BAC-WT - Bank of America Warrants

[finetrader]

Now the AIG warrant is priced at about 40% of the common price, and the BAC warrant is also now priced at about 40% of the common.

And both stocks are priced fairly similarly relative to the warrant strike.

 

But one can argue that BAC warrant A with his above .01$ dividend adjustment is worth more than the AIG warrant (which I think is above .37$).

 

[redskin]

 

Now, I am fully cognizant that the math on this is very bad, but it seems the BAC warrants are cheap on a ballpark basis.  I expect as the stock closes on the strike the warrants will price upward very rapidly, probably on a nearly, one to one basis.

 

 

If it gets to the strike tomorrow, than maybe. If a year from now than maybe not due to the decay in time value.  I'm saying this because you are implying the BAC.A should behave similar to the WFC warrants (thus they are cheaper) and the fact is that when WFC common passed the strike price nothing really happened. 

 

Do you have any idea how all these TARP warrants were priced in the first place? Would love to know the answer to that.

 

The Treasury received the TARP warrants in return for their funds.  Treasury then sold the warrants to the public through an auction.

[ERICOPOLY]

Now the AIG warrant is priced at about 40% of the common price, and the BAC warrant is also now priced at about 40% of the common.

And both stocks are priced fairly similarly relative to the warrant strike.

 

But one can argue that BAC warrant A with his above .01$ dividend adjustment is worth more than the AIG warrant (which I think is above .37$).

 

That's true, it should be considered while contemplating that AIG's warrants have 33% more time in them before expiry.

 

 

[Uccmal]

This is usually the point at which my brain explodes.....

[LC]

Federal Gov't sues BOA $1Bln over Countrywide's mortgages

 

http://www.chicagotribune.com/business/breaking/chi-us-sues-bofa-over-sale-of-toxic-mortgages-20121024,0,6778589.story

[MYDemaray]

Federal Gov't sues BOA $1Bln over Countrywide's mortgages

 

http://www.chicagotribune.com/business/breaking/chi-us-sues-bofa-over-sale-of-toxic-mortgages-20121024,0,6778589.story

 

For reference, I looked at the other 5 suits from this task force:

 

CitiMortgage - $158M settlement, announced simultaneously with the lawsuit

 

Flagstar Bank - $133M settlement, announced simultaneously with the lawsuit

 

Deutsche Bank and MortgageIt - $202M settlement, announced after the suit.  Initial suit amount not clear.  States $386M in insurance claims had been paid to DB & MortgageIt

 

Allied Home Mortgage - pending

 

Wells Fargo - pending

 

Doesn't really provide much info, IMHO.  Simply that BAC was not going to settle this thing upon announcement.

[racemize]

I guess we are expecting another one for the MBSs, similar to JPM still...

 

Also, I thought there was already a US fraud suit against BAC for countrywide?

 

http://news.yahoo.com/u-files-mortgage-fraud-lawsuit-against-wells-fargo-202947891--finance.html

"The U.S. Attorney's office in Brooklyn brought the biggest such case, against Bank of America Corp's Countrywide unit, which agreed in February to pay $1 billion to resolve the allegations."

[xazp]

I've only taken a quick look (here is the complaint:  http://newsandinsight.thomsonreuters.com/uploadedFiles/Reuters_Content/2012/10_-_October/BofA_Complaint.pdf)

 

The lawsuit has some problems:

1)  The statute of limitations for a FCA complaint (see:  http://www.arentfox.com/publications/index.cfm?fa=legalUpdateDisp&content_id=856) is 3 years after the plaintiff found out about the fraud.  This is problematic because the complaint itself states that Countrywide issued securities in 2006-2009, and those securities almost immediately defaulted.  So they should have been vaguely aware there was a problem with these mortgages by 2009, which means it's a little late to complain now.  It's also problematic because other federal courts have found that you could have reasonably known about Countrywide (see some of judge pfaelzer's comments) back in 2008.  It's going to be a difficult argument to say the biggest mortgage companies in the world did not somehow realize there was a problem with countrywide securities until 2010.

