BAC-WT - Bank of America Warrants

[jouni1]

 

Now that I have posted my simple model, all I want for Christmas is for BAC-WT A to expire worthless :)

 

 

Wasn't the exercise price for these around $13? Now that would be a bargain. When do they expire?

[rkbabang]

 

Now that I have posted my simple model, all I want for Christmas is for BAC-WT A to expire worthless :)

 

 

Wasn't the exercise price for these around $13? Now that would be a bargain. When do they expire?

 

The exercise price is $12.609 and they expire on January 16, 2019.  I wouldn't expect them to expire worthless.  I hope not anyway, because I still hold some.

 

[benchmark]

 

Now that I have posted my simple model, all I want for Christmas is for BAC-WT A to expire worthless :)

 

 

Wasn't the exercise price for these around $13? Now that would be a bargain. When do they expire?

 

I think you can exercise or sell anytime before the expiration (maybe a few days before the expiration).

 

The exercise price is $12.609 and they expire on January 16, 2019.  I wouldn't expect them to expire worthless.  I hope not anyway, because I still hold some.

[Spekulatius]

Speculatius, your caution with BAC earlier this year was spot on. Clearly, i was too optomistic :-)

 

Well,  no credit deserved. BAC hasn’t done worse than many other stocks. My experience is such that banks and for that matter most other financials never do well in a recession. The biggest issue for banks is not necessarily a receiving, it is a credit crunch, as evidendpt by higher credit spreads. typically recessions and rising spreads occur at the same time, as confidence wanes, which gives banks a double whammy. Banks don’t value their loans market to market on their balance sheet , but Mr Market impliciely does.

 

I am watching with interest LYG, which is a very profitable  British bank, trading at tangible book and 8x earnings and a 6% divdend yield, with no takers apparently. This is what happens when the outlook for the economy looks crappy.

[Viking]

Speculatius, your caution with BAC earlier this year was spot on. Clearly, i was too optomistic :-)

 

Well,  no credit deserved. BAC hasn’t done worse than many other stocks. My experience is such that banks and for that matter most other financials never do well in a recession. The biggest issue for banks is not necessarily a receiving, it is a credit crunch, as evidendpt by higher credit spreads. typically recessions and rising spreads occur at the same time, as confidence wanes, which gives banks a double whammy. Banks don’t value their loans market to market on their balance sheet , but Mr Market impliciely does.

 

I am watching with interest LYG, which is a very profitable  British bank, trading at tangible book and 8x earnings and a 6% divdend yield, with no takers apparently. This is what happens when the outlook for the economy looks crappy.

 

I have looked a little bit at UK banks; what is stopping me is i only want high quality companies in my portfolio right now (to provide some downside protection should things get more ugly moving forward). I am going to limit my bank holdings to BAC and JPM as i am ok holding them long term. Cash and quality is my current mantra :-)

[rb]

Gents,

 

Who are they, that are dumping stocks in the large US banks for several month now to an extent, that the large buyback programmes in action in the banks actually "have problems" keeping up with?

My guess is indexers.

[sleepydragon]

Gents,

 

Who are they, that are dumping stocks in the large US banks for several month now to an extent, that the large buyback programmes in action in the banks actually "have problems" keeping up with?

 

1. Trump twits about being “tariff man”. China feel being publicly shamed while they trying to negotiate

2. Maybe that tomorrow is an unplanned holiday could have something to do with this. One less trading days and less liquidity today

[Spekulatius]

Gents,

 

Who are they, that are dumping stocks in the large US banks for several month now to an extent, that the large buyback programmes in action in the banks actually "have problems" keeping up with?

My guess is indexers.

 

Momentum traders, algos , superficial intelligence . Selling begets selling.

[rb]

Gents,

 

Who are they, that are dumping stocks in the large US banks for several month now to an extent, that the large buyback programmes in action in the banks actually "have problems" keeping up with?

My guess is indexers.

