BAC-WT - Bank of America Warrants

[ERICOPOLY]

I remember the number Moynihan gave for BAC was an additional $7.4b of interest income if there is a 200 bps parallel shift in rates.  That would be about $5.40 per share increase in share price at 12x multiple, 30% tax rate, and 11.5b shares.

 

So check out the part of the quote below (I added bold emphasis):

 

http://online.wsj.com/news/articles/SB10001424052702304866904579266432764849504?mod=WSJ_Home_largeHeadline

 

In their latest economic projections, also out Wednesday, 12 of 17 Fed officials said they expected the central bank's benchmark interest rate, which is called the fed funds rate, to be at or below 1% by the end of 2015. Ten of 17 officials expected the rate to be at or below 2% by the end of 2016.

 

I think that might be rather optimistic as

 

1. Even if fed funds rate goes up to 2% by 2016, it would likely not be a parallel shift. More likely a 1% shift at 10 year maturity. So the gain would be much more muted.

 

2. As he commented there would be OCI impact to book value that would take 3 years to earn back. I would think there would be a hit to earnings as well as trading securities would lose some value that would pass through the income statement.

 

I am more optimistic on lower loan loss provisions being a tailwind for the next couple of years.

 

Vinod

 

Agree, it is the most optimistic assessment before subtracting off the things you mentioned. 

 

$5 x 11.5b is $57.5 billion of market capitalization.  This number is going to be a lot higher than the after-tax cost to the balance sheet.

 

Long rates may or may not rise another 100bps-200bps.  They've come up 100bps so far this year.  I've lost track of where they were when he passed those comments.

[newbee]

I believe at least 50% of  cost savings are already achieved, the following quote is saying additional  $9B cost savings still ahead. Anyone has any idea where this number is coming from?

 

DJ Bank of America Has $9B in Cost Savings to Come -- Market Talk

12/19/2013 07:28 AM

7:28 EST - While trimming its 4Q EPS estimate on Bank of America (BAC), less than the cut peers received, Atlantic Equities says the company remains its top big-bank pick. "Recent management comments from BAC highlight revenues are moving in the right direction and it still has by far the largest cost-cutting story with $9B of cost savings still ahead." he writes. BAC is down 0.3% premarket trading after jumping 3.4% Wednesday. (saabira.chaudhuri@wsj.com)

 

(END) Dow Jones Newswires

 

[vinod1]

I believe at least 50% of  cost savings are already achieved, the following quote is saying additional  $9B cost savings still ahead. Anyone has any idea where this number is coming from?

 

DJ Bank of America Has $9B in Cost Savings to Come -- Market Talk

12/19/2013 07:28 AM

7:28 EST - While trimming its 4Q EPS estimate on Bank of America (BAC), less than the cut peers received, Atlantic Equities says the company remains its top big-bank pick. "Recent management comments from BAC highlight revenues are moving in the right direction and it still has by far the largest cost-cutting story with $9B of cost savings still ahead." he writes. BAC is down 0.3% premarket trading after jumping 3.4% Wednesday. (saabira.chaudhuri@wsj.com)

 

(END) Dow Jones Newswires

 

There is still $6 billion in LAS expenses reductions besides whatever is left of New BAC. 

 

Vinod

[xazp]

Don't forget legal and/or settlement expenses which are substantial.  These are the most clear-cut, in the sense that all those lawyers/settlements really aren't adding to BAC's revenues. 

 

I believe at least 50% of  cost savings are already achieved, the following quote is saying additional  $9B cost savings still ahead. Anyone has any idea where this number is coming from?

 

DJ Bank of America Has $9B in Cost Savings to Come -- Market Talk

12/19/2013 07:28 AM

7:28 EST - While trimming its 4Q EPS estimate on Bank of America (BAC), less than the cut peers received, Atlantic Equities says the company remains its top big-bank pick. "Recent management comments from BAC highlight revenues are moving in the right direction and it still has by far the largest cost-cutting story with $9B of cost savings still ahead." he writes. BAC is down 0.3% premarket trading after jumping 3.4% Wednesday. (saabira.chaudhuri@wsj.com)

 

(END) Dow Jones Newswires

 

There is still $6 billion in LAS expenses reductions besides whatever is left of New BAC. 

 

Vinod

[vinod1]

Don't forget legal and/or settlement expenses which are substantial.  These are the most clear-cut, in the sense that all those lawyers/settlements really aren't adding to BAC's revenues. 

 

I believe at least 50% of  cost savings are already achieved, the following quote is saying additional  $9B cost savings still ahead. Anyone has any idea where this number is coming from?