 

2)  There's the further problem that BAC settled completely with Freddie over these issues.  And they've done partial settlements with fannie, and repurchased billions of these guys under R&W.  So I also think this is just a different angle on the same ole' outstanding problem which is how much does BAC owe on the CFC stuff to Fannie/Freddie. 

 

3)  They claim $1Bn in losses which is, I believe, far less than what BAC has reserved for these things anyway.  So if $1Bn makes the GSEs go away, pay it, pay it now!

 

-- My guess is this is a lawsuit to try to twist some arms and get BAC to settle their remaining issues with Fannie. 

 

 

 

Federal Gov't sues BOA $1Bln over Countrywide's mortgages

 

http://www.chicagotribune.com/business/breaking/chi-us-sues-bofa-over-sale-of-toxic-mortgages-20121024,0,6778589.story

[PlanMaestro]

Xasp,

 

(1) Take a second look to the link. It's 6 years since the violation was committed. The 3 years refers to knowledge of material facts:

 

It forecloses any FCA action being brought: more than 3 years after the date when facts material to the right of the action are known or reasonably should have been known by the official of the United States charged with responsibility to acting the circumstances, but in no event more than 10 years after the date on which the violation is committed.

 

(2) The FHA is the only one that has settled an FCA complaint with Bank of America. Freddie is a different case. Actually, more FCA complaints may be coming like the one with JP Morgan regarding RMBS.

 

(3) It is probably reserved but definitely do not pay it now. The action has nothing to do with the Fannie negotiations, they are going after all the banks.

[xazp]

(1)  That's what I said (I summarized it as "3 years after they found out about the fraud").  Judge pfaelzer said reasonable plaintiffs would have known about the countrywide fraud in early 2008 at the latest.  She cites the evening news and multiple lawsuits on or before 2008.

 

Here's an example.  This FAC case was filed Feb 2011, a year and a half ago.  It was dismissed more than a year ago on precisely the grounds I am citing. 

http://crapstocks.com/files/BAC/legal/stichtingvbofaMTSopinion.pdf

start reading on page 13. 

Or if you prefer:  http://newsandinsight.thomsonreuters.com/Legal/News/2011/08_-_August/L_A__judge_puts_time_limit_on_BofA_MBS_fraud_claims/

 

(2)  The FHA case is not what I"m referring to.  It's this settlement with Freddie done Q1 2011:  http://www.bloomberg.com/news/2011-01-03/bank-of-america-sees-2-billion-charge-on-home-loans-insurance.html

 

Freddie settled ALL reps & warranties claims from CFC loans prior to 2008.  The manhattan DA is doing the legal equivalent of suing over R&W, but at least Freddie is all settled out.  Fannie is a different matter. 

 

 

 

 

 

 

 

 

 

Xasp,

 

(1) Take a second look to the link. It's 6 years since the violation was committed. The 3 years refers to knowledge of material facts:

 

It forecloses any FCA action being brought: more than 3 years after the date when facts material to the right of the action are known or reasonably should have been known by the official of the United States charged with responsibility to acting the circumstances, but in no event more than 10 years after the date on which the violation is committed.

 

(2) The FHA is the only one that has settled an FCA complaint with Bank of America. Freddie is a different case. Actually, more FCA complaints may be coming like the one with JP Morgan regarding RMBS.

 

(3) It is probably reserved but definitely do not pay it now. The action has nothing to do with the Fannie negotiations, they are going after all the banks.

[PlanMaestro]

I will take a deep breath and leave it at that. Thanks xasp.

