BAC-WT - Bank of America Warrants

[blainehodder]

Here's FHFA vs. Countrywide, which has $27bn in face value. So, this is where the Fitch analyst is getting his $57bn....

 

http://www.fhfa.gov/webfiles/22596/Final%20Countrywide%20Complaint%20-%20Filing%20Copy.pdf

 

247. But for the above misrepresentations and omissions, the GSEs would not have

purchased or acquired the Certificates as they ultimately did, because those representations and

omissions were material to their decision to acquire the GSE Certificates, as described above.

 

bahahaha.

 

 

 

 

Is the Fitch face value multiplier really legitimate?

 

As for the amount that will hit the income statement... It seems there are about 5.6B left in the rep and warrant reserves for a FHFA settlement/AIG swing, no? To me it looks like the reserves are reasonable --> minimal charges going forward... Assume both go bad and compare to the reserves... then finally to the market cap. Shouldn't be that bad really.

 

 

 

Bruce Thompson - CFO

We did not put out a litigation reserve on a standalone basis. The number that we do put out is where we are in rep and warrant and that was just over $14 billion at the end of the third quarter.

Michael Mayo - CLSA

14 billion in rep and warrant?

Bruce Thompson - CFO

That’s correct. 14.1 billion.

Michael Mayo - CLSA

Okay. And would that include anything other than the $8.5 billion settlement?

Bruce Thompson - CFO

That includes another 5.5 for a variety of matters.

Michael Mayo - CLSA

So for the Gibbs & Bruns settlement you have an $8.5 billion reserve for that settlement. I think I asked this on some other earnings calls, but if that agreement was not approved by the judge, what is the potential range for that $8.5 billion reserve?

[morningstar]

 

 

Is the Fitch face value multiplier really legitimate?

 

 

The UBS settlement, which is the only one with announced terms so far, also came in in this general vicinity. And its unlikely that BAC's MBS origination was too different from JPMs (or that ML/CFC was too different from Bear/WaMu) since they were all building portfolios against the same rating agency AAA standards. So probably the face value method works pretty well & applies to the other big defendants besdies BAC (RBS in particular).

[ERICOPOLY]

Let's say tax rate is 30%.

 

5-8 billion pretax settlement would cost them 3.5-5.6 billion after-tax.

 

11.5 billion fully diluted shares, so it's:

 

30 cents per share to 48 cents per share

 

That's how much the share price should drop for this settlement alone.

 

Except they've already reserved for a chunk of it.  How much have they reserved?  Maybe they've reserved for 50% -- in which case the stock should be dropping 15 cents to 24 cents.  I don't know, any guess?

 

[blainehodder]

Eric, that math pretty much matches mine... 5.6B in rep and warrant covers a mid/low end settlement, with potential for the remainder of a higher FHFA/AIG swing to hit earnings.  Given the market has probably priced in a 5-6Bish settlement a slightly higher one shouldn't have much of an effect (though it could easilly overshoot given the manic nature of the market). 

 

Ballpark JPM numbers were being throw around prior to the quarterly report, and the UBS numbers are well known, so it seems likely that Moynihan had a decent idea of how much to reserve.

 

I am assuming the market will overreact regardless.  If the number comes in at 4B, I bet BAC rallies several % vs the market, where I assume a lower settle will shave off another 1-2%.

 

 

[dcollon]

http://www.bloomberg.com/news/2013-10-30/bofa-increases-estimate-of-potential-legal-costs-to-5-1-billion.html

[blainehodder]

http://m.us.wsj.com/articles/SB10001424052702304527504579168380867292754?mg=reno64-wsj

[fareastwarriors]

http://m.us.wsj.com/articles/SB10001424052702304527504579168380867292754?mg=reno64-wsj

 

The Federal Home Loan Banks of Boston, Chicago and Indianapolis and a hedge fund named Cranberry Park told New York state Judge Barbara Kapnick Wednesday that they were removing their objections to the settlement.

 

The largest objector remaining to the deal is American International Group Inc., AIG -0.54%  which also has a separate outstanding $10 billion lawsuit against BofA for allegedly misleading the insurer about the quality of mortgage-backed securities it sold.

 

Bank of America in 2011 struck a deal with investors to pay $8.5 billion over soured mortgage-backed securities. The deal requires the trustee for the investors to gain approval from a court in a special hearing before being finalized.

[FCharlie]

I am not sure why people are puzzled about the continuous lawsuits.  I've mentioned many times that they will go on much longer than people expect.  Not just for BAC, but all the major banks.  So long as you have a deep pocket and an industry that's out of favor (especially one that is perceived as getting fat on the backs of the average joe), the lawsuits will not end.

 

 

BAC is the new Philip Morris.

