BAC-WT - Bank of America Warrants

[biaggio]

 

 

Thanks for response. And thanks for correction Mystic.

 

With respect to levering, is it not wise to see how much possible upside you have for possibly losing all your bet? I think thats what I was thinking. I would be more than happy to get 300% with less down side and forget about leveraging.

 

I agree: the majority of my BAC position is commons. However let's not forget that A-warrants are 40% cheaper than the commons. With the leverage they offer, I think they are a good way to gain additional upside exposure:

 

Let's compose three portfolios:

Portfolio 1 : 100% BAC Common

Portfolio 2: 100% BAC A-Warrants

Portfolio 3: 75% Common ; 25% A-Warrants

 

Here are the results given your assumptions:

 

2019          Portfolio A Portfolio B Portfolio C

if assume:

BAC at $13.30      40 -100         5

BAC at $15          57 -45         43

BAC at $20          111 180         128.25

BAC at $30          217 449         275

BAC at $40          322 718         421

 

If you think BAC will be above $21-22ish by 2019, holding 25% of your BAC long position in A-Warrants is a profitable endeavor.

 

I was thinking of adding a bit just like you ve illustrated

[Parsad]

SeekingAlpha just had a some more dull article yesterday about BAC. Usually they have uniquely articles, but to me the author seems a little bit shortsighted. Doesn't he realize that BAC is like an old bottle of wine, the more you let it age, the more precious it becomes.

 

http://seekingalpha.com/article/930851-bank-of-america-s-financial-performance

 

Conclusion

 

The third quarter was disappointing. The net income numbers were horrible. Bank of America lacks the ability to adjust operating expenses to meet operating income. The decline in operating income isn't a one quarter event, it is a trend. The operating segment financial performance on a revenue basis isn't good. The short-term valuation may be a bit extended.

 

While the economic data is improving, Bank of America's operations aren't. I maintain a neutral rating for investors. Traders can look for opportunities to short-sell shares of Bank of America.

 

The guy's an idiot.  As soon as I hear anyone say "I maintain... rating", I wish they would just shut up.  As I stated a long time ago, this is very much like Fairfax and their runoff business.  They were getting hit quarter after quarter, and the markets could not see the positives happening.  Finally, they took one big hit and cleaned everything up.

 

BAC is taking hits quarter after quarter on legacy issues right now.  Once litigation and bad loans are about half-way runoff...we are getting there...then you will see the push in quarterly earnings.  Get the balance sheet right, settle legacy issues, runoff the poor loans and the market will eventually value the business where it should be relative to intrinsic value.  Cheers!

[Kraven]

SeekingAlpha just had a some more dull article yesterday about BAC. Usually they have uniquely articles, but to me the author seems a little bit shortsighted. Doesn't he realize that BAC is like an old bottle of wine, the more you let it age, the more precious it becomes.

 

http://seekingalpha.com/article/930851-bank-of-america-s-financial-performance

 

Conclusion

 

The third quarter was disappointing. The net income numbers were horrible. Bank of America lacks the ability to adjust operating expenses to meet operating income. The decline in operating income isn't a one quarter event, it is a trend. The operating segment financial performance on a revenue basis isn't good. The short-term valuation may be a bit extended.

 

While the economic data is improving, Bank of America's operations aren't. I maintain a neutral rating for investors. Traders can look for opportunities to short-sell shares of Bank of America.

 

The guy's an idiot.  As soon as I hear anyone say "I maintain... rating", I wish they would just shut up.  As I stated a long time ago, this is very much like Fairfax and their runoff business.  They were getting hit quarter after quarter, and the markets could not see the positives happening.  Finally, they took one big hit and cleaned everything up.

 

BAC is taking hits quarter after quarter on legacy issues right now.  Once litigation and bad loans are about half-way runoff...we are getting there...then you will see the push in quarterly earnings.  Get the balance sheet right, settle legacy issues, runoff the poor loans and the market will eventually value the business where it should be relative to intrinsic value.  Cheers!

 

I'm pretty shocked at all the posters questioning and criticizing this article.  Don't you know it was on Seeking Alpha?  That's like the gold standard for investment analysis.  They don't just let anyone post articles there. 

 

[Parsad]

SeekingAlpha just had a some more dull article yesterday about BAC. Usually they have uniquely articles, but to me the author seems a little bit shortsighted. Doesn't he realize that BAC is like an old bottle of wine, the more you let it age, the more precious it becomes.

