BAC-WT - Bank of America Warrants

[Kraven]

Yes, of course.  My point is that you are trying to quantify something that can't be quantified.  Whether the number is $5 bil, $25 bil or $50 bil, it would seem as if there is a MOS here.  But I don't think you can say well I'll go with $25 bil and state it as a matter of certainty.  It isn't knowable.  I also don't think it provides comfort to view that number as providing you a measure of safety.  I don't think you are being simple minded at all.  I think you are trying too hard in fact and making it more complicated than it is.  Think back to the Graham example of not needing to know exactly what a man weighs to know he is fat (or the very un PC example of not needing to know a woman's age to know that she is able to vote).  It seems clear that we know the man is heavier than he should be here.  We don't need to guess the weight.

 

I hear what you're saying - though I think we may disagree on how much this BAC individual weighs. WFC at $22 with hardly any R&W exposure is/was an obese investment - BAC with significantly more R&W exposure and not nearly the juicy returns WFC has is not nearly as fat at almost any price given the risk of impairment.

 

We could debate ad nauseum. But your point is well taken, and I hear what your saying.

 

Fair enough.  The interesting thing though is I thought the exact opposite.  BAC is obese, as Plan says.  WFC is and was a nice, trim athletic fellow.  Remember who won the race between the tortoise and the hare.  But I digress.

[PlanMaestro]

Analysts going into last earnings:

 

Buys: 11

Holds: 23

Sells: 5

 

With many of those holds from sell-side analysts that do not want to put a sell recommendation. Average target price: $9.63. Cheery consensus.

 

http://www.youtube.com/watch?v=5tlWAxSsTe0

[hardincap]

Yes, of course.  My point is that you are trying to quantify something that can't be quantified.  Whether the number is $5 bil, $25 bil or $50 bil, it would seem as if there is a MOS here.  But I don't think you can say well I'll go with $25 bil and state it as a matter of certainty.  It isn't knowable.  I also don't think it provides comfort to view that number as providing you a measure of safety.  I don't think you are being simple minded at all.  I think you are trying too hard in fact and making it more complicated than it is.  Think back to the Graham example of not needing to know exactly what a man weighs to know he is fat (or the very un PC example of not needing to know a woman's age to know that she is able to vote).  It seems clear that we know the man is heavier than he should be here.  We don't need to guess the weight.

 

I hear what you're saying - though I think we may disagree on how much this BAC individual weighs. WFC at $22 with hardly any R&W exposure is/was an obese investment - BAC with significantly more R&W exposure and not nearly the juicy returns WFC has is not nearly as fat at almost any price given the risk of impairment.

 

We could debate ad nauseum. But your point is well taken, and I hear what your saying.

 

Fair enough.  The interesting thing though is I thought the exact opposite.  BAC is obese, as Plan says.  WFC is and was a nice, trim athletic fellow.  Remember who won the race between the tortoise and the hare.  But I digress.

 

Im confused. Obese = good value or poor value?

[PlanMaestro]

Im confused. Obese = good value or poor value?

 

I meant good but who knows by now.

[bmichaud]

Never heard of him, but his process for analyzing remaining R&W exposure is nearly identical to mine, though I come up with about $25B of potential exposure (I think he said his was $15B). If BAC can continue to generate the "core PTPP" it did this last quarter and phase out non-core LAS expenses, it should pretty easily be able to handle $25B.

 

When you say exposure, do you mean R&W expenses beyond what have already been reserved for?

 

Correct. "Possible" exposure if you will - BAC estimates possible exposure is around $5B, whereas I think it's more like $25B.

 

BAC estimates "non-GSE" exposure at possible $5b above accruals.

 

What about the GSE exposure?  It's not included in that figure and the bank has not estimated it for us.  GSE claims grew by nearly $2b in Q1 2012.

 

My $25B estimate includes non GSE principle less than 25 payments. Don't have the number handy but I think the principle is something like $64 billion.

[bmichaud]

Yes, of course.  My point is that you are trying to quantify something that can't be quantified.  Whether the number is $5 bil, $25 bil or $50 bil, it would seem as if there is a MOS here.  But I don't think you can say well I'll go with $25 bil and state it as a matter of certainty.  It isn't knowable.  I also don't think it provides comfort to view that number as providing you a measure of safety.  I don't think you are being simple minded at all.  I think you are trying too hard in fact and making it more complicated than it is.  Think back to the Graham example of not needing to know exactly what a man weighs to know he is fat (or the very un PC example of not needing to know a woman's age to know that she is able to vote).  It seems clear that we know the man is heavier than he should be here.  We don't need to guess the weight.

