BAC-WT - Bank of America Warrants

[jay21]

I wonder how much paying out the 8.5b will affect capital levels and stress testing

[Rasputin]

I expect BAC total capital request for CCAR 2016 to be around $7 B to $8 B over 4 quarter period.  That's about  49% to 56% of 2015 net income applicable to common shareholder.  WFC is returning roughly 59% of 2015 net income and they have the least constraint. 

 

I don't expect any of the trillionaire to return 100% of net income until CCAR 2020 when the rules are set in stone. 

 

If Tarullo gets his wish (which I think is more than likely), DFAST 2017 will be a whole new ball game with incorporation of capital surcharge.  I'm surprised rarely anybody talks about this. 

 

[Rasputin]

I wonder how much paying out the 8.5b will affect capital levels and stress testing

 

The BNY Mellon settlement has been fully reserved and taken into account in previous stress tests.  BAC also took the $8.5 b payment into account in their calculation for LCR. 

[jay21]

I wonder how much paying out the 8.5b will affect capital levels and stress testing

 

The BNY Mellon settlement has been fully reserved and taken into account in previous stress tests.  BAC also took the $8.5 b payment into account in their calculation for LCR.

 

Yes - agree. Now the 8.5b in assets are gone along with 8.5b in liabilities, effectively deleveraging the biz. Also, not sure if the Fed stressed the 8.5b upwards or assigned some other extra to BAC to account for variability of outcomes.

 

It's probably immaterial but interesting to me.

[redskin]

I expect BAC total capital request for CCAR 2016 to be around $7 B to $8 B over 4 quarter period.  That's about  49% to 56% of 2015 net income applicable to common shareholder.  WFC is returning roughly 59% of 2015 net income and they have the least constraint. 

 

I don't expect any of the trillionaire to return 100% of net income until CCAR 2020 when the rules are set in stone. 

 

If Tarullo gets his wish (which I think is more than likely), DFAST 2017 will be a whole new ball game with incorporation of capital surcharge.  I'm surprised rarely anybody talks about this.

 

Citigroup returned $6 billion in 2015 with only 7.3B net income in 2014.  Payout of 82%

BAC returned $4.5 billion in 2015 with 2014 net income of $4.8b.  Payout 94%

 

I think the Fed looks at excess capital and allows return up to previous 12 month earnings.  I could be wrong.

[Rasputin]

I wonder how much paying out the 8.5b will affect capital levels and stress testing

 

The BNY Mellon settlement has been fully reserved and taken into account in previous stress tests.  BAC also took the $8.5 b payment into account in their calculation for LCR.

 

Yes - agree. Now the 8.5b in assets are gone along with 8.5b in liabilities, effectively deleveraging the biz. Also, not sure if the Fed stressed the 8.5b upwards or assigned some other extra to BAC to account for variability of outcomes.

 

It's probably immaterial but interesting to me.

 

yes, it will offset oh less than 1 quarter of deposit growth. 

[Rasputin]

I expect BAC total capital request for CCAR 2016 to be around $7 B to $8 B over 4 quarter period.  That's about  49% to 56% of 2015 net income applicable to common shareholder.  WFC is returning roughly 59% of 2015 net income and they have the least constraint. 

 

I don't expect any of the trillionaire to return 100% of net income until CCAR 2020 when the rules are set in stone. 

 

If Tarullo gets his wish (which I think is more than likely), DFAST 2017 will be a whole new ball game with incorporation of capital surcharge.  I'm surprised rarely anybody talks about this.

 

Citigroup returned $6 billion in 2015 with only 7.3B net income in 2014.  Payout of 82%

BAC returned $4.5 billion in 2015 with 2014 net income of $4.8b.  Payout 94%

 

I think the Fed looks at excess capital and allows return up to previous 12 month earnings.  I could be wrong.

 

Both had significant legal costs in 2014 that can be considered one time.  If you adjust for that, payout ratio will be less than 60%. 

[redskin]

I expect BAC total capital request for CCAR 2016 to be around $7 B to $8 B over 4 quarter period.  That's about  49% to 56% of 2015 net income applicable to common shareholder.  WFC is returning roughly 59% of 2015 net income and they have the least constraint. 

 

I don't expect any of the trillionaire to return 100% of net income until CCAR 2020 when the rules are set in stone. 

 

If Tarullo gets his wish (which I think is more than likely), DFAST 2017 will be a whole new ball game with incorporation of capital surcharge.  I'm surprised rarely anybody talks about this.

You can also go back to 2012 when JPM was approved for a $12 billion buyback and $5 billion dividend.  Total $17 billion with net income of $18 billion in 2011.  94% payout.

[Rasputin]

I expect BAC total capital request for CCAR 2016 to be around $7 B to $8 B over 4 quarter period.  That's about  49% to 56% of 2015 net income applicable to common shareholder.  WFC is returning roughly 59% of 2015 net income and they have the least constraint. 

