BAC-WT - Bank of America Warrants

[MrB]

Haven't sold any BAC exposure recently -- in fact, I actually reduced some of my AIG exposure to put money into BAC about two months ago.

 

Gosh, it's fun to go back and read some of the threads we had on BAC back in the day when the stock was tanking (what, like less than a year and half ago?) and people really believed that there would be a complete loss on capital invested.

 

Those were the good ole' days. ;D

 

Since we are reminiscing...something I will forever remember about our BAC investment is that the best part of the capital allocation was done in a fairly remote part of the world. It was 2011 end of the year tax loss selling and investors could not get rid of BAC securities fast enough. My problem is that I could not for the life of me get a signal on my mobile. The call with the US broker, which normally would take about 30 seconds ended up being about 5 minutes because the signal was frequently lost while playing phone tag. I ended up on the railing of a hut, hanging onto the roof with one hand, because it was the only place I could get what would remotely qualify as a signal and with a few wild things running around (see attached).

What we would not do for our investors ;-)

[JRH]

I ended up on the railing of a hut, hanging onto the roof with one hand, because it was the only place I could get what would remotely qualify as a signal and with a few wild things running around (see attached).

What we would not do for our investors ;-)

 

Looks like you got free smells to boot!

[Olmsted]

Another Eric chiming in: nope, haven't sold any (but to switch commons to warrants recently)

[StubbleJumper]

Nope, haven't sold a share or warrant.  In some respects, I'm a little disappointed in the timing of the run-up though, because I'm planning to buy a few more warrrants for my TFSA in January...the only thing better than BAC's juicy return potential is a tax-free juicy return from BAC-WT-A!.

 

 

SJ

[txlaw]

Haven't sold any BAC exposure recently -- in fact, I actually reduced some of my AIG exposure to put money into BAC about two months ago.

 

Gosh, it's fun to go back and read some of the threads we had on BAC back in the day when the stock was tanking (what, like less than a year and half ago?) and people really believed that there would be a complete loss on capital invested.

 

Those were the good ole' days. ;D

 

Since we are reminiscing...something I will forever remember about our BAC investment is that the best part of the capital allocation was done in a fairly remote part of the world. It was 2011 end of the year tax loss selling and investors could not get rid of BAC securities fast enough. My problem is that I could not for the life of me get a signal on my mobile. The call with the US broker, which normally would take about 30 seconds ended up being about 5 minutes because the signal was frequently lost while playing phone tag. I ended up on the railing of a hut, hanging onto the roof with one hand, because it was the only place I could get what would remotely qualify as a signal and with a few wild things running around (see attached).

What we would not do for our investors ;-)

 

Wow, making money and memories.  That's awesome. :)

[Parsad]

Lots of Christmas cheer here.

 

Kind of makes me nervous.

 

There's been lots of cheer for months and months, but the stock never moved until now.  Don't worry Baggio, it just feels nervous because the stock has run up.  The fundamentals all state that the stock should continue to move up till at least tangible book based on what is happening.  I think you'll see that shortly after the stress test results come out and their buyback/dividend information is released.  Cheers!

[racemize]

 

BofA CEO: Fed wants bank to show consistent earnings

2012-12-18

 

http://finance.yahoo.com/news/bofa-ceo-fed-wants-bank-013958694.html

 

I hope this doesn't mean the fed is going to keep the buybacks/dividends at much lower levels than other banks for another year, to "prove" the consistent earnings.

[Parsad]

 

BofA CEO: Fed wants bank to show consistent earnings

2012-12-18

 

http://finance.yahoo.com/news/bofa-ceo-fed-wants-bank-013958694.html

 

I hope this doesn't mean the fed is going to keep the buybacks/dividends at much lower levels than other banks for another year, to "prove" the consistent earnings.

 

Probably a tighter leash than WFC or JPM, but they'll be allowed to return capital.  JPM has to actually raise capital to reach the buffer levels, whereas BAC is already well above.  So assume both companies will have to use significant amounts of cash flow for non-dividend, non-buyback issues...BAC (litigation and loan losses)...JPM (raising capital levels).  Moynihan is just stating that the bulk of the capital return won't happen until almost all of the legacy issues are behind them.  But there is enough behind them now, with settlement precedents set, where they will be able to return more capital regardless.  Cheers!

[alertmeipp]

 

BofA CEO: Fed wants bank to show consistent earnings

2012-12-18

 

http://finance.yahoo.com/news/bofa-ceo-fed-wants-bank-013958694.html

 

I hope this doesn't mean the fed is going to keep the buybacks/dividends at much lower levels than other banks for another year, to "prove" the consistent earnings.

