Jump to content

BAC-WT - Bank of America Warrants

ValueBuff

By ValueBuff
in Investment Ideas

 Share

Recommended Posts

Parsad Newbie

Parsad

Posted
Posted

Stock should cross 10 by end of week.

8.97 Basel 3 and Citi is at 8.48 and Citi is trading 8% higher after the board disaster with Pandit.

 

Citi has a heck of alot more exposure to Europe and China too.  If the U.S. housing market continues to recover, I think you'll start to see the engines of the large U.S. banks continue to roar for some time.  Cheers!

Link to comment
Share on other sites
  • Replies 7.6k
  • Created
  • Last Reply

Top Posters In This Topic

Popular Days

Top Posters In This Topic

Popular Days

Posted Images

Parsad Newbie

Parsad

Posted
Posted

There is alot of things to like about these results, but in particular I see this statement as very significant as it is the first time we have seen an RPL put on the GSE R&W liabilities:

　

 

"The company currently estimates that the RPL for both GSE and non-GSE representations and warranties exposures could be up to $6B over accruals at September 30, 2012 compared to $5B over accruals at June 30, 2012 for only non-GSE representations and warranties exposures."

 

Yup.  They've pretty much quantified their total expected exposure.  You would think the markets and analysts would have picked up on this.  This sucker should be just below tangible book right now.  Cheers!

Link to comment
Share on other sites
hardincap Newbie

hardincap

Posted
Posted

There is alot of things to like about these results, but in particular I see this statement as very significant as it is the first time we have seen an RPL put on the GSE R&W liabilities:

　

 

"The company currently estimates that the RPL for both GSE and non-GSE representations and warranties exposures could be up to $6B over accruals at September 30, 2012 compared to $5B over accruals at June 30, 2012 for only non-GSE representations and warranties exposures."

 

Yup.  They've pretty much quantified their total expected exposure.  You would think the markets and analysts would have picked up on this.  This sucker should be just below tangible book right now.  Cheers!

 

since when have bac mgmt's estimates been accurate?

Link to comment
Share on other sites
Parsad Newbie

Parsad

Posted
Posted

I just noticed today that dividend threshold for B warrant is $0.32 vs $0.01 for A warrant. May be lot of people on the forum are already aware about it but this going to matter as they will start paying out higher dividend in 2013.

 

It's 1 cent, not 32 cents.  Check out the prospectus...page S-30.  Cheers!

 

http://www.sec.gov/Archives/edgar/data/70858/000119312510044940/d424b7.htm

Link to comment
Share on other sites
Mephistopheles Newbie

Mephistopheles

Posted
Posted

I just noticed today that dividend threshold for B warrant is $0.32 vs $0.01 for A warrant. May be lot of people on the forum are already aware about it but this going to matter as they will start paying out higher dividend in 2013.

 

It's 1 cent, not 32 cents.  Check out the prospectus...page S-30.  Cheers!

 

http://www.sec.gov/Archives/edgar/data/70858/000119312510044940/d424b7.htm

 

That's the link for the A warrant. I'm pretty sure also, that the B threshold is $.32.

Link to comment
Share on other sites
ECCO Newbie

ECCO

Posted
Posted

I just noticed today that dividend threshold for B warrant is $0.32 vs $0.01 for A warrant. May be lot of people on the forum are already aware about it but this going to matter as they will start paying out higher dividend in 2013.

 

In the case of "B" warrant, with an exercise price of more than 30$, do you think it really matter now when the stock is a t 9.45$?

Link to comment
Share on other sites
ERICOPOLY Newbie

ERICOPOLY

Posted
Posted

Translation:

We are in settlement talks with the GSEs and we're getting close to a number that will be within a range of no more than $1b above what we've already reserved for.

 

 

From the transcript -- emphasis on the second paragraph.

 

Our reserve for reps and warrants at the end of the quarter increased slightly to $16.3 billion. In the second quarter we provided a range of possible loss over and above existing reserve levels of up to $5 billion which only apply to non-GSE loans. At the time, a range was not provided for GSE activity as we were unable to estimate such a range.

