BAC-WT - Bank of America Warrants

[jouni1]

waiting for someone to point out that some people on the board have done better  ::)

[ERICOPOLY]

Out of curiosity, how much of such "stranded capital" is there at BAC that is caused by the legal tab of the past few years?  Meaning, over the coming years, how much will be released with the legal storm dying down?

 

http://www.bloomberg.com/news/2014-09-03/jp-morgan-risk-citigroup-cantor-s-next-job-compliance.html?cmpid=yhoo

 

Regulators can point to $23 billion of legal settlements last year and a cyber-attack discovered last month as they push JPMorgan to boost its buffer against unforeseen losses.

 

Wall Street firms including Citigroup Inc. © and Bank of America Corp. that together racked up more than $100 billion in post-financial crisis legal costs are facing similar pressures. At JPMorgan, the largest U.S. bank, that means more than $35 billion that can’t be used for dividends or buybacks, prompting Dimon to call it “stranded capital.”

[CorpRaider]

Maybe he's a member of his country club and he meant the smartest money manager he personally knows and has golfed with.

 

:D I wish this was the answer. It was a Greenblatt quote. So, no, I wasn't serious, but I think Greenblatt is. I don't have a strong view on Pzena.

 

I was going to say, "though I think Greenblatt likes him."  He's on the board of Pzena investments or was at one time.

[stahleyp]

For those wondering about Pzena's investment performance:

 

http://quotes.morningstar.com/fund/jcvix/f?t=JCVIX

 

Even if you take it back to the fund's inception, the outperformance isn't all that great. His watershed performance moment was the dot com bust.

 

I even listed the institutional shares...if you look at his original fund (PZFVX), it's even worse.

 

 

[topofeaturellc]

Maybe he's a member of his country club and he meant the smartest money manager he personally knows and has golfed with.

 

:D I wish this was the answer. It was a Greenblatt quote. So, no, I wasn't serious, but I think Greenblatt is. I don't have a strong view on Pzena.

 

I was going to say, "though I think Greenblatt likes him."  He's on the board of Pzena investments or was at one time.

 

He's Greenblatt's college roommate or something like that.  Greenblatt was also the biggest outside investor in the management company at the time of the IPO

 

Nearly all of the Bernstein + Alum's had terrible GFC's.  Partially because in the early days of the crisis they thought it was going to be similar to the early 90's crisis - where they crushed it - so then went running into things way too early. It was also partially because their process tends to be P/B centric.

 

I guess if you don't believe the GFC wasn't some extraordinary thing, you'll need to see how they perform in the next value cycle.  My guess is that if the crisis is somewhere other than financials they'll look pretty good.

 

But remember Pzena's performance looked terrible in 2000 - much worse than it does today - and by 2007 he had something like 650bps of annualized outperformance since inception.  Its a volatile strategy.

 

 

 

[meiroy]

I've reviewed various analysis by Pzena, each included many intelligent arguments and plenty of detailed numbers but each analysis was in fact based on some qualitative or quantitative basic assumptions. The numbers seem to add a certainty illusion. Than again I'm biased towards Concept Value Investing rather than Deep Value Investing. (i.e. Greenblatt who is much more about concepts and who wrote his master thesis together with Pzena...)

 

 

[topofeaturellc]

I've reviewed various analysis by Pzena, each included many intelligent arguments and plenty of detailed numbers but each analysis was in fact based on some qualitative or quantitative basic assumptions. The numbers seem to add a certainty illusion. Than again I'm biased towards Concept Value Investing rather than Deep Value Investing.

 

This is like a weird statement - because deep value investment is all about acknowledging uncertainty and inability to predict the future and a belief in mean reversion,  while "Concept Value Investing" is not.

[meiroy]

I've reviewed various analysis by Pzena, each included many intelligent arguments and plenty of detailed numbers but each analysis was in fact based on some qualitative or quantitative basic assumptions. The numbers seem to add a certainty illusion. Than again I'm biased towards Concept Value Investing rather than Deep Value Investing.

 

This is like a weird statement - because deep value investment is all about acknowledging uncertainty and inability to predict the future and a belief in mean reversion,  while "Concept Value Investing" is not.

 

what.

 

[topofeaturellc]

you heard me.

 

 

[CorpRaider]

haha!  Thanks for that background info.

