BAC-WT - Bank of America Warrants

[fareastwarriors]

Calstrs to Vote Against BofA Directors in Proxy Campaign

 

Move Comes After Bank of America Miscalculated Its Capital Levels

 

http://online.wsj.com/news/articles/SB10001424052702303417104579543773862561280?mg=reno64-wsj

[txlaw]

Has anyone else been buying BAC at these levels.  The stock was last at this level  nearly 7 months ago, and prior to that bounced around 13.60 for a half year.  Arguably BAC is safer now at 15 than it was at 13.60 or 14.75 when there were still more unannounced big settlements such as the 9.0 b AIG suit.  More crappy mortgages have run off the books. 

 

The only major suit remaining seems to be the DOJ (dont quote me on this as we dont know for sure).

 

I've been buying.  Pretty nice opportunity at these levels. 

 

Now watch it drop another 15%.

[xazp]

You know ... I wonder whether the buffett preferred can be used in their resubmission for CCAR.  If so, they could restore the dividend to .05 ... but also have some room for buybacks? 

 

 

 

Has anyone else been buying BAC at these levels.  The stock was last at this level  nearly 7 months ago, and prior to that bounced around 13.60 for a half year.  Arguably BAC is safer now at 15 than it was at 13.60 or 14.75 when there were still more unannounced big settlements such as the 9.0 b AIG suit.  More crappy mortgages have run off the books. 

 

The only major suit remaining seems to be the DOJ (dont quote me on this as we dont know for sure).

 

I've been buying.  Pretty nice opportunity at these levels. 

 

Now watch it drop another 15%.

[Uccmal]

Did anyone here make the AGM today?

[Grenville]

Did anyone here make the AGM today?

 

I did not, but they have a webcast recording of it.

[OracleofCarolina]

Yep, i listened in to the webcast this morning. Some good questions but you will need to fast forward through numerous wack jobs babbling about nothing. In fact, two very old ladies got into a screaming match and it should be on the replay.

[xazp]

This cracked me up:

http://blogs.wsj.com/moneybeat/2014/05/07/brian-moynihans-not-so-secret-admirer/

 

"Amid the excitement, Rev. Jackson offered jokingly to officiate at any future Moynihan-McMahon wedding."

 

Apparently the lady was ready to kill the other old lady to defend Moynihan's honor. 

 

 

 

Yep, i listened in to the webcast this morning. Some good questions but you will need to fast forward through numerous wack jobs babbling about nothing. In fact, two very old ladies got into a screaming match and it should be on the replay.

[PJM]

I really want to thank everyone for their phenomenal contribution to the BAC thread.

 

I also wanted to ask for your suggestion on my BAC 2015 and 2016 calls at strike price of 17 and 20. Should i sell them and buy calls (or underlying) at lower strike price or stay with the existing calls? Unlike some of you folks I've no capital gains tax implication, so I'd not sell any options to realize capital losses.

 

Thanks in advance.

[Uccmal]

I really want to thank everyone for their phenomenal contribution to the BAC thread.

 

I also wanted to ask for your suggestion on my BAC 2015 and 2016 calls at strike price of 17 and 20. Should i sell them and buy calls (or underlying) at lower strike price or stay with the existing calls? Unlike some of you folks I've no capital gains tax implication, so I'd not sell any options to realize capital losses.

 

Thanks in advance.

 

I dont give advice especially with options.  But, In your situation I would be inclined to stay with them to the bitter end, or otherwise.  At this point there is no sense in resetting them.  I do it to improve the odds they will be worth something down the road, and I dont mind taking the loss in the interim which offsets gains from this year or prior years (in Canada).  I also doubled down at $15. 

 

My philosophy on options is that they are a trading instrument, not a buy and hold position.  So, I cycle them.  My thinking is completely around the time value of money.  At this point I am already thinking about the expiry of the Jan. 2016s.  i.e. Is it riskier to be buying BAC with a 2016 expiry or waiting until October for the next cycle? I am nearly sold out of all my AIG, WFC, JPM 2015s and all of my BAC 2015s. 