 

http://seekingalpha.com/article/930851-bank-of-america-s-financial-performance

 

Conclusion

 

The third quarter was disappointing. The net income numbers were horrible. Bank of America lacks the ability to adjust operating expenses to meet operating income. The decline in operating income isn't a one quarter event, it is a trend. The operating segment financial performance on a revenue basis isn't good. The short-term valuation may be a bit extended.

 

While the economic data is improving, Bank of America's operations aren't. I maintain a neutral rating for investors. Traders can look for opportunities to short-sell shares of Bank of America.

 

The guy's an idiot.  As soon as I hear anyone say "I maintain... rating", I wish they would just shut up.  As I stated a long time ago, this is very much like Fairfax and their runoff business.  They were getting hit quarter after quarter, and the markets could not see the positives happening.  Finally, they took one big hit and cleaned everything up.

 

BAC is taking hits quarter after quarter on legacy issues right now.  Once litigation and bad loans are about half-way runoff...we are getting there...then you will see the push in quarterly earnings.  Get the balance sheet right, settle legacy issues, runoff the poor loans and the market will eventually value the business where it should be relative to intrinsic value.  Cheers!

 

I'm pretty shocked at all the posters questioning and criticizing this article.  Don't you know it was on Seeking Alpha?  That's like the gold standard for investment analysis.  They don't just let anyone post articles there. 

 

You should read the "comments" section of the article.  Some guys took it to him.  He then says he changed his view since he wrote that article...what he changed it to I don't know.  And in 24 hours somehow he changed his view on this thing...so is it still a "neutral" rating...I need to know, because I don't know if I should buy or sell this thing, or even stay neutral!  Geez.  Cheers!

[Kraven]

SeekingAlpha just had a some more dull article yesterday about BAC. Usually they have uniquely articles, but to me the author seems a little bit shortsighted. Doesn't he realize that BAC is like an old bottle of wine, the more you let it age, the more precious it becomes.

 

http://seekingalpha.com/article/930851-bank-of-america-s-financial-performance

 

Conclusion

 

The third quarter was disappointing. The net income numbers were horrible. Bank of America lacks the ability to adjust operating expenses to meet operating income. The decline in operating income isn't a one quarter event, it is a trend. The operating segment financial performance on a revenue basis isn't good. The short-term valuation may be a bit extended.

 

While the economic data is improving, Bank of America's operations aren't. I maintain a neutral rating for investors. Traders can look for opportunities to short-sell shares of Bank of America.

 

The guy's an idiot.  As soon as I hear anyone say "I maintain... rating", I wish they would just shut up.  As I stated a long time ago, this is very much like Fairfax and their runoff business.  They were getting hit quarter after quarter, and the markets could not see the positives happening.  Finally, they took one big hit and cleaned everything up.

 

BAC is taking hits quarter after quarter on legacy issues right now.  Once litigation and bad loans are about half-way runoff...we are getting there...then you will see the push in quarterly earnings.  Get the balance sheet right, settle legacy issues, runoff the poor loans and the market will eventually value the business where it should be relative to intrinsic value.  Cheers!

 

I'm pretty shocked at all the posters questioning and criticizing this article.  Don't you know it was on Seeking Alpha?  That's like the gold standard for investment analysis.  They don't just let anyone post articles there. 

 

You should read the "comments" section of the article.  Some guys took it to him.  He then says he changed his view since he wrote that article...what he changed it to I don't know.  And in 24 hours somehow he changed his view on this thing...so is it still a "neutral" rating...I need to know, because I don't know if I should buy or sell this thing, or even stay neutral!  Geez.  Cheers!

 

I will definitely do so.  I just checked this article out and I can tell this guy really knows what he's doing since he's got the vaunted CMT designation after his name.  That's Chartered Market Technician for those of you who don't know.  And there's a picture of him walking shirtless away from the ocean on the beach.  I typically prefer my analysis to come from people who use a beach picture as their professional calling card.  I mean come on guys, this one really is pretty much above reproach. 

[MrB]

SeekingAlpha just had a some more dull article yesterday about BAC. Usually they have uniquely articles, but to me the author seems a little bit shortsighted. Doesn't he realize that BAC is like an old bottle of wine, the more you let it age, the more precious it becomes.

