BAC-WT - Bank of America Warrants

[gurpaul88]

Congrats to all those who held on, especially those calls!

[Parsad]

Someone wake me at $25.  ;D

 

We've still got all of our equity and calls.  We will sell some in the New Year when long-term gains kick in.

 

$25 is possible based on where other banks are priced.  It's now priced at the bare minimum where it should be...anything above this is going to get closer to fair value.  Cheers!

[rranjan]

I have sold all options and portion of warrants. Still holding pretty much all commons. I was holding too much in BAC( around 40%) and didn't want to hold that huge a position when BAC is in the range of 21-22.

[stylized_fact]

At this rate, I'm considering a trailing stop on BAC common. I've been peeling off ZION in 10% chunks. They have both run up so quickly!

[Drake]

Congrats to all those who held on, especially those calls!

 

Well, the price is moving in the right direction. But it is a bit too early for congratulations, isn't it?

 

I have got a decent amount of WS.A and (for my portfolio) a large amount of WS.B. I've been holding them for a couple of years, have been down 70% or more at times (I didn't check frequently, just ignored them and held on only out of stubborness). And wow!: even the WS B position are showing a plus, now, and I am starting to hope that they might be in the money on 28th October 2018. Well, we will see - it is still a long way to go.

 

But if they should be in the money in October 2018, that's when I will celebrate by opening my last bottle of Ardbeg Airigh Nam Beist :-) - patience....

[benchmark]

At this rate, I'm considering a trailing stop on BAC common. I've been peeling off ZION in 10% chunks. They have both run up so quickly!

 

I'm selling Jan20 24 calls as a way to do stop on my common.

[meiroy]

 

I'm buying puts on various financials. This euphoria is getting silly.

 

[onyx1]

I understand the euphoria.  It's not a stretch to construct a plausible scenario for substantially higher earnings.

 

For example, assume:

• +100bp higher rates over the next two years from end of 3Q.  The 10-year swap rate is already up 78bp from the end of 3Q.
  
• $3bln expense reduction goal achieved by end of 2018.
  
• Normalized provisions upward to 70bp from the currently very low levels.
  
• Corporate tax rate reduced to 25% from 35%.
  

Starting with the $1.60/share run rate in 3Q, these assumptions put run rate earnings in the $2.60/share range.  With an administration encouraging higher loan growth & less regulation, and FICC/M&A revenue likely to increase (Moynihan already announced expectation of FICC +15% in Q4), the $2.60 could be too low.  Maybe add another $0.20.

 

12x multiple get us to $33.60.  Not including whatever value remains in the DTA.

 

I don't like the fact that this scenario is all on the if-come, so appropriate caution is needed. 

 

However, this administration is hell bent on growing the economy, and they can't do it without the banks.

 

For that reason, I'm optimistic.

[CorpRaider]

Just saying.

[benhacker]

Mostly agree with dyow here.

 

The long suffering bank investors make 30-40% and now it's bail-time.  I don't know.  When the bull thesis on the thread above highlights a 12x PE vs. the ~25x for the market, I kind of have to chuckle.

 

Sure, maybe pare back your position(s), but we aren't exactly in nose-bleed area. 

 

This thread kind of makes me want to add... but I've pared back my BAC... holding WFC.  Also closed some bank hedges that didn't move as much as banks did... so I guess I'm getting longer banks than pre-election.

 

Still think the positive market reaction overall is odd, but I think for banks I think it's mostly / somewhat justified.

[Ballinvarosig Investors]

Mostly agree with dyow here.

 

The long suffering bank investors make 30-40% and now it's bail-time.  I don't know.  When the bull thesis on the thread above highlights a 12x PE vs. the ~25x for the market, I kind of have to chuckle.

 

Sure, maybe pare back your position(s), but we aren't exactly in nose-bleed area. 

 

This thread kind of makes me want to add... but I've pared back my BAC... holding WFC.  Also closed some bank hedges that didn't move as much as banks did... so I guess I'm getting longer banks than pre-election.

 

Still think the positive market reaction overall is odd, but I think for banks I think it's mostly / somewhat justified.

Agree 100%. People have been waiting 6 years for their ship to come in, now that it's here at last, they're throwing themselves overboard just minutes after they got on!

 

Anyway, let's say you do sell the banks at 14x earnings. What are you going to do? Go off and buy the general market at 20x?

[stylized_fact]

Mostly agree with dyow here.

 

The long suffering bank investors make 30-40% and now it's bail-time.  I don't know.  When the bull thesis on the thread above highlights a 12x PE vs. the ~25x for the market, I kind of have to chuckle.

 

Sure, maybe pare back your position(s), but we aren't exactly in nose-bleed area. 

