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BAC-WT - Bank of America Warrants

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meiroy Newbie

meiroy

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Aren't you hedged for like +40%? So that's not really 100%.

 

I was until the Q3 report came out.  I was impressed with their progress and their conference call remarks regarding their having already fully achieved their capital build goals and that they intend to return 100% moving forward.  Moynihan then later clarified that they will get all the capital they need to run the business merely from running off loans.  Thus, anything generated can be 100% returned for a while because they have absolutely no need nor desire to retain it.  It's all "ours".

 

"It's ours, my precious, we wants it..."

 

Sorry. Must be an overdose on The Hobbit trailers.

 

 

 

 

 

 

 

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meiroy Newbie

meiroy

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Well shit!!! Statistical sampling upheld in court.  MBIA's case might have just got a little stronger. 

 

http://www.reuters.com/article/2012/12/04/fhfa-lawsuits-sampling-idUSL1E8N408C20121204?feedType=RSS&feedName=financialsSector&rpc=43

 

Well if the sampling base is large enough and the result is that, for example, 70% is at fault, would that mean penalty is capped at 70%?

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CONeal Newbie

CONeal

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Well shit!!! Statistical sampling upheld in court.  MBIA's case might have just got a little stronger. 

 

http://www.reuters.com/article/2012/12/04/fhfa-lawsuits-sampling-idUSL1E8N408C20121204?feedType=RSS&feedName=financialsSector&rpc=43

 

Well if the sampling base is large enough and the result is that, for example, 70% is at fault, would that mean penalty is capped at 70%?

 

I can't really comment on that.  What has me perturbed is the data can easily be manipulated.  I work with statistical modelers and given enough data they can make the data come out any way you like.  In the past, on occasion I've beaten their models just using common sense (but that was in regard to marketing).

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Kraven Newbie

Kraven

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Well if the sampling base is large enough and the result is that, for example, 70% is at fault, would that mean penalty is capped at 70%?

 

 

I can really comment on that.  What has me perturbed is the data can easily be manipulated.  I work with statistical modelers and given enough data they can make the data come out any way you like.  In the past, on occasion I've beaten their models just using common sense (but that was in regard to marketing).

 

I thought the judge in MBIA's case already approved the use of sampling back in late 2010/early 2011 for the reason that is impossible to review hundreds of thousands of loans individually.  A court will typically not require the impossible.  What becomes difficult though is taking the results from the sample and coming up with damages. 

 

So in this case sampling resulted in 70% breaches it does not necessarily mean (although it might) that damages are set at 70%.  The purpose of damages in a contract are to put one back in roughly the spot they would have been in had the contract not been breached (sometimes it's just putting things back the way they were prior to entering into the contract).  Of course any provision in the contract which specifies how damages are to be calculated is taken into account and generally should be dispositive.  It's impossible to be precisely where one would have been in all cases or even most cases.  It's easy when a contract is for $100 and the court can say ok give the man his $100.  When it isn't certain even what exactly the breach is (it has to be extrapolated), then damages are by definition also extrapolated and it's a difficult process.  Likely the court weighs testimony and evidence from "experts" and will make a decision.  Nothing is perfect in this world.

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jay21 Newbie

jay21

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Probably already been posted, but I wanted to post Moynihan's comments from the 9.30 conference call Eric has been referencing:

 

We will start the work on the CCAR process in 30 days or so when we get the information, and so we won't speculate on that. But I think starting up on the broader perspective, we have made it clear that the capital we have in this company has been sufficient based on all the work that we’ve been doing in the last couple of years. We’ve been cleared that the capital is sufficient to run the company and to support the company growth, and all the capital above that.

 

When we have to get the approval, we’ll go back to shareholders, either as dividends or share [repurchasers] till we frankly build the capital levels that we, you know, there is no reason to retain the capital at all. So it's all your capital, it's all the shareholders capital, until we get to the levels that we can return it. It's on the balance sheet, in our tangible book value per share, which we focus on and growing and see that continues to grow, and then after we hit the levels, that would be SIFI buffer plus minus whatever cushion that we feel comfortable impacts the CCAR. It's all going back in one way or the other way.

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CONeal Newbie

CONeal

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Well if the sampling base is large enough and the result is that, for example, 70% is at fault, would that mean penalty is capped at 70%?

 

 

I can really comment on that.  What has me perturbed is the data can easily be manipulated.  I work with statistical modelers and given enough data they can make the data come out any way you like.  In the past, on occasion I've beaten their models just using common sense (but that was in regard to marketing).

 

I thought the judge in MBIA's case already approved the use of sampling back in late 2010/early 2011 for the reason that is impossible to review hundreds of thousands of loans individually.  A court will typically not require the impossible.  What becomes difficult though is taking the results from the sample and coming up with damages. 