 

I hear what you're saying - though I think we may disagree on how much this BAC individual weighs. WFC at $22 with hardly any R&W exposure is/was an obese investment - BAC with significantly more R&W exposure and not nearly the juicy returns WFC has is not nearly as fat at almost any price given the risk of impairment.

 

We could debate ad nauseum. But your point is well taken, and I hear what your saying.

 

Fair enough.  The interesting thing though is I thought the exact opposite.  BAC is obese, as Plan says.  WFC is and was a nice, trim athletic fellow.  Remember who won the race between the tortoise and the hare.  But I digress.

 

Perhaps I should rephrase - WFC is obese while BAC is obese with diabetes and at risk of heart attack. WFC is CURRENTLY earning 12.5% on total book value while paying out 50% of earnings. BAC can only dream about that type of ROE right now. I still think BAC is more attractive at this price, but it is not as fat as it appears, IMO.

 

 

[alertmeipp]

Analysts going into last earnings:

 

Buys: 11

Holds: 23

Sells: 5

 

With many of those holds from sell-side analysts that do not want to put a sell recommendation. Average target price: $9.63. Cheery consensus.

 

http://www.youtube.com/watch?v=5tlWAxSsTe0

 

Mayo downgrades BAC to SELL after earning beat, why he didn't issue SELL when BAC was $10? Maybe he was actually da ultimate bull on BAC couple days ago.

 

Many of these analysts are ..

[thomcapital]

Hey, this Brian Charles sounds like a smart guy. He does not even sound like an analyst.

 

http://search1.bloomberg.com/search/?content_type=video&page=1&template=tv&q=brian%20charles

 

His PTPP seems a little high. For that a lot of things would have to go right, but not that much.

 

Maybe I missed it - did Charles state his PTPP estimate? All I heard was normalized earnings of $16-17b...

[rranjan]

Hey, this Brian Charles sounds like a smart guy. He does not even sound like an analyst.

 

http://search1.bloomberg.com/search/?content_type=video&page=1&template=tv&q=brian%20charles

 

His PTPP seems a little high. For that a lot of things would have to go right, but not that much.

 

Maybe I missed it - did Charles state his PTPP estimate? All I heard was normalized earnings of $16-17b...

 

I think somewhere he said 32B/year. He does not sound like analyst at all.

[PlanMaestro]

Maybe I missed it - did Charles state his PTPP estimate? All I heard was normalized earnings of $16-17b...

 

In one of those videos he says $45-50B PTPP, and after he deducts taxes (that actually they won't pay for a while) and steady state provisions he gets to mid 20s earnings power.

 

This is it: http://www.bloomberg.com/video/68727754

[hardincap]

Maybe I missed it - did Charles state his PTPP estimate? All I heard was normalized earnings of $16-17b...

 

In one of those videos he says $45-50B PTPP, and after he deducts taxes (that actually they won't pay for a while) and steady state provisions he gets to mid 20s earnings power.

 

This is it: http://www.bloomberg.com/video/68727754

 

this was early last year, before revenues collapsed across the board in all of bac's businesses

[ERICOPOLY]

 

Mayo downgrades BAC to SELL after earning beat, why he didn't issue SELL when BAC was $10? Maybe he was actually da ultimate bull on BAC couple days ago.

 

Many of these analysts are ..

 

Judging by the tone and content of Mayo's comments and the tone of the replies Mayo gets from executives at banks like BAC and Citigroup, I decided to Google the phrase "Mike Mayo obnoxious".

 

I came up with this commentary on him:

 

http://www.bankstocks.com/ArticleViewer.aspx?ArticleID=6379&ArticleTypeID=2

 

 

Mayo set a new mark for sell-side absurdity last month when he put out a note lambasting Bank of America for not having the guts to take a question from him on its third-quarter conference call—then had to issue a retraction soon after when it turned out he’d mistakenly dialed in on the listen-only telephone number.

 

...

 

When I was on the sell-side and heard some of the questions Mayo used to ask at conferences and on earnings calls, I got the impression that his work was perhaps slightly above average, but not much better than that, and that his grasp of the banking business could be shaky. When I moved to the buy-side and began reading his work more often, that suspicion was confirmed. (Since he moved to CLSA, I haven’t read a single report of his.)