 

http://seekingalpha.com/article/930851-bank-of-america-s-financial-performance

 

Conclusion

 

The third quarter was disappointing. The net income numbers were horrible. Bank of America lacks the ability to adjust operating expenses to meet operating income. The decline in operating income isn't a one quarter event, it is a trend. The operating segment financial performance on a revenue basis isn't good. The short-term valuation may be a bit extended.

 

While the economic data is improving, Bank of America's operations aren't. I maintain a neutral rating for investors. Traders can look for opportunities to short-sell shares of Bank of America.

 

The guy's an idiot.  As soon as I hear anyone say "I maintain... rating", I wish they would just shut up.  As I stated a long time ago, this is very much like Fairfax and their runoff business.  They were getting hit quarter after quarter, and the markets could not see the positives happening.  Finally, they took one big hit and cleaned everything up.

 

BAC is taking hits quarter after quarter on legacy issues right now.  Once litigation and bad loans are about half-way runoff...we are getting there...then you will see the push in quarterly earnings.  Get the balance sheet right, settle legacy issues, runoff the poor loans and the market will eventually value the business where it should be relative to intrinsic value.  Cheers!

 

I'm pretty shocked at all the posters questioning and criticizing this article.  Don't you know it was on Seeking Alpha?  That's like the gold standard for investment analysis.  They don't just let anyone post articles there. 

 

You should read the "comments" section of the article.  Some guys took it to him.  He then says he changed his view since he wrote that article...what he changed it to I don't know.  And in 24 hours somehow he changed his view on this thing...so is it still a "neutral" rating...I need to know, because I don't know if I should buy or sell this thing, or even stay neutral!  Geez.  Cheers!

 

I will definitely do so.  I just checked this article out and I can tell this guy really knows what he's doing since he's got the vaunted CMT designation after his name.  That's Chartered Market Technician for those of you who don't know.  And there's a picture of him walking shirtless away from the ocean on the beach.  I typically prefer my analysis to come from people who use a beach picture as their professional calling card.  I mean come on guys, this one really is pretty much above reproach.

 

Why are you guys getting so upset? You're biting the hand that feeds you.

[Parsad]

Why are you guys getting so upset? You're biting the hand that feeds you.

 

Martin, you've seen me...I'm always hungry!  ;D  Cheers!

[berkshiremystery]

hmmm if BAC is at $15 wta will have a -50% return not positive

 

base on my calculation wta becomes more profitable if BAC's stock is beyond $22

 

how much do you guys BAC will be worth ultimately at $22 it will have a market cap of approx 240B

 

 

 

Thanks for response. And thanks for correction Mystic.

 

With respect to levering, is it not wise to see how much possible upside you have for possibly losing all your bet? I think thats what I was thinking. I would be more than happy to get 300% with less down side and forget about leveraging.

 

I agree: the majority of my BAC position is commons. However let's not forget that A-warrants are 40% cheaper than the commons. With the leverage they offer, I think they are a good way to gain additional upside exposure:

 

Let's compose three portfolios:

Portfolio 1 : 100% BAC Common

Portfolio 2: 100% BAC A-Warrants

Portfolio 3: 75% Common ; 25% A-Warrants

 

Here are the results given your assumptions:

 

2019          Portfolio A Portfolio B Portfolio C

if assume:

BAC at $13.30      40 -100         5

BAC at $15          57 45         54

BAC at $20          111 180         128.25

BAC at $30          217 449         275

BAC at $40          322 718         421

 

If you think BAC will be above $15.75? by 2019, holding 25% of your BAC long position in A-Warrants is a profitable endeavor.

 

hyten1,...

 

I might add that a x%percentage gain in book value per share is not always similar to the same x%percentage gain in the total equity base. Because --> "If" they are able to repurchase shares tremendously below book value, the book value per share gain should advance faster than the total equity base. Thus a total market cap estimate for the future is also irrelevant at the recent point,... as long the share price is tremendously at half book value. The intrinsic value per share might grow faster, while at the same time the total market cap grows slowly (i.e.: Buffett IBM thesis). I personally look at per share numbers not total numbers.

[berkshiremystery]

SeekingAlpha just had a some more dull article yesterday about BAC. Usually they have uniquely articles, but to me the author seems a little bit shortsighted. Doesn't he realize that BAC is like an old bottle of wine, the more you let it age, the more precious it becomes.

 

http://seekingalpha.com/article/930851-bank-of-america-s-financial-performance

 

Conclusion

 

The third quarter was disappointing. The net income numbers were horrible. Bank of America lacks the ability to adjust operating expenses to meet operating income. The decline in operating income isn't a one quarter event, it is a trend. The operating segment financial performance on a revenue basis isn't good. The short-term valuation may be a bit extended.