 

I don't expect any of the trillionaire to return 100% of net income until CCAR 2020 when the rules are set in stone. 

 

If Tarullo gets his wish (which I think is more than likely), DFAST 2017 will be a whole new ball game with incorporation of capital surcharge.  I'm surprised rarely anybody talks about this.

You can also go back to 2012 when JPM was approved for a $12 billion buyback and $5 billion dividend.  Total $17 billion with net income of $18 billion in 2011.  94% payout.

 

Ok I looked at the supervisory stress scenario for DFAST 2012 vs severely adverse scenario for DFAST 2015, and there were new components in 2015 vs 2012.  For example, deterioration in corporate clients financial condition, rising corporate bond spreads were not included in 2012.  So DFAST stress scenario continues to evolve. 

 

You can see JPM 2015 CCAR results.  They had to reduce their capital requests in 2015 just to get their tier 1 leverage ratio barely above 4% at minimum point.  Their capital payout ratio in 2015 is about 50%. 

 

I see 0 chance for JPM to get 94% capital payout request approval for DFAST 2016. 

[redskin]

I expect BAC total capital request for CCAR 2016 to be around $7 B to $8 B over 4 quarter period.  That's about  49% to 56% of 2015 net income applicable to common shareholder.  WFC is returning roughly 59% of 2015 net income and they have the least constraint. 

 

I don't expect any of the trillionaire to return 100% of net income until CCAR 2020 when the rules are set in stone. 

 

If Tarullo gets his wish (which I think is more than likely), DFAST 2017 will be a whole new ball game with incorporation of capital surcharge.  I'm surprised rarely anybody talks about this.

You can also go back to 2012 when JPM was approved for a $12 billion buyback and $5 billion dividend.  Total $17 billion with net income of $18 billion in 2011.  94% payout.

 

Ok I looked at the supervisory stress scenario for DFAST 2012 vs severely adverse scenario for DFAST 2015, and there were new components in 2015 vs 2012.  For example, deterioration in corporate clients financial condition, rising corporate bond spreads were not included in 2012.  So DFAST stress scenario continues to evolve. 

 

You can see JPM 2015 CCAR results.  They had to reduce their capital requests in 2015 just to get their tier 1 leverage ratio barely above 4% at minimum point.  Their capital payout ratio in 2015 is about 50%. 

 

I see 0 chance for JPM to get 94% capital payout request approval for DFAST 2016.

 

I'm not saying JPM will be that high again if they don't have excess capital.  I'm suggesting BAC may get approved for something close to last years earnings.  BAC's Tier 1 leverage ratio, which was their weakest, was in excess of $20 billion last year and they have built on that capital this year.

[Rasputin]

well redskin, thank you for the discussion, it made me read dfast 2012. 

 

Ill be ecstatic if bac is approved for anything above $8 billion.  I'm not expecting it. 

[vinod1]

I listened to all 4 earnings conference calls: BAC, C, WFC and JPM.

 

Of the 4, my takeaway is JPM is currently doing the best job; they are working the plan (have been for years) and are confident and executing very well. Legacy issues have been cleaned up and the future looks bright. The one big watch out is if the US government decides that the big US banks need to be broken up. JPM is medium risk good total return (12-15%).

 

WFC is a close second. Great management. I view WFC like a bond; you will get 8-10% per year but they do not have the upside of a JPM. WFC is low risk decent total return.

 

The last two C conference calls have my spidey senses tingling. The 'easy' fixes to their business have largely been completed (not easy but good on management for getting this far). C challenge is what do they do now? They are at a crossroads and it looks like to me that they are a deer in the headlights. I hope not. The stock is crazy cheap trading way below tangible book value. My guess is they may be the first to break up (forced).

 

BAC is a head scratcher for me. I think management is weak. I think they are still being held back a little by legacy issues. Their challenge may be that JPM and WFC have such a head start (years) that BAC may never catch up. It is strange to me that BAC has sold off as aggressively as C; BAC does not have C's emerging markets exposure. BAC's road forward also looks much simpler than C's. However, I think BAC's capital position is currently not as good as C's.

 

As an investor do you buy the cheapest (BAC and C?) or the best managed (JPM and WFC). Looking at stock performance the past 12 months the answer was buy quality.

 

Very well put. Agree completely on the mega banks. 

 

I have been buying into many of the financials.

 

Vinod

[redskin]

Ughh... sorry I made you do that.

[Rasputin]

hehe i needed to know why the fed allowed 90% plus payout ratio in 2012. 

[gary17]

I am wondering if anyone has actually done the cashless warrant exercise before? do I phone my broker ?

[rkbabang]

I am wondering if anyone has actually done the cashless warrant exercise before? do I phone my broker ?

 

Yes.  I've done it before (not with BAC warrants), it was a simple phone call to Fidelity.