 

DJ Bank of America Has $9B in Cost Savings to Come -- Market Talk

12/19/2013 07:28 AM

7:28 EST - While trimming its 4Q EPS estimate on Bank of America (BAC), less than the cut peers received, Atlantic Equities says the company remains its top big-bank pick. "Recent management comments from BAC highlight revenues are moving in the right direction and it still has by far the largest cost-cutting story with $9B of cost savings still ahead." he writes. BAC is down 0.3% premarket trading after jumping 3.4% Wednesday. (saabira.chaudhuri@wsj.com)

 

(END) Dow Jones Newswires

 

There is still $6 billion in LAS expenses reductions besides whatever is left of New BAC. 

 

Vinod

 

Agree. The $4 billion annual rate of litigation expenses got to come down at some point in the next couple of years.

 

Vinod

[xazp]

I have the suspicion that actual costs are above $4Bn, in the following senses:

-- any legal action likely involves the time and money of many non-legal employees within the company, getting documents, deciding on which course to take;

-- it's a high priority item that is distracting them from their main business of banking

-- it's possible that the headlines create some worry in clients (who wants a mortgage with a company getting sued over mortgages every week?)

 

Don't forget legal and/or settlement expenses which are substantial.  These are the most clear-cut, in the sense that all those lawyers/settlements really aren't adding to BAC's revenues. 

 

I believe at least 50% of  cost savings are already achieved, the following quote is saying additional  $9B cost savings still ahead. Anyone has any idea where this number is coming from?

 

DJ Bank of America Has $9B in Cost Savings to Come -- Market Talk

12/19/2013 07:28 AM

7:28 EST - While trimming its 4Q EPS estimate on Bank of America (BAC), less than the cut peers received, Atlantic Equities says the company remains its top big-bank pick. "Recent management comments from BAC highlight revenues are moving in the right direction and it still has by far the largest cost-cutting story with $9B of cost savings still ahead." he writes. BAC is down 0.3% premarket trading after jumping 3.4% Wednesday. (saabira.chaudhuri@wsj.com)

 

(END) Dow Jones Newswires

 

There is still $6 billion in LAS expenses reductions besides whatever is left of New BAC. 

 

Vinod

 

Agree. The $4 billion annual rate of litigation expenses got to come down at some point in the next couple of years.

 

Vinod

[wescobrk]

They posted webcast date for q4

Jan 15th at 830am

Just 3 and a fraction weeks from q4.

Not counting DTA, bac is almost trading at 12x earnings for 2014 estimates of 1.34 a share.

I bought a lot around 15.12.

I might sell a chunk again around 16 and hope for another pullback.

[ERICOPOLY]

They posted webcast date for q4

Jan 15th at 830am

Just 3 and a fraction weeks from q4.

Not counting DTA, bac is almost trading at 12x earnings for 2014 estimates of 1.34 a share.

I bought a lot around 15.12.

I might sell a chunk again around 16 and hope for another pullback.

 

The analysts do say 1.34 for 2014, but if you are going to trade on a short-term forecast of 1 year like that, it might make more sense to wait 6 months.  The forecasts for Q2 and Q3 14 earnings are substantially higher than for Q1 14.

 

But then again, everyone is expecting these numbers.  I think if the market is expecting 1.80 in 2016, it should just put 12x on it and call it $21.60.  Then back out the shortfall for the prior two years, and make it $21.

 

The additional legal costs will be buffered by the $13b remaining for DTA.

 

But it will do what it wants to do.

 

Then we have the seasonal dividend speculation.  I think 10 cent quarterly dividend is in order to bring their status up near that of JPM in terms of yield.  It would still be on the lighter side, but not too much.

[fareastwarriors]

http://www.businessweek.com/articles/2013-12-19/bank-of-america-accused-of-stymieing-homeowner-requests-for-mortgage-help#r=nav-fs

 

Bank of America: Where Borrowers Couldn't Get a Break

[ERICOPOLY]

10 yr hit 3% yield mark today.

 

It is absorbing some of the freshly generated capital.  The way things turned out, they've absorbed much of the capital that people were screaming should have gone into a higher capital return for 2013.  So I'm glad the way this worked out -- now there is one less risk in the stock (less to fear from future rate increases because a good part of the journey has already been travelled).

 

[xazp]

The 10-year rose approximately 1% in the first 9 months, and Basel 1 capital went from 10.38% to 11.08%. 

 

The 10-year has risen a further .2% in the last 3 months, so the rate of increases is slowing. 

 

I, for one, wish they had been more aggressive with repurchases.  But, I'm sure they had feedback from the Fed not to, and I prefer too conservative over too risky, so I'm content. 

 

 

10 yr hit 3% yield mark today.

 

It is absorbing some of the freshly generated capital.  The way things turned out, they've absorbed much of the capital that people were screaming should have gone into a higher capital return for 2013.  So I'm glad the way this worked out -- now there is one less risk in the stock (less to fear from future rate increases because a good part of the journey has already been travelled).