 

While the economic data is improving, Bank of America's operations aren't. I maintain a neutral rating for investors. Traders can look for opportunities to short-sell shares of Bank of America.

 

The guy's an idiot.  As soon as I hear anyone say "I maintain... rating", I wish they would just shut up.  As I stated a long time ago, this is very much like Fairfax and their runoff business.  They were getting hit quarter after quarter, and the markets could not see the positives happening.  Finally, they took one big hit and cleaned everything up.

 

BAC is taking hits quarter after quarter on legacy issues right now.  Once litigation and bad loans are about half-way runoff...we are getting there...then you will see the push in quarterly earnings.  Get the balance sheet right, settle legacy issues, runoff the poor loans and the market will eventually value the business where it should be relative to intrinsic value.  Cheers!

 

I'm pretty shocked at all the posters questioning and criticizing this article.  Don't you know it was on Seeking Alpha?  That's like the gold standard for investment analysis.  They don't just let anyone post articles there. 

 

You should read the "comments" section of the article.  Some guys took it to him.  He then says he changed his view since he wrote that article...what he changed it to I don't know.  And in 24 hours somehow he changed his view on this thing...so is it still a "neutral" rating...I need to know, because I don't know if I should buy or sell this thing, or even stay neutral!  Geez.  Cheers!

 

I will definitely do so.  I just checked this article out and I can tell this guy really knows what he's doing since he's got the vaunted CMT designation after his name.  That's Chartered Market Technician for those of you who don't know.  And there's a picture of him walking shirtless away from the ocean on the beach.  I typically prefer my analysis to come from people who use a beach picture as their professional calling card.  I mean come on guys, this one really is pretty much above reproach.

 

He should rather call himself CMC or Charted Market Charlatan,...  ::)

 

Oops!... please spank my ass,... for my naughty words,... but I wanted to stay impolite for 1 sec. ;D

 

But he is using the words "trader" for himself,... trading frequency: "daily".

 

[hyten1]

berkshiremystery, i agree, its just an sanity check for me when i look at market cap.

 

hy

 

SeekingAlpha just had a some more dull article yesterday about BAC. Usually they have uniquely articles, but to me the author seems a little bit shortsighted. Doesn't he realize that BAC is like an old bottle of wine, the more you let it age, the more precious it becomes.

 

http://seekingalpha.com/article/930851-bank-of-america-s-financial-performance

 

Conclusion

 

The third quarter was disappointing. The net income numbers were horrible. Bank of America lacks the ability to adjust operating expenses to meet operating income. The decline in operating income isn't a one quarter event, it is a trend. The operating segment financial performance on a revenue basis isn't good. The short-term valuation may be a bit extended.

 

While the economic data is improving, Bank of America's operations aren't. I maintain a neutral rating for investors. Traders can look for opportunities to short-sell shares of Bank of America.

 

The guy's an idiot.  As soon as I hear anyone say "I maintain... rating", I wish they would just shut up.  As I stated a long time ago, this is very much like Fairfax and their runoff business.  They were getting hit quarter after quarter, and the markets could not see the positives happening.  Finally, they took one big hit and cleaned everything up.

 

BAC is taking hits quarter after quarter on legacy issues right now.  Once litigation and bad loans are about half-way runoff...we are getting there...then you will see the push in quarterly earnings.  Get the balance sheet right, settle legacy issues, runoff the poor loans and the market will eventually value the business where it should be relative to intrinsic value.  Cheers!

 

I'm pretty shocked at all the posters questioning and criticizing this article.  Don't you know it was on Seeking Alpha?  That's like the gold standard for investment analysis.  They don't just let anyone post articles there. 

 

You should read the "comments" section of the article.  Some guys took it to him.  He then says he changed his view since he wrote that article...what he changed it to I don't know.  And in 24 hours somehow he changed his view on this thing...so is it still a "neutral" rating...I need to know, because I don't know if I should buy or sell this thing, or even stay neutral!  Geez.  Cheers!

 

I will definitely do so.  I just checked this article out and I can tell this guy really knows what he's doing since he's got the vaunted CMT designation after his name.  That's Chartered Market Technician for those of you who don't know.  And there's a picture of him walking shirtless away from the ocean on the beach.  I typically prefer my analysis to come from people who use a beach picture as their professional calling card.  I mean come on guys, this one really is pretty much above reproach.