[Kraven]

The lawsuit has some problems:

1)  The statute of limitations for a FCA complaint (see:  http://www.arentfox.com/publications/index.cfm?fa=legalUpdateDisp&content_id=856) is 3 years after the plaintiff found out about the fraud.  This is problematic because the complaint itself states that Countrywide issued securities in 2006-2009, and those securities almost immediately defaulted.  So they should have been vaguely aware there was a problem with these mortgages by 2009, which means it's a little late to complain now.  It's also problematic because other federal courts have found that you could have reasonably known about Countrywide (see some of judge pfaelzer's comments) back in 2008.  It's going to be a difficult argument to say the biggest mortgage companies in the world did not somehow realize there was a problem with countrywide securities until 2010.

 

It may have pertained to something else, but aren't there tolling agreements in place?

[MrB]

Meredith on the banks. She likes BAC

http://video.cnbc.com/gallery/?video=3000124253&play=1

[xazp]

Here's the complaint:  http://newsandinsight.thomsonreuters.com/uploadedFiles/Reuters_Content/2012/10_-_October/BofA_Complaint.pdf

now granted I have not read every word, but I did not read anything about a tolling agreement in it.

 

In contrast, for example, both the AIG and FHA complaints DO discuss tolling agreements.  I don't know if the omission in this case is meaningful.  They'd have to be tolling for around two years to get over the statute of limitations.  I haven't found examples of companies that have done it on time.  AIG, Pimco, etc (all the big guys) have tolling agreements but they started in mid 2011 which was already too late. 

 

 

The lawsuit has some problems:

1)  The statute of limitations for a FCA complaint (see:  http://www.arentfox.com/publications/index.cfm?fa=legalUpdateDisp&content_id=856) is 3 years after the plaintiff found out about the fraud.  This is problematic because the complaint itself states that Countrywide issued securities in 2006-2009, and those securities almost immediately defaulted.  So they should have been vaguely aware there was a problem with these mortgages by 2009, which means it's a little late to complain now.  It's also problematic because other federal courts have found that you could have reasonably known about Countrywide (see some of judge pfaelzer's comments) back in 2008.  It's going to be a difficult argument to say the biggest mortgage companies in the world did not somehow realize there was a problem with countrywide securities until 2010.

 

It may have pertained to something else, but aren't there tolling agreements in place?

[PlanMaestro]

There are several tolling agreements (there is another one for the Libor litigation) and they are not necessarily disclosed in legal documents. Even more, I disagree with the interpretation of the FCA statute of limitations. Dismissing a potential government success in the worst case scenario is naive.

 

For example:

 

http://www.ft.com/cms/s/0/e6e8b1a0-d521-11e0-bd7e-00144feab49a.html#ixzz2AGGr3IXA

 

Fannie Mae, Freddie Mac and FHFA had signed agreements with the biggest mortgage bond issuers preserving their right to sue the firms for alleged fraud even if the respective statutes of limitations ran out, two people familiar with the matter said.

 

The documents, known as tolling agreements, were agreed to by the banks to enable them and FHFA to settle their disputes without the regulator being under significant time pressures.

 

But the September 2008 law that made Fannie and Freddie wards of the state put time limits on their regulator to bring action for alleged past abuses. One of those was for three years from the date of the law’s enactment.

[PlanMaestro]

http://www.bloomberg.com/news/2012-10-04/n-y-mortgage-probe-said-to-get-extension-to-sue-12-firms.html

 

New York Attorney General Eric Schneiderman is looking into the mortgage securities practices of at least a dozen financial institutions that have agreed to suspend a deadline for him to bring fraud claims, according to a person familiar with the matter.

 

Schneiderman, who sued JPMorgan Chase & Co. (JPM) this week for defrauding mortgage bond investors, has so-called tolling agreements with 12 institutions that preserve claims that could expire during a state investigation, according to the person, who declined to be named because the matter isn’t public.

 

[ERICOPOLY]

A $1b lawsuit just seems like an annoyance at this point.  More important is the ongoing $3b a quarter in expenses at Legacy Asset Servicing, and how that's going to wind down to only $300m a quarter in a year's time.

 

A year's worth of that bleed is worth 10 of these lawsuits put together, and that's what the media ought to be focusing on, not this non-story of a lawsuit.