[topofeaturellc]

you heard me.

 

this is intemperate of me.

 

I would caution against judging too much from an analysis in the public domain.  Regardless of its intent - marketing, or persuading others, its generally best pitched at as high a level of certainty as possible - even if the person making the investment has a process predicated on a belief in uncertainty and unpredictability.

 

 

[ERICOPOLY]

The market trades in mysterious ways.  Usually these large banks trade as a group -- all a good day, or all a bad day.  Today, they pretty much all do nothing except BAC is up 2% on a day when the 10yr is continuing the wrong-way trend.

 

Guessing... somebody with a large appetite decided that we're only 3 weeks away from ending this quarter so it's finally time to have a clean Q4... and that timeframe was their threshold of impatience?

 

 

 

[gary17]

Goldman upgraded price target of BAC to $19 -

[xazp]

Because GS upgraded BAC (only). 

 

The market trades in mysterious ways.  Usually these large banks trade as a group -- all a good day, or all a bad day.  Today, they pretty much all do nothing except BAC is up 2% on a day when the 10yr is continuing the wrong-way trend.

 

Guessing... somebody with a large appetite decided that we're only 3 weeks away from ending this quarter so it's finally time to have a clean Q4... and that timeframe was their threshold of impatience?

[obtuse_investor]

Goldman upgraded price target of BAC to $19 -

 

Anyone willing to share their rationale?

 

i am wondering where the mindset is at.

[xazp]

Boils down to transformation is real, post-litigation.

 

    Money center bank multiples have been depressed by litigation/regulation overhangs. While these issues are not fully resolved, the market has been efficient in closing the multiple gap for banks that have (1) shifted their earnings mix towards higher growth businesses (Morgan Stanley (MS)), (2) reduced earnings volatility (Wells Fargo (WFC)), and (3) increased capital returns (Wells Fargo). While litigation has been clouding large-cap results, underlying EPS volatility is way down and a sum-of-the-parts analysis implies that business remixing could be worth near a full P/E point for the group.

 

    [bank of America] best positioned…The transformation Bank of America has made to its business has been overshadowed by its legal issues. With a lot of these issues now resolved, we believe investors will begin to focus on the meaningful improvement in business mix (share of earnings from higher multiple businesses +7pp) and the resulting decrease in EPS volatility. Coupled with a credible path to $2+ of EPS, we upgrade [bank of America's] shares to Buy and raise our 12-month price target to $19.

 

Goldman upgraded price target of BAC to $19 -

 

Anyone willing to share their rationale?

 

i am wondering where the mindset is at.

[ERICOPOLY]

Well, $19 stock price 12 months from now is only 10.6x then-forward 2016 consensus earnings. 

[xazp]

Fed moving the goalposts again?

 

http://online.wsj.com/articles/feds-tarullo-says-fed-board-will-unveil-systemically-important-financial-institution-surcharge-rule-soon-1410211114?mod=WSJ_hp_LEFTWhatsNewsCollection

 

Fed to Hit Biggest U.S. Banks With Tougher Capital Surcharge

Extra Padding in Case of a Financial Crisis Would Surpass That Required by International Regulators

 

Seems like it might hit GS and MS the most.  The deposit-banks perhaps the least. 

 

Trying to understand if this is good or bad for BAC, for example.  Would be beneficial if their capital surcharge doesn't move or doesn't move much.  Could even be a competitive advantage against the banks that don't have deposit funding. 

[Fat Pitch]

Fed moving the goalposts again?

 

http://online.wsj.com/articles/feds-tarullo-says-fed-board-will-unveil-systemically-important-financial-institution-surcharge-rule-soon-1410211114?mod=WSJ_hp_LEFTWhatsNewsCollection

 

Fed to Hit Biggest U.S. Banks With Tougher Capital Surcharge

Extra Padding in Case of a Financial Crisis Would Surpass That Required by International Regulators

 

Seems like it might hit GS and MS the most.  The deposit-banks perhaps the least. 

 

Trying to understand if this is good or bad for BAC, for example.  Would be beneficial if their capital surcharge doesn't move or doesn't move much.  Could even be a competitive advantage against the banks that don't have deposit funding.