 

So in this case sampling resulted in 70% breaches it does not necessarily mean (although it might) that damages are set at 70%.  The purpose of damages in a contract are to put one back in roughly the spot they would have been in had the contract not been breached (sometimes it's just putting things back the way they were prior to entering into the contract).  Of course any provision in the contract which specifies how damages are to be calculated is taken into account and generally should be dispositive.  It's impossible to be precisely where one would have been in all cases or even most cases.  It's easy when a contract is for $100 and the court can say ok give the man his $100.  When it isn't certain even what exactly the breach is (it has to be extrapolated), then damages are by definition also extrapolated and it's a difficult process.  Likely the court weighs testimony and evidence from "experts" and will make a decision.  Nothing is perfect in this world.

 

I probably missed the sampling data being allowed in the case.  Statistics is a grey area, so I understand why BAC would drag it out.  Especially if it will create a precidence for other cases and affects how other cases and settled cases are handled.

 

 

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dcollon Newbie

dcollon

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Posted

Comments from an analyst on BAC presentation this morning:

 

Overall, CEO Moynihan's comments this morning were very much in line with his prior comments and no new specific guidance was given. However, he did provide detailed stats on BAC's core businesses and other figures as summarized below:

 

• Balance Sheet Strengthened Significantly: TBV per share increased 19% since December 2009

• Regulatory Capital - executing on capital plan laid out nearly 2 years ago by improving capital levels through non-core asset sales and earnings generation with focus on balance sheet optimization and improvement in risk-weighted assets; Basel 3 Tier 1 common capital ratio 1 estimated to be 8.97% at 3Q12 on a fully phased-in basis

• Financial Stability Board established SIFI buffer for BAC of 1.50% making 8.50% the minimum Basel 3 Tier 1 common equity ratio by 2019; When asked if its lower required level vs. JPM and C could impact pricing in more capital intensive businesses, Mr. Moynihan stated that BAC prices off of economic capital so it's not necessarily a huge advantage vs. JPM or C.

• Mitigating/addressing net interest income challenges by 1) utilizing liability management actions to fight headwinds: Debt maturities largely not replaced; $27B in 2013, $37B in 2014; and calls, redemptions, and tender offers for trust preferred securities and subordinated debt; 2) Lowering interest cost of deposits and 3) managing interest rate risk cautiously.

• Debt funding still high vs. peers so still opportunity to reduce that; LT debt has decreased to $292bn in 3Q12 from $486bn in 3Q10; great cost saving opportunity remains.

• Expense Initiatives: still expect $8bn in savings from New BAC

• Core expenses (excluding LAS and litigation) decreased to $12.9bn in 3Q12 vs. $14.5bn in 3Q11.

• Legacy Assets & Servicing (LAS) expenses, 3Q12 expense of $3.4B, including $423MM mortgage-related litigation; Normalized quarterly rate expected to be near $500mn driven by improving 60+ delinquent loan levels; expect to get down to $500mn by middle of 2015, but biggest risk is things out of BAC's control like new laws or government programs.

• Commercial loans have increased 11% over the past 7 quarters: C&I have increased 20% while Real Estate loans have declined 19% and have now stabilized; Noted that Competitive pricing for loans has been going on for awhile and doesn't see it as a major issue and it shouldn't get much worse from where it's at now.

• Lowering Cost to Serve Retail Customers

• Customer behavior is changing; mobile banking up 30% YoY, while branch usage trending down

• Mobile banking provides greater customer convenience and control at a lower cost to serve

• Mobile check deposit capabilities launched in August; processing over 450K transactions per week

• After introducing mobile bank check deposit, BAC processed 5 million checks already for $2.8 billion in transactions, 500K a week is the rate BAC is at now.

• Optimizing banking centers by building out specialized sales force presence; approximately 64% of our banking centers located in the 30 largest MSA's; and reducing less profitable locations

• Building Out Specialty Sales Force in Banking Centers: Focused on building specialist network of Financial Solution Advisors (FSA), Small Business Bankers and MortgageLoan Officers (MLO)

• Banking centers with a Financial Solutions Advisor drive 10x greater volume in funded investment accounts versus banking centers without dedicated coverage

• Core consumer loan production showing improvement, focused on direct-to-consumer mortgage lending efforts to directly serve and build relationships.

• Increased mortgage lending officers by 429, or 16.5% since 1Q12.

• Has reduced nonstrategic affinity programs, and reduced renegotiated portfolio - feels US card core portfolio has stabilized at ~$90B - core US card loans down $3.5B y/y.