 

The best thing to do is to focus on the fact that BAC can sit here and buy back hundreds of million and even billions of shares at these prices and one day, there will be no lawsuits. Remember the old saying, This too shall pass.

 

Philip Morris was $18 per share in 2000. Back then it owned Kraft, Nabisco, & Altria. Today, those pieces are worth about $180 per share and pay a total dividend that's about 40% of the 2000 stock price.

[FCharlie]

Bank of America's share repurchase history:

 

 

Feb 25th, 2013: Shares outstanding 10,820,274,944

 

Monthly repurchases:

 

April:          42,256,000    @  $11.91

May:            30,324,000    @  $13.28

June:          7,066,000      @  $13.72

July:            none

August:        44,347,000    @  $14.45

September:  15,653,000    @  $14.38

 

 

 

October 29th, 2013: shares outstanding 10,666,133,943

 

[wescobrk]

Bank of America's share repurchase history:

 

 

Feb 25th, 2013: Shares outstanding 10,820,274,944

 

Monthly repurchases:

 

April:          42,256,000    @  $11.91

May:            30,324,000    @  $13.28

June:          7,066,000      @  $13.72

July:            none

August:        44,347,000    @  $14.45

September:  15,653,000    @  $14.38

 

 

 

October 29th, 2013: shares outstanding 10,666,133,943

 

Thanks for posting!

Although it hurts my eyes Moynihan bought the most shares when the stock was materially higher than other months.

He may be good at operations but he's obtuse with equity capital allocation.

[wescobrk]

"The best thing to do is to focus on the fact that BAC can sit here and buy back hundreds of million and even billions of shares at these prices and one day, there will be no lawsuits. Remember the old saying, This too shall pass. "

 

Agreed but Moynihan isn't buying much. He waits for the stock to go up a dollar a share then increases the amount of shares bought by almost 600% (44 million shares at 14.45 versus 7 million at cheaper price).

 

The analysts don't seem to care as they never give him a hard time on the conference call.

I was hoping Buffett would have told him to get off his ass when he had dinner but Moynihan bought even less in q3 then q2.

 

What is even more frustrating is he recently said he doesn't want to buy Buffett's preferred or even a substantial raise with the dividend but to buy back more stock. He knows the earnings are projected to exceed 2 bucks a share in 2015 because he has told us this (add up all expense savings) plus he recently said on the oct call he was "very, very" comfortable with the reserves and they are largely behind us. Therefore he is purposely buying back most of the stock at materially higher prices.

 

The good thing is his stupidity is only affecting the intrinsic value by less than 3% with these inane buybacks at higher prices and that the main driver for increasing shareholder wealth is lowering expenses plus we might get some nim improvement as the yield curve should steepen quite a bit over the next 12 months.

 

On a side comment, institutions are starting to load up. BOFA is increasingly in fidelity mutual funds top ten list. It won't be long until retail and momentum chasers hop on which will probably be in march with ccar permission to finally raise the dividend.

[fareastwarriors]

interesting background on why there seems to be a sudden new batch of lawsuits.

 

http://dealbook.nytimes.com/2013/10/30/from-anonymity-to-scourge-of-wall-street/

 

From Anonymity to Scourge of Wall Street

[wescobrk]

"I am not sure why people are puzzled about the continuous lawsuits.  I've mentioned many times that they will go on much longer than people expect.  Not just for BAC, but all the major banks.  So long as you have a deep pocket and an industry that's out of favor (especially one that is perceived as getting fat on the backs of the average joe), the lawsuits will not end."

 

I tried to underline lawsuits will not end or put in bold but tablet wouldn't let me.

Agreed they won't end but the should get down to 500 million a quarter in about 18 months versus 2 billion now.

Obama and justice department will eventually move on to something else just like spitzer eventually did. The bloody 10 year statute of limitations with the fhrfa (sorry if butchered acronym) is up in 2016 I believe or 2017 at the latest.

 

I wouldn't be surprised to see close to 3 bucks a share in 2017.

 

[vinod1]

"The best thing to do is to focus on the fact that BAC can sit here and buy back hundreds of million and even billions of shares at these prices and one day, there will be no lawsuits. Remember the old saying, This too shall pass. "

 

Agreed but Moynihan isn't buying much. He waits for the stock to go up a dollar a share then increases the amount of shares bought by almost 600% (44 million shares at 14.45 versus 7 million at cheaper price).

 

The analysts don't seem to care as they never give him a hard time on the conference call.

I was hoping Buffett would have told him to get off his ass when he had dinner but Moynihan bought even less in q3 then q2.

 

What is even more frustrating is he recently said he doesn't want to buy Buffett's preferred or even a substantial raise with the dividend but to buy back more stock. He knows the earnings are projected to exceed 2 bucks a share in 2015 because he has told us this (add up all expense savings) plus he recently said on the oct call he was "very, very" comfortable with the reserves and they are largely behind us. Therefore he is purposely buying back most of the stock at materially higher prices.