[xazp]

OK let me rephrase and split the difference, because we agree on many points. 

 

There is an unknown additional liability stemming from Fannie in particular.  The best case for that is $0, and the worst case is several billion dollars.  I put the range of losses at $0 to $5 billion for the GSE side, the high side being several times higher than what BAC currently says.   

 

The primary paths that BAC will realize those losses are:  A) Fannie Reps & Warranties claims;  B) the FHFA direct lawsuits against BAC; and C) other government lawsuits on behalf of Fannie/FHA/Freddie.  All of these substantially say the same thing via different channels, namely that Countrywide was negligent or fraudulent in their underwriting of bonds.

 

A and B are much stronger cases than C.  The GSEs and/or the FHFA has the most information about the mortgages, the most leverage over BAC, and the most regulatory authority.  In the long-term, I presume BAC wants a good working relation with Fannie, Freddie, and the FHFA.  As you state, the FHFA and Fannie have tolling agreements and above that Congressional laws that support their claims being within the statute of limitations.

 

It's not that I think all government lawsuits are irrelevant.  I think both A and B are real risks.  I just think today's lawsuit is subsumed by those channels, which are both more likely to succeed, and have the possibility of being a bigger number.  Today's lawsuit doesn't change my view that there is $0-$5Bn of risk to the GSEs. 

 

 

There are several tolling agreements (there is another one for the Libor litigation) and they are not necessarily disclosed in legal documents. Even more, I disagree with the interpretation of the FCA statute of limitations. Dismissing a potential government success in the worst case scenario is naive.

 

For example:

 

http://www.ft.com/cms/s/0/e6e8b1a0-d521-11e0-bd7e-00144feab49a.html#ixzz2AGGr3IXA

 

Fannie Mae, Freddie Mac and FHFA had signed agreements with the biggest mortgage bond issuers preserving their right to sue the firms for alleged fraud even if the respective statutes of limitations ran out, two people familiar with the matter said.

 

The documents, known as tolling agreements, were agreed to by the banks to enable them and FHFA to settle their disputes without the regulator being under significant time pressures.

 

But the September 2008 law that made Fannie and Freddie wards of the state put time limits on their regulator to bring action for alleged past abuses. One of those was for three years from the date of the law’s enactment.

[mankap]

Hi Eric

I agree that Non Interest expense for legacy asset will come down substantially .

Non interest expense for Home loans has been pretty stable at $700-800m/qtr. If I take Home loan non interest expense as benchmark for Legacy assets non interest expense , total CRES non interest expense will probably come down by $2B/qtr.

 

[ERICOPOLY]

Hi Eric

I agree that Non Interest expense for legacy asset will come down substantially .

Non interest expense for Home loans has been pretty stable at $700-800m/qtr. If I take Home loan non interest expense as benchmark for Legacy assets non interest expense , total CRES non interest expense will probably come down by $2B/qtr.

 

I just took my number directly from Brian Moynihan.  So I think it's a pretty good estimate.

 

From the Q4'11 CC transcript Q&A section:

 

Edward Najarian - ISI Group: You talked about the LAS costs coming down, you know, when you broke $3.5 billion down into sort of $1.5 billion of litigation in $2 billion core. Can you give us any sense of what you think, sort of a long-term run-rate or a normalized level is for that $2 billion core? I know you're probably reluctant to talk about the timing of getting there, but when you do get there, maybe even few years away, what would be the right number to think about that $2 billion going to?

 

Brian T. Moynihan - CEO: I think Ed, to frame that, I think about the 60 plus delinquent units and the progress we made this year and then progress we ultimately got to get to, to get to a normalized level that will take the next six to eight quarters to get through that. But when you get down to that level, the number should be more in the $300 million a quarter versus a $2 billion from the operating cost side. And so, a reasonable amount, the servicers loans even under the heightened servicing duties that will be embedded in a way you service delinquent loans going forward to that kind of number. I just again say it's going to take us time to work through that. You see the progress we've made this year, you see the flows coming in slowing because on a whole servicing portfolio and in terms of improving delinquency, and then moving the stuff through the process. So I think that's what you should be looking for, from $2 billion down to maybe $300 million a quarter type of number.