 

 

[alertmeipp]

 

Mayo downgrades BAC to SELL after earning beat, why he didn't issue SELL when BAC was $10? Maybe he was actually da ultimate bull on BAC couple days ago.

 

Many of these analysts are ..

 

Judging by the tone and content of Mayo's comments and the tone of the replies Mayo gets from executives at banks like BAC and Citigroup, I decided to Google the phrase "Mike Mayo obnoxious".

 

I came up with this commentary on him:

 

http://www.bankstocks.com/ArticleViewer.aspx?ArticleID=6379&ArticleTypeID=2

 

 

Mayo set a new mark for sell-side absurdity last month when he put out a note lambasting Bank of America for not having the guts to take a question from him on its third-quarter conference call—then had to issue a retraction soon after when it turned out he’d mistakenly dialed in on the listen-only telephone number.

 

...

 

When I was on the sell-side and heard some of the questions Mayo used to ask at conferences and on earnings calls, I got the impression that his work was perhaps slightly above average, but not much better than that, and that his grasp of the banking business could be shaky. When I moved to the buy-side and began reading his work more often, that suspicion was confirmed. (Since he moved to CLSA, I haven’t read a single report of his.)

 

How many times can these analysts make some stupid calls and still have their jobs?

[twacowfca]

 

Mayo downgrades BAC to SELL after earning beat, why he didn't issue SELL when BAC was $10? Maybe he was actually da ultimate bull on BAC couple days ago.

 

Many of these analysts are ..

 

Judging by the tone and content of Mayo's comments and the tone of the replies Mayo gets from executives at banks like BAC and Citigroup, I decided to Google the phrase "Mike Mayo obnoxious".

 

I came up with this commentary on him:

 

http://www.bankstocks.com/ArticleViewer.aspx?ArticleID=6379&ArticleTypeID=2

 

 

Mayo set a new mark for sell-side absurdity last month when he put out a note lambasting Bank of America for not having the guts to take a question from him on its third-quarter conference call—then had to issue a retraction soon after when it turned out he’d mistakenly dialed in on the listen-only telephone number.

 

...

 

When I was on the sell-side and heard some of the questions Mayo used to ask at conferences and on earnings calls, I got the impression that his work was perhaps slightly above average, but not much better than that, and that his grasp of the banking business could be shaky. When I moved to the buy-side and began reading his work more often, that suspicion was confirmed. (Since he moved to CLSA, I haven’t read a single report of his.)

 

How many times can these analysts make some stupid calls and still have their jobs?

 

On the other hand, Brown was touting all sorts of financial companies, especially First Marblehead, and mystery meat banks as they were going down the tubes during the financial crisis.

 

He's right that Mayo has a rather different sort of personality.

[thomcapital]

Maybe I missed it - did Charles state his PTPP estimate? All I heard was normalized earnings of $16-17b...

 

In one of those videos he says $45-50B PTPP, and after he deducts taxes (that actually they won't pay for a while) and steady state provisions he gets to mid 20s earnings power.

 

This is it: http://www.bloomberg.com/video/68727754

 

His estimates don't seem that out of line compared to Moynihan's $35-40b in normalized pre-tax income? It's interesting to see where we are now, vs. what people thought a year ago, and what people think now about "normal" vs. what Moynihan said last March:

 

http://blogs.wsj.com/deals/2011/03/09/bank-of-america-investor-day-five-takeaways/

 

[ERICOPOLY]

But Tom Brown is right in that Mayo asks questions which should lead us to wonder how well Mayo understands the business of the companies that he is covering.  For example, when BAC reports a revenue decline in excess of $10b and doesn't realize that what caused it was how R&W is accounted for. 

 

From Q4's conference call:

 

Mike Mayo - CLSA: Just one separate and last question. New project BAC, are you cutting enough? I guess, if you look at results for last year, revenues reported were down $17 billion, expenses were down $3 billion, that’s a big gap between the decline in revenues and decline in expenses and you can back out LAS and some other items, it's still seems to be a pretty big negative gap. So are you cutting as much as you need to? Do you have the structural project, but perhaps more cutting through this cycle, is that needed?

 

 

Brian T. Moynihan - CEO:

... snip ...

I would say you need to be -- just to remind you, and you know this Mike is that, there is negative revenue, rep and warranty cost is actually a negative revenues, so that has a fairly big impact.

... snip ...

