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BAC-WT - Bank of America Warrants


ValueBuff

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The warrants and the common are now a 23% position. Still trying to decide whether to start peeling these positions back, considering i think BAC is worth $28ish ( epower of $2 x 14 multiple ).Still seems like the market is slow to catch up to the imroving story at the banks. Sitting tight for now...

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  • 3 weeks later...

Do not see anything myself.....  Anyone going to catch this knife?  Tempting

 

It needs to drop significantly more before I would buy more. A ~5/6% drop is big for one day but considering the run we had this is nothing.

 

My guess is that this is people taking profit -- we've had a huge run. I think it'll be interesting to see what happens when the next stress test result comes out and BAC asks for a high dividend raise.

 

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Report reveals details of $21 billion money laundering plan - it looks like this is the reason.

 

http://finance.yahoo.com/news/russian-crime-reporters-reveal-21-billion-money-laundering-150916057--finance.html

 

Wondering the same thing.. much bigger fall than the other banks. Any news ?

 

What's the potential liability (if any)? BAC is good at paying out fines :)

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Report reveals details of $21 billion money laundering plan - it looks like this is the reason.

 

http://finance.yahoo.com/news/russian-crime-reporters-reveal-21-billion-money-laundering-150916057--finance.html

 

Wondering the same thing.. much bigger fall than the other banks. Any news ?

 

What's the potential liability (if any)? BAC is good at paying out fines :)

 

 

Well, BAC's market cap was given a $14B haircut today.  If the money laundering scheme was the only reason, it strikes me that a $14B haircut might be a little steep for being involved in a $21B money laundering arrangement.  Mr. Market is ridiculously overreacting?

 

SJ

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I think it has less to do with the laundering and just concerns with Trump's reflationary rally. The healthcare bill is stalling which likely means it's going to push-out/stall tax reform and other initiatives too.

 

If Trump can't push through, or delays, his "pro-growth" initiatives that supported the rally, it makes sense that the names that rallied most in expectation of them would also fall the most when it looks like those initiatives might disappoint.

 

 

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I think it has less to do with the laundering and just concerns with Trump's reflationary rally. The healthcare bill is stalling which likely means it's going to push-out/stall tax reform and other initiatives too.

 

If Trump can't push through, or delays, his "pro-growth" initiatives that supported the rally, it makes sense that the names that rallied most in expectation of them would also fall the most when it looks like those initiatives might disappoint.

 

I think this analysis is spot on. As someone quipped on twitter, a bank is basically the yield curve with incorporation papers. The longer end of the curve has traded down... the banks responded accordingly.

 

As to why longer yields are down, this chart is instructive:

 

C7hWE4YXkAEaUA5.jpg:small

 

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I think it has less to do with the laundering and just concerns with Trump's reflationary rally. The healthcare bill is stalling which likely means it's going to push-out/stall tax reform and other initiatives too.

 

If Trump can't push through, or delays, his "pro-growth" initiatives that supported the rally, it makes sense that the names that rallied most in expectation of them would also fall the most when it looks like those initiatives might disappoint.

 

I think this analysis is spot on. As someone quipped on twitter, a bank is basically the yield curve with incorporation papers. The longer end of the curve has traded down... the banks responded accordingly.

 

As to why longer yields are down, this chart is instructive:

 

C7hWE4YXkAEaUA5.jpg:small

 

Nice chart -- based on how Trump behaves so far, feels like more we'll see more downside than upside. However, Fed is going to continue to raise rate, still thinks there is some room for BAC to go up.

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Disagree.  Under 17 is the most attractive and accretive buyback opportunity but anywhere under book is attractive on a buyback opportunity.

 

I expect to an increase in buybacks and dividends this year.

 

 

Agreed on the divvy increase.  We'll see at least $0.40/sh annual divvy once the stress tests are approved in June-ish.  The real question is whether the divvy will hit $0.44 which might trigger Berkshire to exercise the conversion privileges on the notes that it owns.  However, even a $0.10/sh increase in the divvy only costs BAC about $1 billion per year, which really is chicken-feed.

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The A Warrants are trading at $11.15 now. With the current exercise on the warrants at $12.90, these seem to be trading ridiculously cheap relative to the time premium remaining, no?  Essentially I'm only paying a 45 cent premium for almost two years of optionality.  Note that a Jan 2019 $13 Call is now trading for $10.85, so in my mind these warrants at a minimum are trading for a discount of about 20 cents, but the options don't provide the benefit of a potential declining exercise price.  Is there something i'm missing here? 

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Did any other Canucks notice that the IRS has now put in place a withholding tax on the strike price adjustment for convertible securities such as BAC-WT?  For the longest time, it was a nice gig to essentially convert BAC's dividend into a lower-taxed capital gain to be realized when the warrants are disposed.  Since there is no cash dividend paid to me, it looks like I'll actually have to pony up some cash every time a divvy is issued.

 

I guess all good things must end!

 

 

SJ

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