 

[mankap]

Hi Eric

Thanks for the information.

[ERICOPOLY]

Hi Eric

Thanks for the information.

 

No problem.  Actually, the 300 million per quarter that Brian talks about is for their "core" LAS normalized non-interest expense, and doesn't include litigation expenses.

 

The past 4 quarters the total LAS non-interest expense (inclusive of litigation expense) was:

$3.441b in q3 '12  (includes 400m of litigation expense)

$2.8b in q2 '12  (includes 200m of litigation expense)

$3b in q1 '12    (includes 300m of litigation expense)

$3.496b in q4 '11  (includes 1.5b of litigation expense)

 

$12.737b total LAS non-interest expense for trailing twelve months

 

$10.337b "core" LAS non-interest expense (excluding litigation expense)

 

This $10.337b number is the one that will come down to $1.2b a year per the 300m per quarter estimate that Brian gave.

 

The $2.4b annual LAS legal expense will come down to how much?

 

[rranjan]

http://newsandinsight.thomsonreuters.com/Legal/News/ViewNews.aspx?id=59845&terms=

 

"Earlier this month, Countrywide and Bank of America very, very quietly settled securities fraud suits brought by five major investors in mortgage-backed securities: the Irish company Sealink, which holds the mortgage-backed assets of the German bank Sachsen; the Franco-Belgian bank Dexia; the German regional banks Landesbank Baden-Wuerttemberg and Bayerische Landesbank; and the Minnesota financial services company Thrivent."

 

 

It is not a significant number but it seems BAC is doing quite a few settlements recently. May be they want to settle as many as possible before asking for dividend increase or buy back next year? Just a thought..

 

[Parsad]

http://newsandinsight.thomsonreuters.com/Legal/News/ViewNews.aspx?id=59845&terms=

 

"Earlier this month, Countrywide and Bank of America very, very quietly settled securities fraud suits brought by five major investors in mortgage-backed securities: the Irish company Sealink, which holds the mortgage-backed assets of the German bank Sachsen; the Franco-Belgian bank Dexia; the German regional banks Landesbank Baden-Wuerttemberg and Bayerische Landesbank; and the Minnesota financial services company Thrivent."

 

 

It is not a significant number but it seems BAC is doing quite a few settlements recently. May be they want to settle as many as possible before asking for dividend increase or buy back next year? Just a thought..

 

Most definitely.  Also, they will not settle unless the number is reasonable, so all of these settlements are creating precedents for their remaining litigation.  Remove uncertainty, and the market will recognize the underlying value.  Cheers!

[meiroy]

http://newsandinsight.thomsonreuters.com/Legal/News/ViewNews.aspx?id=59845&terms=

 

"Earlier this month, Countrywide and Bank of America very, very quietly settled securities fraud suits brought by five major investors in mortgage-backed securities: the Irish company Sealink, which holds the mortgage-backed assets of the German bank Sachsen; the Franco-Belgian bank Dexia; the German regional banks Landesbank Baden-Wuerttemberg and Bayerische Landesbank; and the Minnesota financial services company Thrivent."

 

 

It is not a significant number but it seems BAC is doing quite a few settlements recently. May be they want to settle as many as possible before asking for dividend increase or buy back next year? Just a thought..

 

Most definitely.  Also, they will not settle unless the number is reasonable, so all of these settlements are creating precedents for their remaining litigation.  Remove uncertainty, and the market will recognize the underlying value.  Cheers!

 

I think the uncertainty is not so much due to pending known issues but the unknown of what else is out there, which new claims will be made tomorrow and this sort of stuff does seem to go on and on. By simple reasoning this means the bank hold back and the economy suffers, so, adding wishful thinking to it, perhaps after the elections there would be efforts to resolve it once and for all.