 

As an example. I bought 450'BAc $15 2016 contracts this week.  This increased my position by 80% or so.  As they turn profitable I will immediately start to sell down the position size by 10s.  If BAc reaches the prior high I will probably be 50% of my present position.  By then the 2017s will be coming close and I will stay out of anything earlier. 

 

Ericopoly may disagree but options requires experience and the only way to gain experience is to sometimes lose money.  With FFh options I rode them to 30% of their value and back up again - one must be able to sustain alot of pain. 

 

Did I say that options are a trading instrument?  I have exercised them, a handful of times. 

[ERICOPOLY]

Ericopoly may disagree but options requires experience and the only way to gain experience is to sometimes lose money.  With FFh options I rode them to 30% of their value and back up again - one must be able to sustain alot of pain. 

 

The only way I would disagree is just to point out that if you think of them as a non-recourse financing tool, then you "lose" money similar to how a guy with a loan "loses" money to interest payments.  You don't really need experience in borrowing money to anticipate the interest expenses associated with a loan.

 

This helps in other ways, such as asking yourself "just because it's easy to borrow huge amounts non-recourse, is it a good idea given the heavy financing costs". 

 

It's just that people normally expect to lose money to interest payments, except that with options they normally make comments that "it's too risky, you could lose 100% of your investment".  Of course, as with any loan you lose 100% of the interest payments but people don't go lecturing each other about it.

[PJM]

Thanks Uccmal and Eric.

 

I normally don't leverage my position. In case of BAC I hold the underlying and wanted to take some leverage, hence the options. Unfortunately BAC got hit by couple of bad news in a very short span of time, so volatility also killed the call prices. I'm still long BAC and will keep on adding the underlying, but didn't have a clear idea on what I should do with my calls. As you suggested, I'll probably stay with them. My sense is that 2016 calls would be fine, but I may have to take a hit on 2015. Well, it will go down my investing books as a lesson learnt !!

[sswan11]

Analyst Mayo cuts Bank of America earnings estimates

 

http://www.marketwatch.com/story/analyst-mayo-cuts-bank-of-america-earnings-estimates-2014-05-08

 

NEW YORK (MarketWatch) -- Bank of America Corp. BAC +1.42%  had its 2014 estimates cut on Thursday by CLSA analyst Mike Mayo the day after the bank's annual shareholder meeting. Mayo is lowering 2014 earnings estimates to 55 cents a share from $1 a share, based on the bank only having $2.4 billion on reserve for an estimated $8 billion mortgage-backed securities settlement with the Department of Justice

[blainehodder]

Mayo is lowering 2014 earnings estimates to 55 cents a share from $1 a share, based on the bank only having $2.4 billion on reserve for an estimated $8 billion mortgage-backed securities settlement with the Department of Justice

 

Pretty speculative statement.

[xazp]

Mayo has a long history of wildly exaggerating BAC's litigation liability (he admits it once in a while, but then starts up with it shortly again). 

 

 

Mayo is lowering 2014 earnings estimates to 55 cents a share from $1 a share, based on the bank only having $2.4 billion on reserve for an estimated $8 billion mortgage-backed securities settlement with the Department of Justice

 

Pretty speculative statement.

[Uccmal]

Has anyone else been buying BAC at these levels.  The stock was last at this level  nearly 7 months ago, and prior to that bounced around 13.60 for a half year.  Arguably BAC is safer now at 15 than it was at 13.60 or 14.75 when there were still more unannounced big settlements such as the 9.0 b AIG suit.  More crappy mortgages have run off the books. 

 

The only major suit remaining seems to be the DOJ (dont quote me on this as we dont know for sure).

 

I've been buying.  Pretty nice opportunity at these levels. 

 

Now watch it drop another 15%.

 

Anyone else.  We are less than 10% above TBV and 25% below book.  I have increased my position by nearly 40%. 

[ourkid8]

Leaps or common?