 

He should rather call himself CMC or Charted Market Charlatan,...  ::)

 

Oops!... please spank my ass,... for my naughty words,... but I wanted to stay impolite for 1 sec. ;D

 

But he is using the words "trader" for himself,... trading frequency: "daily".

[berkshiremystery]

 

 

Thanks for response. And thanks for correction Mystic.

 

With respect to levering, is it not wise to see how much possible upside you have for possibly losing all your bet? I think thats what I was thinking. I would be more than happy to get 300% with less down side and forget about leveraging.

 

I agree: the majority of my BAC position is commons. However let's not forget that A-warrants are 40% cheaper than the commons. With the leverage they offer, I think they are a good way to gain additional upside exposure:

 

Let's compose three portfolios:

Portfolio 1 : 100% BAC Common

Portfolio 2: 100% BAC A-Warrants

Portfolio 3: 75% Common ; 25% A-Warrants

 

Here are the results given your assumptions:

 

2019          Portfolio A Portfolio B Portfolio C

if assume:

BAC at $13.30      40 -100         5

BAC at $15          57 -45         43

BAC at $20          111 180         128.25

BAC at $30          217 449         275

BAC at $40          322 718         421

 

If you think BAC will be above $21-22ish by 2019, holding 25% of your BAC long position in A-Warrants is a profitable endeavor.

 

LC link,...

see this is almost exactly the weighting of my BAC investment: a mixture of 70% equity, 25% a warrants, and some 5% leaps. Some big safe equity base (i.e. 70%),... and thereafter a smaller weighting (warrants+leaps) to leverage the overall return up.

 

but I'm full aware of Eric's point of view...

 

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.

 

... the biggest gains will be made in the shortest duration instruments with the biggest leverage factor,... i.e. : "if" the stocks rockets tremendously in the next 12 months,... probably the most gains in 2014 leaps, thereafter in 2015 leaps, and in the warrants. So, the holy grail lies in adapting the leverage weighting without risking expired options.

 

 

 

 

[berkshiremystery]

Bill Miller's Housing Spree Pays Off

Oct. 18, 2012 - BusinessWeek.com

 

http://www.businessweek.com/articles/2012-10-18/bill-millers-housing-spree-pays-off?campaign_id=yhoo

"Housing fundamentals are likely to be positive for years,” says Miller, 62. “The stocks have run, but in our judgment are not even close to reflecting that long cycle.”

 

Miller’s willingness “to go out on a limb and buy things that look ugly”

 

While conceding he was too early in expecting a turn in housing, Miller says a bounceback was “a mathematical inevitability” because the housing slump drove starts and purchases so low that pent-up demand was bound to kick in. Housing starts surged 15 percent in September to the highest level in four years.

 

[MYDemaray]

 

I've done some work on this issue because I think it will be a major driver for earnings at some point. 

 

So Q3, they're showing 936,000 60+ day delinquencies and that's costing them $3Bn/quarter or $12Bn/year, or call it $14,000/delinquency.

Earlier comments suggest that normalized is 300,000 delinquencies that will cost them $500MM/quarter, or $2Bn/year.  Call that $6,000/delinquency. 

 

In other words, two pieces are elevated - both the number of delinquent customers AND the servicing cost per customer. 

 

Here's where my conjecture comes in.  I believe the foreclosure settlement mandated some expensive items need to be completed in 2012.  And I think that's why you see the cost per delinquency more than double the "normalized" rate.  Thus I think in Q1 or Q2 2013 you will see a major drop in LAS expenses, because (assuming they're following the settlement) some expensive components will be done. 

 

So I view it as a slow drop in general (as they go through the pipeline), but a fast drop sometime early next year as their expenses per delinquency drops rapidly. 

 

I don't know this for a fact, it's just my piecing together of various comments and what I've read about the foreclosure settlement. 

 

 

 

Matt O'Connor - Deutsche Bank

Good morning. A couple of follow-ups on the legacy mortgage costs and looking out beyond fourth quarter, just trying to get a sense of how quickly they may come down and I guess, how easy you think it may be to forecast, just think about modest loan price appreciation from here and nothing unusual on the regulatory side?

 

Bruce Thompson - CFO

Well, I think, I would say that we expect them to come down, there have been, one of the things that’s been difficult about this is the third party impacts and timing of that and from what we may have thought last year at this time for example, so the Department of Justice settlement took longer to get finalized therefore it took longer to put in, so, those, yeah, so there is outside impacts going to have them.