 

I really hope they increase the capital ratios even more. Make these large money center institutions behave like utilities. Returns might take a hit temporary, but the banks will just pass on the cost to society. The market will probably assign higher multiple ratios since earnings will be less volatile so it's a win for shareholders. Best of all it'll increase the barrier to entry into this business.

[gary17]

Hi Pitch, you don't think this gives medium and large, but not as large as BAC banks an advantage in the short term? 

 

Fed moving the goalposts again?

 

http://online.wsj.com/articles/feds-tarullo-says-fed-board-will-unveil-systemically-important-financial-institution-surcharge-rule-soon-1410211114?mod=WSJ_hp_LEFTWhatsNewsCollection

 

Fed to Hit Biggest U.S. Banks With Tougher Capital Surcharge

Extra Padding in Case of a Financial Crisis Would Surpass That Required by International Regulators

 

Seems like it might hit GS and MS the most.  The deposit-banks perhaps the least. 

 

Trying to understand if this is good or bad for BAC, for example.  Would be beneficial if their capital surcharge doesn't move or doesn't move much.  Could even be a competitive advantage against the banks that don't have deposit funding.

 

I really hope they increase the capital ratios even more. Make these large money center institutions behave like utilities. Returns might take a hit temporary, but the banks will just pass on the cost to society. The market will probably assign higher multiple ratios since earnings will be less volatile so it's a win for shareholders. Best of all it'll increase the barrier to entry into this business.

[Fat Pitch]

Hi Pitch, you don't think this gives medium and large, but not as large as BAC banks an advantage in the short term? 

 

Look at the top 50 banks by deposit share from 1994 https://www2.fdic.gov/sod/sodSumReport.asp?sInfoAsOf=1994&sAreas=&barItem=3&as_fid=N3JSGfUcAW5JWI7K1Y2S

 

Look at them now https://www2.fdic.gov/sod/sodSumReport.asp?sInfoAsOf=2013&sAreas=&barItem=3&as_fid=UJchfyeEuwqYMnO8jL8J

 

The fat gets fatter. The industry will consolidate further. I'm not worried about smaller banks getting an "edge" in the short term  ;)

 

[mankap]

The impact for BAC could be less than 2% or may be even 1%.WSJ says that the surcharge could be 2% over the Basel requirement but then will depend upon the short term funding. If the requirement would be 2% for GS, it would be less than 2% for deposit banks.

Again we do not the timing of the implementation of the new requirements. It could be 2019 like Basel requirement.

[meiroy]

http://www.federalreserve.gov/newsevents/testimony/tarullo20140909a.htm

[meiroy]

The impact for BAC could be less than 2% or may be even 1%.WSJ says that the surcharge could be 2% over the Basel requirement but then will depend upon the short term funding. If the requirement would be 2% for GS, it would be less than 2% for deposit banks.

Again we do not the timing of the implementation of the new requirements. It could be 2019 like Basel requirement.

 

Aren't GS and BAC the same at 1.5%?

 

Is it possible for financial institutions to do corporate inversion? Asking for a friend...

[Uccmal]

Hi Pitch, you don't think this gives medium and large, but not as large as BAC banks an advantage in the short term? 

 

Look at the top 50 banks by deposit share from 1994 https://www2.fdic.gov/sod/sodSumReport.asp?sInfoAsOf=1994&sAreas=&barItem=3&as_fid=N3JSGfUcAW5JWI7K1Y2S

 

Look at them now https://www2.fdic.gov/sod/sodSumReport.asp?sInfoAsOf=2013&sAreas=&barItem=3&as_fid=UJchfyeEuwqYMnO8jL8J

 

The fat gets fatter. The industry will consolidate further. I'm not worried about smaller banks getting an "edge" in the short term  ;)

 

Its hard to tell if the concentration has become greater without having actual percentages.  however, the ratio of BAC to the tenth biggest has increased from roughly 5:1 to 10:1 from 2005 to 2013. 

 

We may be seeing the law of unintended consequences in action.  In their zeal to get their stamp on regulating the big financials the regulators have created monsters.  According to the rules BAC cannot buy their way to more deposits via merger, which is fine by me; neither can WFC, or JPM.  But they can grow to over 10 % organically. 

 

Over the short term the greater capital requirements appear detrimental, but the triple A ratings that will come will mean more business, cheaper financing, and more profitable operations.