 

Momentum traders, algos , superficial intelligence . Selling begets selling.

True. Indexers are the biggest momentum traders. I can't see where this huge and highly correlated volume of shares could be coming from.

 

It's probably safe to assume that beside the banks buying back stock, Berkshire is still there buying. 2 huge purchasers and selling volume is overwhelming both.

[John Hjorth]

Thanks, gents,

 

My speculative thoughts are circling around the same.

 

- - - o 0 o - - -

 

Some numbers here, as I see things right now for the Big 4 US Banks [some greater and bigger than others] - posting the numbers here, because the BAC topic here on CoBF has the best traction for the four:

 

JPM:

 

YTD performance ex. dividends : -0.72%

BV/share EOP 2018Q3 : 69.62

Closing price December 4^th 2018 : 107.23

P/B : ~1.54

 

BAC:

 

YTD performance ex. dividends : -9.43%

BV/share EOP 2018Q3 : 23.74

Closing price December 4^th 2018 : 26.99

P/B : ~1.14

 

WFC:

 

YTD performance ex. dividends : -15.89%

BV/share EOP 2018Q3 : 37.55

Closing price December 4^th 2018 : 51.75

P/B : ~1.38

 

C:

 

YTD performance ex. dividends : -16.53%

BV/share EOP 2018Q3 : 78.81

Closing price December 4^th 2018 : 62.26

P/B : ~0.79

[Spekulatius]

Thanks, gents,

 

My speculative thoughts are circling around the same.

 

- - - o 0 o - - -

 

Some numbers here, as I see things right now for the Big 4 US Banks [some greater and bigger than others] - posting the numbers here, because the BAC topic here on CoBF has the best traction for the four:

 

JPM:

 

YTD performance ex. dividends : -0.72%

BV/share EOP 2018Q3 : 69.62

Closing price December 4^th 2018 : 107.23

P/B : ~1.54

 

BAC:

 

YTD performance ex. dividends : -9.43%

BV/share EOP 2018Q3 : 23.74

Closing price December 4^th 2018 : 26.99

P/B : ~1.14

 

WFC:

 

YTD performance ex. dividends : -15.89%

BV/share EOP 2018Q3 : 37.55

Closing price December 4^th 2018 : 51.75

P/B : ~1.38

 

C:

 

YTD performance ex. dividends : -16.53%

BV/share EOP 2018Q3 : 78.81

Closing price December 4^th 2018 : 62.26

P/B : ~0.79

 

The BV is a bit distorted, since BAC has the widest gap between stated book and tangible book. BAC’s tangible book is around $17/ share.

 

Then it is surprising to see JPM relative outperformance.

[Junto]

Well stock is under book value as I see it for the end of the quarter. Good buying opportunity.

[Spekulatius]

Well stock is under book value as I see it for the end of the quarter. Good buying opportunity.

 

Stated book value is not a useful metric, tangible book value is a better metric, since it isn’t “path dependent”. I think most of the goodwill originated  from the merger with Merrill Lynch and I am certain they overpaid back then. As I mentioned befor, tangible book is $@17.2/ share. also keep in mind that investment banking is still a substantial  slice of the earnings (I think it is  30%, but I am not quite sure). If you strip this out at tangible book employeed (comp GS trades now lower than that and is a better business, imo), then it’s not quite that cheap any more.

[Viking]

There is a alot of fear in financial markets right now. It looks like bank stocks are the sector that Mr Market hates the most. If the US economy grows at 2.5% (or higher) in 2019 all the big US banks are going to grow earnings per share nicely: top line growth, flat expenses and much lower share count.

