2 and growing! We are at f...... $0.80 right now!

 

[Kraven]

When I read some of the comments on threads like this I think I must be thinking about things in a different way.  I don't understand all the talk about whether BAC is great or is better, the same or worse than JPM, C, WFC, etc.  What difference does it make?  I think that a little sense of history is missing.  All of these banks have only been in their current forms for a relatively short time, so to say BAC has never been great or JPM has always been great is to really say that for about the past decade or so this has been true.  In their most recent forms, prior to the financial crisis BAC was thought of just fine.  It's really only Countrywide that has truly tarnished their image.

 

When I think about whether BAC is a good investment, it doesn't matter to me what JPM, WFC, et al are doing.  On a normalized basis BAC is already earning close to $2 a share and that gives no credit for huge DTAs which can shelter earnings.  I think that BAC's performance is certainly muted now, but right or wrong (and at this point it doesn't matter) they are dealing with the hand they were dealt.  Expenses are very high due to all their issues, litigation and otherwise, but that won't always be the case.  Things will work themselves out at some point one way or the other.

 

So it doesn't really matter to me whether BAC will grow revenues and become great.  It doesn't take much imagination to see them at least worth BV.  Once that occurs, then it might be worth wondering about their future.  I also don't care really about crown jewels and the like.  Banking is a commodity business.  Money is fungible.  At the end of the day, if people can get their money for 1 bp less than the guy next door, they will take it.  No one loves their bank anymore.  There is no loyalty.  At this point, all I care about is a reversion to the mean and I fully expect that that will occur over the next couple of years or so.  If not, so be it.

[Uccmal]

When I read some of the comments on threads like this I think I must be thinking about things in a different way.  I don't understand all the talk about whether BAC is great or is better, the same or worse than JPM, C, WFC, etc.  What difference does it make?  I think that a little sense of history is missing.  All of these banks have only been in their current forms for a relatively short time, so to say BAC has never been great or JPM has always been great is to really say that for about the past decade or so this has been true.  In their most recent forms, prior to the financial crisis BAC was thought of just fine.  It's really only Countrywide that has truly tarnished their image.

 

When I think about whether BAC is a good investment, it doesn't matter to me what JPM, WFC, et al are doing.  On a normalized basis BAC is already earning close to $2 a share and that gives no credit for huge DTAs which can shelter earnings.  I think that BAC's performance is certainly muted now, but right or wrong (and at this point it doesn't matter) they are dealing with the hand they were dealt.  Expenses are very high due to all their issues, litigation and otherwise, but that won't always be the case.  Things will work themselves out at some point one way or the other.

 

So it doesn't really matter to me whether BAC will grow revenues and become great.  It doesn't take much imagination to see them at least worth BV.  Once that occurs, then it might be worth wondering about their future.  I also don't care really about crown jewels and the like.  Banking is a commodity business.  Money is fungible.  At the end of the day, if people can get their money for 1 bp less than the guy next door, they will take it.  No one loves their bank anymore.  There is no loyalty.  At this point, all I care about is a reversion to the mean and I fully expect that that will occur over the next couple of years or so.  If not, so be it.

 

That nicely summarizes my feelings.  While I appreciate Cardboard's sentiments, and he always puts out good arguments, I disagree.  I am only seeking a return to value, or reversion of the mean at this point in time which to me is $20 per share, thereabouts.  Unless BAC does nothing right before Jabuary 2015 that is not an unreasonable target. 

 

Same as AIG.  Return to value is my only target.  I can reassess every day between now and then.

 

At that point I will reassess the long term