 

Has anyone else been buying BAC at these levels.  The stock was last at this level  nearly 7 months ago, and prior to that bounced around 13.60 for a half year.  Arguably BAC is safer now at 15 than it was at 13.60 or 14.75 when there were still more unannounced big settlements such as the 9.0 b AIG suit.  More crappy mortgages have run off the books. 

 

The only major suit remaining seems to be the DOJ (dont quote me on this as we dont know for sure).

 

I've been buying.  Pretty nice opportunity at these levels. 

 

Now watch it drop another 15%.

 

Anyone else.  We are less than 10% above TBV and 25% below book.  I have increased my position by nearly 40%.

[Guest Dazel]

 

 

I have also bought common again....just wanted to be on Ericopoly's side again! Hoping he will show me around his new digs in California once we hit $20!

 

Dazel.

 

[Uccmal]

Leaps or common?

 

Has anyone else been buying BAC at these levels.  The stock was last at this level  nearly 7 months ago, and prior to that bounced around 13.60 for a half year.  Arguably BAC is safer now at 15 than it was at 13.60 or 14.75 when there were still more unannounced big settlements such as the 9.0 b AIG suit.  More crappy mortgages have run off the books. 

 

The only major suit remaining seems to be the DOJ (dont quote me on this as we dont know for sure).

 

I've been buying.  Pretty nice opportunity at these levels. 

 

Now watch it drop another 15%.

 

Anyone else.  We are less than 10% above TBV and 25% below book.  I have increased my position by nearly 40%.

 

Only Leaps 2016's - $15. strike.  I honestly didn't think we would be here again - in a major buy zone. 

 

I am finding it hard to resist.  I have hedged 50% with $12.00 strike 2015 puts, in case of a catastrophic drop. 

[ourkid8]

I could not agree more as I have continued to add to my leaps as well.  When BAC resubmits their request to the Fed, I hope the Fed takes into account the conversion of Berkshire's preferreds + the additional capital BAC has been generating.  Let's all hope the $0.05 dividend is reinstated + the $4B share repurchase. 

 

Tks,

S

 

Leaps or common?

 

Has anyone else been buying BAC at these levels.  The stock was last at this level  nearly 7 months ago, and prior to that bounced around 13.60 for a half year.  Arguably BAC is safer now at 15 than it was at 13.60 or 14.75 when there were still more unannounced big settlements such as the 9.0 b AIG suit.  More crappy mortgages have run off the books. 

 

The only major suit remaining seems to be the DOJ (dont quote me on this as we dont know for sure).

 

I've been buying.  Pretty nice opportunity at these levels. 

 

Now watch it drop another 15%.

 

Anyone else.  We are less than 10% above TBV and 25% below book.  I have increased my position by nearly 40%.

 

Only Leaps 2016's - $15. strike.  I honestly didn't think we would be here again - in a major buy zone. 

 

I am finding it hard to resist.  I have hedged 50% with $12.00 strike 2015 puts, in case of a catastrophic drop.

[fareastwarriors]

Mike Mayo's  16 Red Flags BAC....

Mayo_-_16_red_flags_-_BAC.pdf

[xazp]

There have been a few recent reports about the Fed raising ST rates in a little over a year. 

e.g. via reverse repo (http://online.wsj.com/news/articles/SB10001424052702303851804579555232107278394?mod=WSJ_hp_LEFTWhatsNewsCollection&mg=reno64-wsj)

and http://online.wsj.com/news/articles/SB10001424052702304275304579393141610162738

 

Here's a thought question: 

to what extent are BAC's ROA's or ROE's being hindered by A) low interest rates; vs. B) higher capital requirements; vs. C) high expenses; vs. D) litigation/settlements/financial crisis overhang. 

 

Right now BAC is talking about getting to an ROA of ~1% in 3 years.  My question is, after they're done normalizing expenses, and we're in a more normal interest rate environment - can they do better than 1%?  Or do higher capital requirements basically mean after they hit an ROA of 1%, they'll be stuck earning more or less the same amount from there onward. 