[zippy1]

Shares of Bank of America Corp. were up slightly in premarket trading Thursday as a Citigroup analyst raised his investment rating on the bank's stock, saying that the company could benefit if the U.S. economy continues to improve.

 

Analyst Keith Horowitz upgraded Bank of America's stock to a "Buy" rating from "Neutral." He also raised the stock's price target to $19 from $16.

http://finance.yahoo.com/news/ahead-bell-bank-america-upgraded-134300128.html

[wescobrk]

Anyone know why it's up 3 percent while other banks are flat or down today?

[blainehodder]

Citi upgraded BAC and increased price target to 19.

[redskin]

I'm curious what everyone is thinking for BAC's CCAR capital return request?  Basel 3 Tier 1 ratio increased from 8.97 in Q312 to 9.94 in Q313.  Current risk weighted assets of approximately 1,326mm and a .97 increase in Tier 1 capital would suggest BAC could return $12.86B (.0097*1326) in addition to last years $10B.  I'm sure this is too optimistic. 

 

I would like to see something like a $10B buyback and $5B dividend.  Ideally, I would prefer all buybacks and delay the dividend at current price levels.

[bmichaud]

I agree with Al - eff bank buybacks and just go straight dividend. Look at WFC's horrendously ineffective buyback program the past two years.

[ourkid8]

I believe the mix will be the following:

 

-$10B retiring preferred stock

-$5B in share repurchase

-$5B in dividends

 

If I was the CEO, as long as the stock is under book value I would focus all the capital return in retiring stock and retiring high yielding preferred stock.  Once it crosses over book, at that point I would stop the share repurchase program and focus on growing the dividend. 

 

Thanks,

S

 

I'm curious what everyone is thinking for BAC's CCAR capital return request?  Basel 3 Tier 1 ratio increased from 8.97 in Q312 to 9.94 in Q313.  Current risk weighted assets of approximately 1,326mm and a .97 increase in Tier 1 capital would suggest BAC could return $12.86B (.0097*1326) in addition to last years $10B.  I'm sure this is too optimistic. 

 

I would like to see something like a $10B buyback and $5B dividend.  Ideally, I would prefer all buybacks and delay the dividend at current price levels.

[Uccmal]

I agree with Al - eff bank buybacks and just go straight dividend. Look at WFC's horrendously ineffective buyback program the past two years.

 

I agree with Al too.....

 

Buybacks for these guys are the same as pissing away capital. 

 

These characters award themselves as much in stock options as they buyback in stock. 

 

A massive increase in the dividend is the most democratic option.  Besides, increasing the dividend will drive the stock up faster which is what many of us here using leaps and warrants want. 

 

Al.

[nkp007]

Nothing infuriates me more than seeing the share count go up and a complete lack of initiative to execute on an already approved buyback.

[ERICOPOLY]

You guys are wrong.  The dilution costs less than the taxes on the dividend (if it were 100% of capital distribution via dividend).

 

Plus, the money at least goes to our employees.  Instead of going to the government which has been working to take our money away (via lawsuits).

 

I suppose it varies by tax rate.  I'd rather pay the employees though (that's my vote).

[rkbabang]

You guys are wrong.  The dilution costs less than the taxes on the dividend (if it were 100% of capital distribution via dividend).

 

Plus, the money at least goes to our employees.  Instead of going to the government which has been working to take our money away (via lawsuits).

 

I suppose it varies by tax rate.  I'd rather pay the employees though (that's my vote).

 

I agree that I'd rather pay employees than the government, but the employees are taxed on those grants, so the government extracts its pound of flesh either way.

 

[ERICOPOLY]

You guys are wrong.  The dilution costs less than the taxes on the dividend (if it were 100% of capital distribution via dividend).

 

Plus, the money at least goes to our employees.  Instead of going to the government which has been working to take our money away (via lawsuits).

 

I suppose it varies by tax rate.  I'd rather pay the employees though (that's my vote).

 

I agree that I'd rather pay employees than the government, but the employees are taxed on those grants, so the government extracts its pound of flesh either way.

 

True, however the tax will be the same if you pay them with cash.  We can't get away without paying them.

[fareastwarriors]

U.S. Bank Stocks Regain Their Allure

 

http://online.wsj.com/news/articles/SB10001424052702304887104579302370132960770?mod=WSJ_hp_LEFTWhatsNewsCollection

[MYDemaray]

Bank of America's U.S. Assets Are a Boon Under New Rule

Bank Has the Most U.S. Government-guaranteed Securities Among Large Bank-holding Companies

http://online.wsj.com/news/articles/SB10001424052702304347904579308521139402510

[fareastwarriors]

guesses on Q4 earnings?

;)