 

But given everything we know, we would expect them to come down next quarter and beyond. We got to be careful because sometimes there are sort of non-operating adjustments in there. So just if you think about the headcount and the work we do, because the 60 plus day delinquencies are down as you see on the slide, that we can forecast in the work and what we’re seeing as we’re modifying a lot of loans and getting through those, the short sale volumes are as high as they’ve ever been and the liquidation volumes are high.

 

So everything we see says that we just have to be a little careful about how we report our quarter based on ebbs and flows and some of the legislation gets passed the state levels and things like that and they can have an impact.

 

I would tell you that, what we’re seeing as the inventory clears very quickly, so as we get to the properties, they sell quickly within 60 days to 90 days that’s been true; we’re seeing by geography that areas where the process can move forward and we’re seeing the outstanding 60 plus rate drop more dramatically because in the California, Arizona versus the areas which moved a little slower, New Jersey or Illinois for example. But everything we said, this is this is coming down because the works going away. You point your finger to the one key question which is if changes are made to the policies or programs that can slow it down, but I don't think there is much volume; we are seeing reduction 60 plus, that would overcome that frankly.

 

Matt O'Connor - Deutsche Bank

And maybe I’ll just toss some numbers out there, you are at $12 billion annual run rate right now, I feel like at one point you said $2 billion could be a more sustainable level as you move through all this, so that's a $10 billion decline. Any guess on, does it take two years to get through that, is it five years to get through that?

 

xazp -- is this the same number that was referred to in the dialog between Matt O'Connor and Bruce Thompson on the Q3 call?  Assuming it is, since it squares.  Secondly, do you think any of this is baked into the $8B New BAC figure, or are those separate opportunities from your understanding?

 

Lastly, any thoughts on normalized litigation expense?  $1B/year?

 

Assuming New BAC is separate, this seems to imply $19B of cost savings opportunities....no?

[ERICOPOLY]

 

Assuming New BAC is separate, this seems to imply $19B of cost savings opportunities....no?

 

They are separate.

 

They are already part way through NewBAC Phase I and I think were already realizing $1b in annualized cost savings at end of Q2.

 

They also stated that Phase I of newBAC will be completely in place by end of Q3 FY13 (that's $4b remaining to be realized).

 

They also save another $1b in interest expenses on every $30b of LT debt that matures and is replaced with deposit funding.  So they should be able to pick up another $1b in savings there over the next year.

 

So $4b  + $10b + $1b == $15b in annualized expenses eliminated by FYE 13.

 

Then perhaps there are some substantial legal expenses to be saved as well.

 

Of course this doesn't even include the $3b of NewBac Phase 2 cost savings to be delivered by mid-2015.  And if by then they've shaved yet another $30b from the LT debt picture, then we're at $20b in annual expense savings counting the $1b you estimated for legal.

[Parsad]

 

Assuming New BAC is separate, this seems to imply $19B of cost savings opportunities....no?

 

They are separate.

 

They are already part way through NewBAC Phase I and I think were already realizing $1b in annualized cost savings at end of Q2.

 

They also stated that Phase I of newBAC will be completely in place by end of Q3 FY13 (that's $4b remaining to be realized).

 

They also save another $1b in interest expenses on every $30b of LT debt that matures and is replaced with deposit funding.  So they should be able to pick up another $1b in savings there over the next year.

 

So $4b  + $10b + $1b == $15b in annualized expenses eliminated by FYE 13.

 

Then perhaps there are some substantial legal expenses to be saved as well.

 

Of course this doesn't even include the $3b of NewBac Phase 2 cost savings to be delivered by mid-2015.  And if by then they've shaved yet another $30b from the LT debt picture, then we're at $20b in annual expense savings counting the $1b you estimated for legal.

 

You got it!  And I think you're being awfully conservative here.  They trimmed $112B in long-term debt in the last year.  I think they'll remain aggressive.  We still have not discussed more asset sales, more branch closings, spinoffs of existing businesses or any increases in operating segments.  Cheers!

[ERICOPOLY]

At the beginning of 2011 they were bringing in $12.5b net interest income.  Now it's only $10.5b.  And the beginning of 2011 was hardly a great time for the NIM.

 

Has anyone computed the size of the interest income hole we're currently experiencing relative to a "normalized" interest environment with a healthy forward curve?