 

It looks to me like financial markets are pricing the US bank stocks like a recession is coming in 2019. I don’t see it right now (a recession in 2019). But we will see. I have been wrong once or twice before :-)

 

Here are some BAC stats:

- current share price = $24.75

- market cap = $243 billion

- 2018 Net earnings Est = $26.5 billion or about $2.55 per share; PE = 9.7

- 2019 Net Earnings Est = $27.5 billion or about $2.85 per share; PE = 8.7

- Capital return = $26 billion (july 2018-June 2019) = 10.5% yield

- 10 year US treasuries offer a 2.85% yield

- CEO Moynihan has stated BAC remains overcapitalized by as much as $20 billion and, over time, would like to return that to shareholders.

 

US economic growth is expected to be 2.5-3% in 2019. In that environment we can expect BAC to grow loans at 4%; they still have a portfolio of $60 billion that they are running off so perhaps reported total loan growth will be 3% (again).

 

Expenses will remain flat for 2018, 2019 and 2020.

 

Interest rate increases from Fed moving forward: Dec hike looks likely; after that we will see. Net interest income should continue to grow nicely in 2019 as past increases calendarize.

 

US consumer is doing very well; this was confirmed by all bank CEO’s last week at Goldman conference (and this is 70% of US economy). Rising incomes is good for this part of the economy.

 

US small businesses are doing well; confidence remains near all time highs.

 

Credit losses continue to be very low. (Dimon said loss levels will normalize when the next recession hits, to state the obvious).

 

Regarding regulation, we may see some small gains as all of the Trump appointees execute their mandate, offset by Democrats now having control of the house. I am not expecting a win (or loss) here.

[Viking]

I do think it relevant to mention that in Q3 Buffett’s big new purchases were bank stocks. i think his purchases of BAC ($5.5 billion new money) was his biggest single $ outlay. His first purchase of JPM got all the press but his addional purchase of BAC was a larger amount.

 

Now i do not suggest that anyone buy big bank stocks just because Buffett did. However, given the size and timing of his purchases it does inform me that he likes the big banks valuations (and his purchases were likely at prices 10-15% higher than current prices) as a long term hold.

[John Hjorth]

With regard to BAC being overcapitalized, we were up for a nice Christmas gift last year - extra USD 5 B in buybacks in the beginning of December 2017. I'm wondering if something similar will happen this year, and is actively looking for it almost daily right now for the big US banks, without feeling too entitled. Dazel has mentioned the possibility of it in the C topic. It would be a wonderful gift at these price levels, actually.

 

Last year that extra USD 5 B was based on released regulatory capital demands related to increased capital by Berkshire exercising its BAC warrants and a sale of a non-US credit card portfolio, I think it was a UK portfolio, that got sold to Lloyds Banking Group.

[Viking]

John, given BAC was approved for $26 billion in total i am not expecting another one time increase like we saw last year. I gladly take it if it comes. It looks to me like bank shares are going to stay cheap so my guess is BAC will be happy to buy back about $5 billion per quater or close to 2% of shares outstanding. For patient multiyear investors it really is amazing how fast the share count is falling (it is ridiculous at Citi). I think this is a big reason Buffett likes them so much right now.

 

I think the big US banks are really misunderstood. So much about them has changed since 2008/2009. It will be interesting to see how they perform during the next recession. Moynihan has been telegraphing that BAC has been very conservative with its loans etc and that is why its reported growth is not as good as some peers; we will find out if this is true when the next recession hits and loan losses start to climb.

[gokou3]

I was a BAC shareholder on and off from 2012 to 2017 and made good return on it.  Now that it has dropped 20% from its high, I am intrigued again.  The above posts discuss the huge buybacks executed YTD, which gets me excited.  Then, I went to the earnings powerpoint to check out the common share outstanding figure.  To my dismay, the common O/S was 10.22B shares in 2016Q2 and 9.86B in 2018Q3.  So over 9 quarters, the share count reduction is 360M shares or about $9B worth at today's price.  This is a small amount compared to the $20B (?) annual buybacks.

 

What's going on?  Have the buyback money been indirectly transferred to management via stock options, etc.?