 

[racemize]

I am wondering if anyone has actually done the cashless warrant exercise before? do I phone my broker ?

 

Yes.  I've done it before (not with BAC warrants), it was a simple phone call to Fidelity.

 

Do you know the tax consequences?  Is it considered a sale?

[TheAiGuy]

Jesus, BAC is taking it on the nose. Who believes there's someone out there selling at $13 saying to them selves, "yeah, that seems like a decent price."

[OracleofCarolina]

tell me about...the schlonging continues!

[ERICOPOLY]

Jesus, BAC is taking it on the nose. Who believes there's someone out there selling at $13 saying to them selves, "yeah, that seems like a decent price."

 

But clearly the people who hold everything else in the S&P500 index think it's better to stay where they are than to sell and buy BAC at this price.

 

Ahh.... psychology.  101 ways to fuck with your mind.

[jay21]

I am not sure any of the US trillionaires is ready for a break-up.

 

As far as 2017 and beyond stress test and capital return, JPM is in the worst possible spot and most prime for reduction in capital return.

 

Please look at Tarullo's November 2014 comment on future stress test incorporating GSIB surcharge. 

 

JPM has the largest GSIB surcharge (although they said they have reduced it to 3.5%) with the lowest capital buffer. 

 

For example:

 

min required CET1 ratio of 4.5% plus GSIB surcharge would be:

 

8% for JPM (assuming management is correct about their current surcharge of 3.5%, otherwise 9% as published by the fed) while 2015 CCAR showed that min JPM CET1 ratio was 5.3% during the stressed period.  That's 2.7% or 3.7% capital gap.

 

7.5% for BAC while 2015 CCAR showed that min BAC CET1 ratio was 6.6% during the stressed period.  That's 0.9% capital gap. 

 

8% for C while 2015 CCAR showed that min C CET1 ratio was 6.4%.  That's 1.6% capital gap.

 

6.5% for WFC while 2015 CCAR showed that min WFC CET1 ratio was 5.5%.  That's 1.0% capital gap. 

 

I dumped all my JPM shares and warrants when I read that Tarullo's surcharge comment back in November 2014.

 

Can you point me to the source of the stressed capital numbers (assuming severely adverse here?). I did not tie them out to this: http://www.federalreserve.gov/newsevents/press/bcreg/bcreg20150305a1.pdf

 

Maybe I am looking at the wrong page. Please lmk which page to look at.

 

 

[Aberhound]

tell me about...the schlonging continues!

 

I came across this article about the rise of the knowledge economy. The factors discussed provide an alternate explanation why interest rates never rose this cycle. Finance's share of GDP might be reverting to mean. I wonder if this is being discussed at Davos which might explain part of the schlonging. Excerpt:

 

"The economic plague besetting the globe can be entirely explained by the cycle of failure of passive capital, which repeats throughout history.

 

This futility of finance is mathematically caused by the pervasive human demand for a guaranteed return on savings and a guaranteed insurance in all outcomes, i.e. to avoid risking their knowledge or lack thereof— the generative essence of socialism.

 

Fortunately, the age of the rise of knowledge capital threatens to breakout of this futile cycle, because in its purest form, knowledge can not be held in a store-of-value (a.k.a. money) and money can only represent some quantity of hard resources and manual labor....

 

To the degree that knowledge production is not financed, then the value of financing declines and value of knowledge production increases relative to each's proportion of GDP."

 

http://www.coolpage.com/commentary/economic/shelby/Demise%20of%20Finance,%20Rise%20of%20Knowledge.html

 

[TheAiGuy]

because in its purest form, knowledge can not be held in a store-of-value (a.k.a. money) and money can only represent some quantity of hard resources and manual labor....

 

Sure it can: Google has knowledge that produces a stream of cash flows. The possessors of that knowledge securitize that cash-flow stream and sell it on an open exchange. Violà! knowledge-money created.

 

Also, money doesn't represent anything. Its a magical system of trust that we all accept (hence, "fiat" currency i.e. a currency by decree or arbitrary order). Also, that's suspiciously close the Marx's "labor theory of value" and is widely: criticized https://en.wikipedia.org/wiki/Labor_theory_of_value#Criticisms

[TheAiGuy]

Jesus, BAC is taking it on the nose. Who believes there's someone out there selling at $13 saying to them selves, "yeah, that seems like a decent price."

 

But clearly the people who hold everything else in the S&P500 index think it's better to stay where they are than to sell and buy BAC at this price.

 

Ahh.... psychology.  101 ways to fuck with your mind.

 

 

TBH, I've been one of those people. I already own BAC, so why would I buy more? (I got to figure out something else to sell... )

 

Have you been buying here?

[Picasso]

The great schlonging of 2016. No rubbers, no dinner and a movie, no Netflix or chill. Just schlonging.