 

The good thing is his stupidity is only affecting the intrinsic value by less than 3% with these inane buybacks at higher prices and that the main driver for increasing shareholder wealth is lowering expenses plus we might get some nim improvement as the yield curve should steepen quite a bit over the next 12 months.

 

On a side comment, institutions are starting to load up. BOFA is increasingly in fidelity mutual funds top ten list. It won't be long until retail and momentum chasers hop on which will probably be in march with ccar permission to finally raise the dividend.

 

BAC has spent about $2 billion in two quarters or roughly 40% of the $5 billion that it is allowed to purchase over the four quarters ending in Q1, 2014. We do know that expenses are getting reduced each quarter so we are expecting more profitability each succeeding quarter. So I think it makes sense to have larger buy backs in the later quarters. When regulators allowed $5 billion in buy backs the implied expectation most likely is that they buy backs would be spread out and that the company would not buy the whole amount in the first quarter. That would not look good when BAC submits its capital allocation plan for next year.

 

Vinod

[ourkid8]

This is exactly why I continue to buy Leaps on BAC and just bought more today!  This is a perfect opportunity to load up... 

 

What is even more frustrating is he recently said he doesn't want to buy Buffett's preferred or even a substantial raise with the dividend but to buy back more stock. He knows the earnings are projected to exceed 2 bucks a share in 2015 because he has told us this (add up all expense savings) plus he recently said on the oct call he was "very, very" comfortable with the reserves and they are largely behind us. Therefore he is purposely buying back most of the stock at materially higher prices.

[ERICOPOLY]

I think they've spent $6b on preferred retirement this year.  Plus $2b on buybacks.  Plus legal settlements above reserves, and now they suggest they've got another $5b of potential legal expenses above reserves yet to come.  Then they've got $3b still to spend on buybacks for Q3, Q4, and Q1.

 

So that's:

$6b+$2b+$5b+$3b.

 

That's $16b.

 

Next year let's hope they can concentrate that same $16b on the buybacks.

[ourkid8]

@Eric, In perfect situation that would make sense but I see the total authorization next year will be $20B.  ($10B calling preferrd, $7B in share repurchase and $3B in dividends). 

 

Thanks,

S

 

I think they've spent $6b on preferred retirement this year.  Plus $2b on buybacks.  Plus legal settlements above reserves, and now they suggest they've got another $5b of potential legal expenses above reserves yet to come.  Then they've got $3b still to spend on buybacks for Q3, Q4, and Q1.

 

So that's:

$6b+$2b+$5b+$3b.

 

That's $16b.

 

Next year let's hope they can concentrate that same $16b on the buybacks.

[wescobrk]

"BAC has spent about $2 billion in two quarters or roughly 40% of the $5 billion that it is allowed to purchase over the four quarters ending in Q1, 2014. We do know that expenses are getting reduced each quarter so we are expecting more profitability each succeeding quarter. So I think it makes sense to have larger buy backs in the later quarters. When regulators allowed $5 billion in buy backs the implied expectation most likely is that they buy backs would be spread out and that the company would not buy the whole amount in the first quarter. That would not look good when BAC submits its capital allocation plan for next year"

 

That would make sense but there is no evidence provided by management or in any filings they couldn't complete in the first quarter.

 

Lets assume they have to do it in proportions throughout the year.

They have 3 months to do 3.1 billion but they have spent 1.9 over 6 months. Just to be on track for the calendar year they should have bought back 550 million a month (5 billion divided by 9 months)

So far Moynihan is only buying 300 million a month.

That also doesn't explain why he ups the buyback 600 percent after a 7% increase in the stock.

 

I'll leave this alone as I've ranted about this too much and I'm sure everyone is tired of hearing about it.

[ERICOPOLY]

They have 3 months to do 3.1 billion but they have spent 1.9 over 6 months. Just to be on track for the calendar year they should have bought back 550 million a month (5 billion divided by 9 months)

So far Moynihan is only buying 300 million a month.

 

I thought the approval was for 12 months.

 

Initially approved in March, that means it runs until next March when they get the next 12 month approval.

 

So that gives them 6 months to do 3.1billion. 

[wescobrk]

I thought the press release was for 2013.

 

Tbv should be around 14 60 days from now.

The good news is anyone that is buying today is buying at tbv starting dec 31.

[ourkid8]

Official announcement:

 

http://newsroom.bankofamerica.com/press-release/corporate-and-financial-news/bank-america-plans-repurchase-5-billion-common-shares-and

 

Bank of America Plans to Repurchase up to $5 Billion in Common Shares and Redeem Approximately $5.5 Billion in Preferred Stock

Release Date:

Thursday, March 14, 2013 4:45 pm EDT

Terms:

Corporate and Financial News

Dateline City:

CHARLOTTE, N.C.