 

An ROA of 1% probably gets BAC to a low $20's share price in three years (an acceptable but not thrilling return), but an ROA of 1.25% could put BAC into the high $20's.  Is 1.25% ROA for BAC a thing of the past or is there a path there? 

 

A few years ago during their investor day (BAC needs to do another one of these btw), they estimated "normalized" pre-tax earnings of $35-$40Bn, at a 31% tax rate, that's about $25.9Bn in after-tax earnings, which is a 1.17% ROA. 

 

This article claims BAC's historical ROA was 1.39% (http://www.fool.com/investing/general/2014/05/10/how-bank-of-america-gets-to-30.aspx).  I guess how much do the new capital rules bring BAC down from there? 

 

[Uccmal]

Wells Fargo runs with an ROA of 1.5%.  The underlying business is substantially the same, except that BAC has Merrill Lynch in addition to a solid US loans and deposit base.  Both have similar regulatory constraints. 

 

So what is stopping BAc from reaching Wells ROAs:

1) Litigation costs - legal and fines

2) Runoff of bad loans

3) Tight fisted with new loans?

4) cost of debt - coming down fast

5) Employee/lease/contract termination costs. 

 

Berkowitz ran through these exercises with WFc in the early 90s. 

 

Here is what I think will unfold for BAC.  Once the litigation costs hit a low run rate, the old loans are mostly run off, NIMs normalize, and the costs of rationalizing the bank operations hit a low run rate the business will become much more profitable on a long term basis. 

 

I read that article from MF and dont believe the pre-crisis numbers are in any way representative of what we see going forward.  They are inflated due to bad loan writing.  At the same time they are low balled due to huge overhead costs that BAC had due to a bloated organization.  Who knows what the actual numbers should have been, so a comparison is not worthwhile. 

[xazp]

I think BAC is structurally disadvantaged against WFC - I don't think the four items you listed are the only reasons.  There's something in the Wells DNA that gets it better rates.  They're masters of cross-selling for example (BAC is making improvements here, but I don't think they'll catch up). 

 

But there's still a large gap between the 1% BAC is proposing and WFC's current ROAs of around 1.5%.  If they can split the difference to 1.25%, that would be a considerable bonus to the valuation.  Has anyone asked them?  Again I think BAC needs a new investor conference to talk about their long-term goals.  The past few years have been about cleaning up their mess, but I don't have any clear idea of what they think they can do in the longer run after that mess is cleaned up. 

 

 

Wells Fargo runs with an ROA of 1.5%.  The underlying business is substantially the same, except that BAC has Merrill Lynch in addition to a solid US loans and deposit base.  Both have similar regulatory constraints. 

 

So what is stopping BAc from reaching Wells ROAs:

1) Litigation costs - legal and fines

2) Runoff of bad loans

3) Tight fisted with new loans?

4) cost of debt - coming down fast

 

Berkowitz ran through these exercises with WFc in the early 90s. 

 

Here is what I think will unfold for BAC.  Once the litigation costs hit a low run rate, the old loans are mostly run off, NIMs normalize, and the costs of rationalizing the bank operations hit a low run rate the business will become much more profitable on a long term basis. 

 

I read that article from MF and dont believe the pre-crisis numbers are in any way representative of what we see going forward.  They are inflated due to bad loan writing.  At the same time they are low balled due to huge overhead costs that BAC has been reigning in.

[SharperDingaan]

BAC & WFC are setting up to start adopting IFRS vs USGAAP.  www.ifrs.com/pdf/IFRSUpdate_V8.pdf

P13:    2015: Earliest year the SEC would allow public companies to convert their financials to IFRS

 

BAC legacy issues, relative to WFC, are going to continue burning it for the next few years ...

 

SD

[Guest Dazel]

 

 

Exactly....you pay for perfection...Bank of America is not fixed and it trades at discount to book value. WFC trades at a large premium.....where is your margin safety? in perfection or a broken wing? Mr. Buffett bought both...

 

Dazel.