 

In the third quarter, as a result of ongoing dialogue and discussion with the GSEs we have obtained additional information from which we are now able to determine a reasonable estimate of a range of possible loss in excess of our recorded reps and warrant liability for the GSEs.

 

We currently estimate that the range of possible loss for both, the GSEs and the non-GSEs for rep and warrant exposures, could be up to $6 billion. Over accruals at September 30 and compared to the up to $5 billion over accruals at June 30 which once again were only for non-GSE reps and warrant exposures.

Link to comment
Share on other sites
Parsad Newbie

Parsad

Posted
Posted

Translation:

We are in settlement talks with the GSEs and we're getting close to a number that will be within a range of no more than $1b above what we've already reserved for.

 

LOL!  Eric, maybe you should talk to the analysts.  Cheers!

Link to comment
Share on other sites
ERICOPOLY Newbie

ERICOPOLY

Posted
Posted

 

Whalen or Dick Bove:

 

Which one is least reliable for pertinent banking industry analysis?

 

$0 is closer to the current stock price than $65.

 

So I'm going with Bove on that one.

Link to comment
Share on other sites
ERICOPOLY Newbie

ERICOPOLY

Posted
Posted

Finally!  I take this as a statement that Legacy Asset Servicing is beginning it's steep descent in Q4.

 

 

On Slide 20, noninterest expense, I'd like to make a couple of comments here; noninterest expense of $17.5 billion was down slightly from the third quarter of last year and up relative to the second quarter of this year. If we were to back out the increase in litigation expense that we incurred during the quarter, noninterest expense actually declined from Q2 to Q3. If we look at the components of that, we saw improvement in personnel costs and other cost savings realized from new BAC initiatives and that was partially offset by higher cost of mortgage servicing and other mortgage related matters, which as I mentioned previously we'd expect to see come down in the fourth quarter relative to third.

Link to comment
Share on other sites
enoch01 Newbie

enoch01

Posted
Posted

 

It's funny.  If you watch the interview he's actually pretty positive on several aspects of BAC.  Basically he says there's value there but for the unknown of the Countrywide trouble.  But for some unspecified reason he still thinks that (i) the associated costs can't be reasonably estimated and/or managed, and (ii) (therefore?) that warrants a restructuring.

Link to comment
Share on other sites
Parsad Newbie

Parsad

Posted
Posted

 

It's funny.  If you watch the interview he's actually pretty positive on several aspects of BAC.  Basically he says there's value there but for the unknown of the Countrywide trouble.  But for some unspecified reason he still thinks that (i) the associated costs can't be reasonably estimated and/or managed, and (ii) (therefore?) that warrants a restructuring.

 

Either outcome would still be positive for the stock.  If they can manage and mitigate losses, then they come out ahead.  If they cannot manage and mitigate losses, they put Countrywide into bankruptcy and avoid future losses. 

 

I think creditors and plaintiffs will all see that getting something rather than nothing is the better way to go.  It's probably why they will settle with the GSE's, MBIA, etc and at levels within their reserves or very slightly above.  Cheers!

Link to comment
Share on other sites
Parsad Newbie

Parsad

Posted
Posted

$4.75B in principal reductions and 30,000 modifications in five months.  Well on their way to hitting all of their obligations in the first year of the three year agreement.  As I said, I think you'll see them clear up legacy and litigation issues through 2013, and clear quarters through 2014.

 

http://newsroom.bankofamerica.com/press-release/residential-mortgage/bank-america-provides-475-billion-first-lien-principal-reductions

 

And the best capitalized bank is.  Well it's actually Bank of New York Mellon at 9.3% Basel III Common Equity, but Bank of America is #2 at 8.97%...#1 out of the big banks.

 

http://wallstcheatsheet.com/stocks/and-the-best-capitalized-bank-is.html/

 

Cheers!

Link to comment
Share on other sites
ERICOPOLY Newbie

ERICOPOLY

Posted
Posted

From the Q&A -- LAS will largely come down to normalized quarterly expense level by FYE 13:

 

emphasis added:

 

Brennan Hawken - UBS: Just to make sure I understood, Brian, I think you had said that, as far as the trajectory of the decline in expenses overall for the – looking at the entire thing at LAS and taking a step back, moderate improvements in 2013, but the big lever there is 2014, is that right or am I reading too much into that?