Bank of America today announced that the company’s Board of Directors authorized the repurchase of up to $5.0 billion of common stock and the redemption of approximately $5.5 billion in preferred stock.

 

The Federal Reserve Board has informed the company that it completed its 2013 Comprehensive Capital Analysis and Review and that it did not object to the company’s capital plan, including proposed capital actions.

 

"We have simplified our company and we have more than adequate capital to support our strategic plans. We are well positioned to return excess capital to our shareholders,” said Chief Executive Officer Brian Moynihan. “We believe buying back common shares is the best way to continue to drive value for our shareholders.”

 

The timing and exact amount of common share repurchases will be consistent with the company’s capital plan and will be subject to various factors, including the company’s capital position, liquidity, financial performance and alternative uses of capital, stock trading price, and general market conditions, and may be suspended at any time. The common share repurchases may be effected through open market purchases or privately negotiated transactions, including Rule 10b5-1 plans, over the next four quarters. The company’s 2013 capital plan did not include a request to increase the quarterly common stock dividend rate of $0.01 per share.

 

The company’s Board of Directors also approved the redemption of all the outstanding shares of two series of the company’s preferred stock. The 8.20% Non-Cumulative Preferred Stock, Series H, will be redeemed on May 1, 2013, and the 8.625% Non-Cumulative Preferred Stock, Series 8, will be redeemed on May 28, 2013. The redemption price for each of these preferred stock series will be 100 percent of the liquidation preference per share, as specified in the company’s certificate of incorporation. Notice of redemption for each series, including notice to holders of depositary shares representing fractional interests in each redeemed series of preferred stock, will be sent on or around April 1, 2013.

 

Bank of America

Bank of America is one of the world’s largest financial institutions, serving individual consumers, small- and middle-market businesses, institutional investors, large corporations and governments with a full range of banking, investing, asset management and other financial and risk management products and services. We serve approximately 53 million consumer and small business relationships with approximately 5,500 retail banking offices and approximately 16,300 ATMs and award-winning online banking with 30 million active users. Bank of America is among the world's leading wealth management companies and is a global leader in corporate and investment banking and trading across a broad range of asset classes, serving corporations, governments, institutions and individuals around the world. Bank of America offers industry-leading support to approximately 3 million small business owners through a suite of innovative, easy-to-use online products and services. The company serves clients through operations in more than 40 countries. Bank of America Corporation stock (NYSE: BAC) is a component of the Dow Jones Industrial Average and is listed on the New York Stock Exchange.

 

Visit the Bank of America newsroom for more Bank of America news.

 

 

[mankap]

Wells Fargo has also settled with FHFA. I expect BAc will also settle soon.i think we will see the news in couple of weeks.

 

Pressure rises on holdout banks as Wells settles with FHFA

The price tag - obscured by a confidentiality agreement - is believed to less than $1B, reports the FT (a far cry from JPM's $5.1B settlement). Wells (WFC -0.4%) was the only large U.S. bank to not be named when the FHFA filed suit against 17 lenders in 2011 - apparently because it had already entered into settlement discussions with the GSE regulator.In addition to the Bank of Dimon's settlement last week, Ally Financial reports it expects to soon reach a deal, and HSBC boosted reserves - a sign a settlement is nearing.This ramps up the pressure on holdouts like Bank of America (BAC -0.9%), RBS, Deutsche Bank (DB -0.7%), and Credit Suisse (CS -0.4%) - all of which have large exposure to FHFA cases - to cut their own deals. Extrapolating the JPMorgan settlement leads to a range of payments of $1.7B to $7B for these four lenders, says the FT, which has reported the FHFA is pressing BofA for more than $6B.

[fareastwarriors]

http://www.cnbc.com/id/101156459

 

Qatar fund quietly builds $1 billion Bank of America stake

[wescobrk]

"I think they've spent $6b on preferred retirement this year.  Plus $2b on buybacks.  Plus legal settlements above reserves, and now they suggest they've got another $5b of potential legal expenses above reserves yet to come.  Then they've got $3b still to spend on buybacks for Q3, Q4, and Q1.

 

So that's:

$6b+$2b+$5b+$3b.

 

That's $16b.

 

Next year let's hope they can concentrate that same $16b on the buybacks."

 

They should be able to earn 10-12 percent on tbv plus 16 bil gets us north of a 20 percent return for the company in 2014

Not too bad:)

[fareastwarriors]

http://www.bloomberg.com/news/2013-11-01/genworth-says-bofa-clash-to-cost-less-than-834-million.html

 

Genworth Says BofA Clash to Cost Less Than $834 Million