 

I reallize this environment could last a long time, but it's something to look forward to.

 

What if on top of the $20b of expense savings we also get $10b+ on the revenue side?

 

$30+b?

 

[ERICOPOLY]

I actually sold everything else on Wed/Thu this week and increased my BAC.  It's like a fish in a barrel, with the barrel drained.

[PlanMaestro]

Assuming New BAC is separate, this seems to imply $19B of cost savings opportunities....no?

 

Michael, these are the sort of numbers I was thinking about. And they may still be conservative. 1.3-1.4% ROA after-tax is the kind of profitability to expect of a bank of this quality, with this cost-of-funds, in a more normal environment.

[benchmark]

I actually sold everything else on Wed/Thu this week and increased my BAC.  It's like a fish in a barrel, with the barrel drained.

 

Wow, so you are 100% on BAC?  did you buy common only or leaps + warrants, if you don't mind sharing?

[LC]

Do the A-Warrants have a CUSIP #? I've been trying to locate it but can't seem to find. It's mentioned nowhere in the prospectus either, interestingly enough.

[xazp]

I think BAC can improve their various ratios (ROE, ROA, ROC, NIM, etc) even in the absence of a better interest rate environment.  Let's do a hypothetical example. 

 

They have about one million 60+ mortgage delinquencies.  Let's say one of these is a $300,000 home.  It's a $300,000 asset, equity, and consumes a lot of RWA, since it's a non-performer (i.e. "high risk"). 

 

Well it's delinquent, meaning it's not paying any interest.  So on this particular "asset", the NIM is $0. 

 

Furthermore, per my earlier post, it's costing $16,000 in non-interest expense to actually get through the foreclosure pipeline.  And until recently, due to the housing downturn, it was losing value too. 

 

---

 

OK when they finally convert this $300,000 home into $300,000 of cash, what happens?  Well, let's say it's re-lent as a 4% loan to whomever.  So now all of a sudden you've got $12,000 in revenues where before you had none.  And it costs relatively little to process a paying loan, so you've got say $0 in costs where you used to have $16,000.  Your NIM on this theoretical $300,000 has gone from 0 to $12,000.  So you have this huge swing, costs down, NIM/revenues/etc up.  And it's not dependent on a better interest rate environment at all. 

 

Similarly, ROA, ROE, etc would all improve, by simply converting a non-paying, high-expense asset into a paying, low-expense one.  Many of the ratios, metrics, etc, would improve from this - including the all-important B3 Capital ratio. 

 

Alternatively they can take that $300,000 in cash and return it to shareholders. 

 

I don't really see people talking about this side, but you get almost as much positive benefit to revenues as cost savings ... but most people are just focusing on the costs.

 

 

At the beginning of 2011 they were bringing in $12.5b net interest income.  Now it's only $10.5b.  And the beginning of 2011 was hardly a great time for the NIM.

 

Has anyone computed the size of the interest income hole we're currently experiencing relative to a "normalized" interest environment with a healthy forward curve?

 

I reallize this environment could last a long time, but it's something to look forward to.

 

What if on top of the $20b of expense savings we also get $10b+ on the revenue side?

 

$30+b?

[thomcapital]

Do the A-Warrants have a CUSIP #? I've been trying to locate it but can't seem to find. It's mentioned nowhere in the prospectus either, interestingly enough.

 

I'm seeing: #060505146

[LC]

Do the A-Warrants have a CUSIP #? I've been trying to locate it but can't seem to find. It's mentioned nowhere in the prospectus either, interestingly enough.

 

I'm seeing: #060505146

Thank you

[mankap]

Eric

Being 100% in BAC is big vote of confidence in BAC and the CEO.

 

Regarding NIM,BAC's NIM is more 100 bps lower than WFC.

WFC's NIM for 3Q12 is 3.66%.BAC NIY is 2.39%.

Even if they can get to WFC level it will add $10B+ in revenue .

This is at the current interest levels and not when the yield curve steepens.

Once the hosing mess is cleared and interest rates go to normal level, BAC's NIM can go to 4%.

[ERICOPOLY]

I actually sold everything else on Wed/Thu this week and increased my BAC.  It's like a fish in a barrel, with the barrel drained.

 

Wow, so you are 100% on BAC?  did you buy common only or leaps + warrants, if you don't mind sharing?

 

common+in.the.money.leaps give me 100% notional exposure.

"A" warrants and $10 strike 2014&2015 calls give me the leverage