 

This thread kind of makes me want to add... but I've pared back my BAC... holding WFC.  Also closed some bank hedges that didn't move as much as banks did... so I guess I'm getting longer banks than pre-election.

 

Still think the positive market reaction overall is odd, but I think for banks I think it's mostly / somewhat justified.

Agree 100%. People have been waiting 6 years for their ship to come in, now that it's here at last, they're throwing themselves overboard just minutes after they got on!

 

Anyway, let's say you do sell the banks at 14x earnings. What are you going to do? Go off and buy the general market at 20x?

 

The market may be dear, but there are a few interesting alternatives around (OAK, CG, and AGN for example).

[LC]

Let me ask this: for those who propose holding, are you also buying now?

[meiroy]

 

 

So, if it's a Trump play, lets see how the situation is now: he is getting GS guys, Bank stocks are doing great etc.  But. Trump is Trump.  How long till he says something against wall street and banks to balance things out with his voters? What would happen then to bank stocks?  Lets add DTA write downs, shot term losses due to interest rate rising (What's BAC's ROE again?)

 

BRK has far better down-side, very liquid options and nice spreads. And it's BRK.  Just throwing it out there.

[dyow]

Let me ask this: for those who propose holding, are you also buying now?

 

I know wells fargo much better than bac and I bought more wells this week.  If the economy goes into overdrive these banks have a lot earnings power. If it doesn't you are holding stocks trading at 11 times earnings (The tax cut alone would give wells $5 a share in earnings).  Wells can earn 7 bucks a share, maybe more in good times.

 

- also US banks have been forced to limit dividends to an artificial 30%.  They should be paying 50% of their divs to shareholders like Canadian banks (Jamie Dimon mentioned this before).

 

- you have trump's top advisors going on tv saying banks need to lend more, and can't bc of regulatory burden. 

 

- Another important thing people are missing, when interest rates are rising, housing picks up.  You would assume people would buy their homes when interest rates are low. John Stumpf mentioned this on a conference call a few years back.  People buy homes when they are afraid interest rates will go higher.  people are people and they move on fear.  Just like when stocks go up, everyone wants to jump like sheep bc they afraid they will miss out.  So you have more lending and more mortgage origination fees for the banks.

 

 

Also i look at this as a hedge against the rest of my investments. If rates rise, the market will fall.  But banks are protected against an interest rate rise for obvious reasons, rates go up and they rake in more cash. 

 

Edit: i should add emphasis on the point above.  i don't consider the banks right now to be "no brainer" plays, there are other spots in the market i like much better in terms of potential upside.  But if rates go up a lot, idk how that will impact the rest of the market so having exposure to banks makes sense. 

 

[bennycx]

I kind of dislike the increase in efficiency ratio for Wells in recent months. Find that really irritating

[Picasso]

Mostly agree with dyow here.

 

The long suffering bank investors make 30-40% and now it's bail-time.  I don't know.  When the bull thesis on the thread above highlights a 12x PE vs. the ~25x for the market, I kind of have to chuckle.

 

Sure, maybe pare back your position(s), but we aren't exactly in nose-bleed area. 

 

This thread kind of makes me want to add... but I've pared back my BAC... holding WFC.  Also closed some bank hedges that didn't move as much as banks did... so I guess I'm getting longer banks than pre-election.

 

Still think the positive market reaction overall is odd, but I think for banks I think it's mostly / somewhat justified.

 

Another factor to consider is that it sometimes doesn't make sense to sell an appreciated stock even if it trades at fair value.  Because fair value might still mean a long-term 10% return.  So say pretty much everything in your portfolio is trading at a 30-50% discount to "fair" but you've got this BAC or WFC trading at a 10% discount or near "fair."  That BAC or WFC might keep compounding at 8-10% tax-deferred for a long time and this sudden improvement in fundamentals makes for a higher probability outcome.  Unless you've got this other fantastic idea that will do so much better than WFC or BAC, it's perfectly rational to hold even when you're used to seeing it trade at a larger discount.  So unless you think those other cheap stocks in your portfolio are very likely to work out it doesn't make sense to start selling willy nilly because just because you've got a nice profit...

 

Very much agree that these bank stocks are closing in on fair value, but maybe it's too easy to underestimate how quickly fair value can improve over time.  I've been negative on banks for a while because of my view on the yield curve and regulation, but that looks to be changing (well, we'll see).  Congrats to guys like Rasputin that went balls to the wall on this one. 

[JBTC]

Edit: i should add emphasis on the point above.  i don't consider the banks right now to be "no brainer" plays, there are other spots in the market i like much better in terms of potential upside.  But if rates go up a lot, idk how that will impact the rest of the market so having exposure to banks makes sense.