 

Brian T. Moynihan - CEO: I think I was saying that, you'll get the improvements sort of on a quarterly basis all through '13, and in '14, you have the run rate of all that accumulated for you in year-over-year comparisons, but it's going to come all during '13, so it's not moderate.

Link to comment
Share on other sites
Guest rimm_never_sleeps

Guest rimm_never_sleeps

Posted
Posted

I just noticed today that dividend threshold for B warrant is $0.32 vs $0.01 for A warrant. May be lot of people on the forum are already aware about it but this going to matter as they will start paying out higher dividend in 2013.

 

In the case of "B" warrant, with an exercise price of more than 30$, do you think it really matter now when the stock is a t 9.45$?

 

you don't have to have a warrant ever be in the money to "make" money.

Link to comment
Share on other sites
ECCO Newbie

ECCO

Posted
Posted

I just noticed today that dividend threshold for B warrant is $0.32 vs $0.01 for A warrant. May be lot of people on the forum are already aware about it but this going to matter as they will start paying out higher dividend in 2013.

 

In the case of "B" warrant, with an exercise price of more than 30$, do you think it really matter now when the stock is a t 9.45$?

 

you don't have to have a warrant ever be in the money to "make" money.

 

Thanks, I know that. As far as I know most of the people here (and me) have the "A" warrant and not the "B". Most people seems to think that there is more money (with less risk?) to be made with the "A" instead of with the "B".

 

Feel free to give more details about theory and expectation.

Link to comment
Share on other sites
ERICOPOLY Newbie

ERICOPOLY

Posted
Posted

Let's say there are 70 cents of dividends missed by Jan 2015 if you hold the $10 strike calls. 

 

So the 2015 $10 strike call option really costs you 1.85+.70 = $2.55 per share.

 

I think somebody a while back used an optimistic yet achievable assumption to conclude the class A warrant could get down to a $10 strike by 2019 and with a per-share conversion adjustment of 1.2x.

 

Summary:,

CALL OPTION:  $2.45 

WARRANT:  effectively a $10 strike 2019 call option priced at $3.03

 

So, for next 4 years you would effectively be "borrowing" $10 per share for a total additional cost of 58 cents.  That's like 1.5% annualized interest rate for 4 years -- interest payable upfront.

 

Now, this depends entirely on how good the dividend payouts turn out to be... but it seems like a 30 cent dividend for 2013 seems entirely doable, then 40 cents in 2014, 50 cents in 2015, 60 cents per year after that.  It gets me down to about $10.50 per share on the warrant by 2019 -- I'm not sure if that's 1.2x conversion though.

 

Anyways, the warrants are starting to be attractive for sure.

Link to comment
Share on other sites
ERICOPOLY Newbie

ERICOPOLY

Posted
Posted

Another way to see the value of the warrants is that the $10 strike 2015 call options cost about 50 cents more for the 2015 maturity vs the 2014 maturity.  So, an implied 50 cent time value per annum.  Add another $2 to the price of the call to account for time values from Jan 2015 through Jan 2019.

 

That means a 2019 $10 strike call should cost about $3.80.

 

You can get the 2013 warrant for a bit less than that, with the $13.30 strike.  Given the dividend protection of the warrants, they do look competitively priced vs the options.

 

However if the stock rockets up quickly, the most leverage will be had on the lowest price paid per option.  In the case of $18 stock by next Christmas, for example, I'd expect the 2014s to do better than the 2015s, and the 2015s to do better than the warrants.

 

But the 2019 warrants come with the least maturity risk -- what if economy flares up or whatever in the shorter term.... there's more time to work our way through the fog and making money in the end.

 

So the "fog" has lifted a bit regarding the bank itself, regarding Europe, etc... and the warrants may have suffered some loss of premium for that.

Link to comment
Share on other sites

Create an account or sign in to comment

You need to be a member in order to leave a comment

Create an account

Sign up for a new account in our community. It's easy!

Register a new account

Sign in

Already have an account? Sign in here.

Sign In Now
 Share
Go to topic listing


×
×
  • Create New...