• Grew network of specialists by more than 1,000, or 21%, year to date, to nearly 5,800

• Increased small business bankers over 50% year to date, while FSAs and MLOs increased a combined 17%

• Small Business extended $3.3B in credit year to date and new funded originations increased 34% year over year

• Momentum in consumer metrics including deposit growth, deposit cost reduction, net new accounts increasing, increased loan production, net charge off improvement, and increased client satisfaction.

• Solid Deposit Flows and Disciplined Pricing

• Consumer & Business Banking (CBB) deposits up $16B YoY

• Rates paid on consumer deposits down 5 bps YoY

• 3Q12 operating cost as a percent of deposits is 2.35% vs. 2.48% in 3Q11 and 2.64% in 3Q10

• Sales focus on primary checking accounts driving increase in average new accounts as well as new account balances

• DDA account closures declined 46% over the last three years

 

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racemize Newbie

racemize

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any highlights to call out from these?  I'm in bufferring hell trying to watch...

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ERICOPOLY Newbie

ERICOPOLY

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I understand that BAC wants to return 100% of the excess capital to the shareholders.But what is the probability that Fed will let them do it.

 

Don't forget that the Fed wants to stimulate the markets.  Letting BAC return $20B to investors is that much less QE that the Fed has to take heat for.  ;)

 

The regulators only need to be tough to the extent that the banks meet the capital levels required.  A bank meeting those levels... what are you still going to criticize the levels for being too soft, thereby undermining the very confidence in those levels that you set out to instill by declaring them to be adequate?

 

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fareastwarriors Newbie

fareastwarriors

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any highlights to call out from these?  I'm in bufferring hell trying to watch...

 

Sorry, I'm at work. Can't stream videos

 

:(

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ERICOPOLY Newbie

ERICOPOLY

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PlanMaestro:

Look at slide 4 from today's presentation:

http://phx.corporate-ir.net/External.File?item=UGFyZW50SUQ9MTYzODg4fENoaWxkSUQ9LTF8VHlwZT0z&t=1

 

They are going to reduce long term debt by up to 60 billion ("largely not replaced") over the next two years merely be not replacing maturing debt.

 

On top of that, they plan on doing more calls, redemptions, and tender offers for TRUPS, subordinate debt

 

So $60b of LT debt reduction would save them about $1.8b of expense.

 

You were mentioning that the deposits aren't fungible -- but given the size here they must have some sort of scheme worked out given that the debt is largely in Merrill and ParentCo.

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ERICOPOLY Newbie

ERICOPOLY

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The 26:30 mark in today's webcast explains they are returning all of the money from this point forward.

 

At the 27:14 mark they say they don't need ANY extra capital to grow for the next few years.  They think they can achieve what they need for the business just by repositioning what they already have.

 

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ERICOPOLY Newbie

ERICOPOLY

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There is a fair point to be made here that as long as BofA's earnings are impaired by it's LAS expenses, they may not get the full capital return that I want:

 

http://finance.yahoo.com/news/bank-americas-profits-key-fed-172244871.html

 

Nevertheless, they will be able to return it over the next 2.5 years (the timeline when those LAS expenses come down).

 

 

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ERICOPOLY Newbie

ERICOPOLY

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Two years of cash flow Eric and some cash flow past. And there may be a few things they could do on the margin.

 

 

Yet at the same time they have all of the capital that they need for the next few years and everything generated will be returned to shareholders.

 

So it's not the profits that are going into debt reduction. 

 

As I mentioned before, I don't know that much about business analysis so when you say two years of cash flow I'm interpreting that to be the capital generated by the business that they are cross-promising to shareholders in terms of dividends and buybacks.  How can that money be in two places at the same time?

 

Or did you mean something else by cash flow?  I really do need it explained to me, I'm not going to take it personally if it comes across as business 101 lecture.

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bmichaud Newbie

bmichaud

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Posted

Why is the stock not taking off? What more do they need to say?

 

They need some analyst to say it's a "buy"!  Which should be around $13-14 and their target price will be $18.  ;D  Cheers!

 

This is true - I'm sure an $18 stock price with a 5% dividend yield will be far more appealing to institutional folk.

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value-is-what-you-get Newbie

value-is-what-you-get

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Moynihan just refuses to take the bait and predict the future in interviews - learned his lesson well from the initial dividend rejection.

 

On a lighter note, as he talks about stabilized revenues and gains now to be made primarily through cost cutting measures (and the growth of the economy over time), there's a guy over his right shoulder who stares at his screen, gets up, jokes with his fellow workers a bit, walks away for a while - has to run back to take a quick call, then leaves again only to return with some sort of snack which he then sits down and eats just as Moynihan is saying "and there's still work to be done" with respect to cost cutting!  Funny!  Start with that guy . . .

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