[John Hjorth]

gokou,

 

You have to take into consideration the Berkshire warrant exercise last year, combined with that BAC got approval for materially increased buybacks as late as in June 2017, i.e. now ["only"] 5 reported quarters ago, compared to the actual period you're looking at.

[Spekulatius]

I think banks are over earning right now, since they hardly provision anything for bad loans. I don’t recall provisioning for bad loans. Also, the allowance for bad loans are historically quite low right mod, which is because asset quality looks good right now, but that will change when the economy slows down or we go into a downturn. BAC for example had traditional Reserves of about 1.5% of their loans, and right now they have 1.05% (and they are still slowly burning it off), so it is below the historical baseline. Maybe this is Ok, because asset quality is better than it used to be, but I am not quite sure of this.

[Junto]

I think banks are over earning right now, since they hardly provision anything for bad loans. I don’t recall provisioning for bad loans. Also, the allowance for bad loans are historically quite low right mod, which is because asset quality looks good right now, but that will change when the economy slows down or we go into a downturn. BAC for example had traditional Reserves of about 1.5% of their loans, and right now they have 1.05% (and they are still slowly burning it off), so it is below the historical baseline. Maybe this is Ok, because asset quality is better than it used to be, but I am not quite sure of this.

 

I don't think you are under reserving when credit quality is this strong. There is also no trend to indicate that more reserves are required. If you want to blanket reserve figure then banks would move back towards a set percentage given risk and then you would see earnings smoothing going on. You can't have it both ways and lots of times that is what FASB and the regulators are trying to accomplish with the ever changing reserve rules. I am not sure they are moving the system to any clearer of a picture on losses.  Best case, monitor delinquency reports, nonperforming assets, along with actual net charge off history. If the numbers start to trend up, more reserves will come into the system. The pace of change will drive the pace of additional reserve requirements.

 

Note IMO for smaller banks, a bucket system is probably the most cost effective and accurate but that has been outlawed for years now. Sample sizes just aren't large enough to use history as a gauge for future losses. 

[Rasputin]

https://www.cnbc.com/2018/12/10/bank-stocks-are-weaker-than-the-market-why.html

[Viking]

I am finding the current extreme sell off bank stocks to be very interesting (to say the least) :-)

 

BAC shares peaked in price in March at $33. Today they closed at $23.37 or down 29%

 

What has changed in their business the last 10 months? Not very much.

 

Earnings for 2018 will come in at about $2.55/share which is about the same as back in March.

Earnings estimates for 2019 are currently at $2.87/share (Yahoo finance estimate) which is the same as back in March.

 

Most importantly, the US economy continues to chug along. For BAC this is the most important driver of their earnings. All the bank CEO’s spoke recently at the Goldman Sachs conference and confirmed the US consumer continues to spend and the near term outlook is solid. Business confidence in the US continue to be good.

 

Yes, some international markets look like they are slowing (Europe and China if Fedex is to be believed).

 

Given the 29% drop in the share prices of most of the big US banks i am looking for a smoking gun and i can only find one: fear. Fear of what? Declining global liquidity? Fed rate increases? Trade war? Trump? China hard landing? Europe hard landing? Implosion of Euro banks pulling US banks down with them? Too much debt? Corporate debt meltdown? US recession?

 

Bottom line is Mr Market is having a panic attack. Driven by fear of... (you fill in the blank).

 

I love when people talk about how rational markets are :-)

[meiroy]

 

Wow 22.8, just got some and other financials. I know who the Grinch is.

[OracleofCarolina]

Just a heads up for anyone holding the A warrants- this is from the BAC investor relations page

 

The NYSE has notified the Company that it will suspend trading in the Warrants after the close of trading on January 11, 2019 so that trades can be settled by January 16, 2019.

 

The Warrants do not exercise automatically upon expiration. Any Warrants not exercised prior to the expiration time on January 16, 2019 will expire and be canceled, and the holder will not receive any shares of the Company’s common stock for its unexercised Warrants.