 

Would you mind sharing what those spots are that you like much better?

 

Thanks.

 

[rranjan]

Let me ask this: for those who propose holding, are you also buying now?

 

When posters comment about holding or selling, we are missing a huge factor here. 50% in BAC in range of 12-13 is a lot different than 50% in BAC around 22. Some one having a small position may be much more inclined to not sell any portion and let it ride. It may not be true for folks who were holding too much of BAC.

 

 

[KCLarkin]

Let me ask this: for those who propose holding, are you also buying now?

 

I bought some WFC LEAPs last week.

 

This was partly a psychological trick though. I am itching to sell my bank stocks. So I bought more. Now I have some I can sell guilt-free. It was also nearing 52 week highs, which would attract technical buyers.

 

I tried to warn people when they were selling in $18s, but this is why momentum works. The "true believers" who have owned this for 5 years have anchored on 10xPE or 1xTBV as a fair price. But why shouldn't it trade at 15x? Don't let your value prejudices blind you to the simple reality: Mr. Market finally wants to own banks. Don't accept his first offer. Make him sweat a bit.

 

--

Disclosure: I have a relatively small weighting in U.S. banks compared to others on this board. 6.7% WFC Common, 2.3% WFC LEAPS, 2.3% BAC LEAPs so this probably allowed me to resist the temptation to sell too early.

 

[benhacker]

When posters comment about holding or selling, we are missing a huge factor here. 50% in BAC in range of 12-13 is a lot different than 50% in BAC around 22. Some one having a small position may be much more inclined to not sell any portion and let it ride. It may not be true for folks who were holding too much of BAC.

 

Very true, but likely the problem is even worse; unless the rest of the portfolio in question rose as fast as BAC, you are now holding, say, a 75% position in BAC at $22, not 50%.

 

Low turnover value investing = momentum investing. ;-)

 

As you say, this is often lost on those who have 3-5% positions because generally the 3% vs. 6% logic / emotion is quite different than 15% vs 30%.  For those with 10-30% positions, I can assure you, this thinking is front and center about when to pare back.

 

Taxes (as Picasso mentioned) not only have to be factored in here, but they compound the fundamental problem for a concentrated investor.

 

I actually think this is why (partially) a momentum out performance effect is present in stocks statistically... essentially there are fundamental reasons that very rapidly rising shares may trade lower than they should as knowledgeable holders have to sell for risk limit reasons while new holders are slow to understand the improving / changing story.

 

Just some things I think about at least...

[racemize]

I have 30% bank exposure at this point, and haven't sold yet.  As Ben said, it is quite hard not to sell, but sitting on my hands has been working so far.  We've been waiting so long for a sentiment change, and that's where a huge amount of the price increase comes (at least over the short term).  Don't fight the market!

 

Probably it will drop and I will wish I sold sooner, but we'll see.

[CorpRaider]

Let me ask this: for those who propose holding, are you also buying now?

 

I bought some WFC LEAPs last week.

 

This was partly a psychological trick though. I am itching to sell my bank stocks. So I bought more. Now I have some I can sell guilt-free. It was also nearing 52 week highs, which would attract technical buyers.

 

I tried to warn people when they were selling in $18s, but this is why momentum works. The "true believers" who have owned this for 5 years have anchored on 10xPE or 1xTBV as a fair price. But why shouldn't it trade at 15x? Don't let your value prejudices blind you to the simple reality: Mr. Market finally wants to own banks. Don't accept his first offer. Make him sweat a bit.

 

 

 

Good post.  Thanks for sharing your thoughts.  Buying now?  eh...looking at UL, NOMD, POST and MDLZ.  I gotta' try and figure out this green mountain accounting.  I think I'm missing something.

[rranjan]

 

Very true, but likely the problem is even worse; unless the rest of the portfolio in question rose as fast as BAC, you are now holding, say, a 75% position in BAC at $22, not 50%.

 

 

Agree here. I was just using it as example where you trim your positions as it keeps going up and still end up with 50% in BAC.  I still hold a very large position even after selling all options and portion of warrants. At this price, no scenario can convince me to hold 75% which would have been the case in absence of any trimming.

 

Everything can go very well from here and banks may as sell at multiples of 15 with higher earnings, but holding out sized positions becomes harder due to risk. I saw very little risk when it was in lower teens and I surely think that risk has gone up with drastic increase in price in the last 7-8 months even after I consider less regulations for banks going forward.

[rranjan]

Here I was talking about risk for me with super sized position at increased price level.

 

Some investors can still argue that risk for BAC has not gone up and it's fine, but risk for portfolio surely goes up if you hold a super sized position after a huge price run up. That's why buy, sell or hold comments are not that meaningful unless we know the position size.