[benchmark]

http://www.nytimes.com/2012/04/21/business/bank-of-america-settlement-in-lawsuit-is-challenged.html?_r=1&hpw

 

laywers can't get enough fees

[PlanMaestro]

this was early last year, before revenues collapsed across the board in all of bac's businesses

 

Check Ericopoly's comment just above.

 

They have also increased undisclosed legal reserves like the recent $11.8B robosigning/foreclosure settlement that was already reserved but not disclosed. Capital ratios do not include these but they impact results.

 

http://www.revenuerecognition.com/content/experts/9011.asp

http://www.investopedia.com/terms/u/undisclosedreserves.asp#axzz1shFAvoFn

[PlanMaestro]

http://www.nytimes.com/2012/04/21/business/bank-of-america-settlement-in-lawsuit-is-challenged.html?_r=1&hpw

 

laywers can't get enough fees

 

So where are we? Comments? Misses?

 

GSEs: Settled. But Fannie asking to putback mortgage with failing insurance.

Private Label: Article 77 to go.

Monolines: AGO settled, MBIA and AMBAC to go

Foreclosure/Robosigning: Most AGs Settled, a couple of AGs to go.

Merrill Acquisition: settled

AIG: in process, but far cry.

FHFA: just starting

 

 

 

 

[CONeal]

http://www.nytimes.com/2012/04/21/business/bank-of-america-settlement-in-lawsuit-is-challenged.html?_r=1&hpw

 

laywers can't get enough fees

 

So where are we? Comments? Misses?

 

GSEs: Settled. But Fannie asking to putback mortgage with failing insurance.

Private Label: Article 77 to go.

Monolines: AGO settled, MBIA and AMBAC to go

Foreclosure/Robosigning: Most AGs Settled, a couple of AGs to go.

Merrill Acquisition: settled

AIG: in process, but far cry.

FHFA: just starting

 

Wish the lawyers were a publicly trade company.  They are the real winners of this whole mess.

[ERICOPOLY]

His estimates don't seem that out of line compared to Moynihan's $35-40b in normalized pre-tax income? It's interesting to see where we are now, vs. what people thought a year ago, and what people think now about "normal" vs. what Moynihan said last March:

 

http://blogs.wsj.com/deals/2011/03/09/bank-of-america-investor-day-five-takeaways/

 

And the passing of 12 months hasn't led Moynihan to change his estimate at all.  He said $35b-$40b pre-tax income in March 2011, and he reiterated those same numbers in March 2012 -- he is sticking by his $35b-$40b pre-tax income numbers.

 

So Moynihan didn't change his story over the past 12 months.  He has had a lot of time to think about it, learn the company better... yet no change in his conclusion.

 

So $35b-$40b is the number I'm going with too.  I'll take his estimate over the rest of the analysts out there.

 

He made the comment at the Citigroup Financial Conference on 3/8/12:

http://www.cornerofberkshireandfairfax.ca/forum/general-discussion/bac-longs-already-know-this/msg71351/#msg71351

 

I don't know where to find the video anymore.

[mankap]

As I understand that BAC has reserves of $16B for R&W.This is as per 2011 10k.Even if we assume the worst case scenario of R&W cost of $25B, this means additional $9B cost which BAC can absorb.

Am I getting it right here or missing something?

[Grenville]

I don't remember this being posted: The 2011 Annual Report is out with Brian Moynihan's letter to shareholder.

 

http://media.corporate-ir.net/Media_Files/IROL/71/71595/AR2011.pdf

 

He continues to stay focused, and has shown results in the areas of focus. I like their work in strengthening the balance sheet and reducing risk weighted assets especially so much in the last quarter.

 

Quote from the report:

Resolving these and other claims will take time, but we are moving through these issues aggressively and resolving them in the best interest of our shareholders — settling when appropriate, and contesting them when we believe that is the right course. There is considerable disclosure on our mortgage exposure in the Financial Review section of this report, and I encourage all shareholders to review this section.

[bmichaud]

As I understand that BAC has reserves of $16B for R&W.This is as per 2011 10k.Even if we assume the worst case scenario of R&W cost of $25B, this means additional $9B cost which BAC can absorb.

Am I getting it right here or missing something?

 

The $25B is over and above the reserves. Just like the $5B "possible" BAC cites is over and above reserve estimates.

[mankap]

Thanks Bmi for clarification.

In 2 years time BAC tangible book value can still be close to $13, assuming the additional hit because of R&W (around $20B) will be compensated by increase in book value due to earning and other factors.