 

Probably a tighter leash than WFC or JPM, but they'll be allowed to return capital.  JPM has to actually raise capital to reach the buffer levels, whereas BAC is already well above.  So assume both companies will have to use significant amounts of cash flow for non-dividend, non-buyback issues...BAC (litigation and loan losses)...JPM (raising capital levels).  Moynihan is just stating that the bulk of the capital return won't happen until almost all of the legacy issues are behind them.  But there is enough behind them now, with settlement precedents set, where they will be able to return more capital regardless.  Cheers!

 

That's my read as well, he is learning from his past experience. Wish they would settle with MBI before that.

[Kraven]

 

BofA CEO: Fed wants bank to show consistent earnings

2012-12-18

 

http://finance.yahoo.com/news/bofa-ceo-fed-wants-bank-013958694.html

 

I hope this doesn't mean the fed is going to keep the buybacks/dividends at much lower levels than other banks for another year, to "prove" the consistent earnings.

 

Probably a tighter leash than WFC or JPM, but they'll be allowed to return capital.  JPM has to actually raise capital to reach the buffer levels, whereas BAC is already well above.  So assume both companies will have to use significant amounts of cash flow for non-dividend, non-buyback issues...BAC (litigation and loan losses)...JPM (raising capital levels).  Moynihan is just stating that the bulk of the capital return won't happen until almost all of the legacy issues are behind them.  But there is enough behind them now, with settlement precedents set, where they will be able to return more capital regardless.  Cheers!

 

I hope everyone is right, but it wouldn't surprise me if they are kept on a very tight leash.  The problem with spigots is once you turn them on, you can't get the water back.  But if you keep it in the off position you can let it build.  Regulators are not known necessarily for their creative thinking.  Jobs are lost not when they are "generous" but when they change course and something bad happens.  I do hope for the best though.

[ERICOPOLY]

 

BofA CEO: Fed wants bank to show consistent earnings

2012-12-18

 

http://finance.yahoo.com/news/bofa-ceo-fed-wants-bank-013958694.html

 

I hope this doesn't mean the fed is going to keep the buybacks/dividends at much lower levels than other banks for another year, to "prove" the consistent earnings.

 

Probably a tighter leash than WFC or JPM, but they'll be allowed to return capital.  JPM has to actually raise capital to reach the buffer levels, whereas BAC is already well above.  So assume both companies will have to use significant amounts of cash flow for non-dividend, non-buyback issues...BAC (litigation and loan losses)...JPM (raising capital levels).  Moynihan is just stating that the bulk of the capital return won't happen until almost all of the legacy issues are behind them.  But there is enough behind them now, with settlement precedents set, where they will be able to return more capital regardless.  Cheers!

 

I hope everyone is right, but it wouldn't surprise me if they are kept on a very tight leash.  The problem with spigots is once you turn them on, you can't get the water back.  But if you keep it in the off position you can let it build.  Regulators are not known necessarily for their creative thinking.  Jobs are lost not when they are "generous" but when they change course and something bad happens.  I do hope for the best though.

 

 

From the Fed's point of view, if the economy goes south and banks have to build huge loss reserves, the only thing this can come from is earnings power.

 

So if your earnings generation machine is only working at 1/2 of capacity, the Fed might ask you to stack more sandbags (which can be converted to loss reserves in a pinch).

 

So I'm starting to join the boat of analysts who are expecting a relatively light capital return for 2013.

[Kraven]

 

BofA CEO: Fed wants bank to show consistent earnings

2012-12-18

 

http://finance.yahoo.com/news/bofa-ceo-fed-wants-bank-013958694.html

 

I hope this doesn't mean the fed is going to keep the buybacks/dividends at much lower levels than other banks for another year, to "prove" the consistent earnings.

 

Probably a tighter leash than WFC or JPM, but they'll be allowed to return capital.  JPM has to actually raise capital to reach the buffer levels, whereas BAC is already well above.  So assume both companies will have to use significant amounts of cash flow for non-dividend, non-buyback issues...BAC (litigation and loan losses)...JPM (raising capital levels).  Moynihan is just stating that the bulk of the capital return won't happen until almost all of the legacy issues are behind them.  But there is enough behind them now, with settlement precedents set, where they will be able to return more capital regardless.  Cheers!

 

I hope everyone is right, but it wouldn't surprise me if they are kept on a very tight leash.  The problem with spigots is once you turn them on, you can't get the water back.  But if you keep it in the off position you can let it build.  Regulators are not known necessarily for their creative thinking.  Jobs are lost not when they are "generous" but when they change course and something bad happens.  I do hope for the best though.

 

 

From the Fed's point of view, if the economy goes south and banks have to build huge loss reserves, the only thing this can come from is earnings power.

 

So if your earnings generation machine is only working at 1/2 of capacity, the Fed might ask you to stack more sandbags (which can be converted to loss reserves in a pinch).

 

So I'm starting to join the boat of analysts who are expecting a relatively light capital return for 2013.

 

I think that's right.  There is no incentive for the regulators to let it fly.  They can only lose in that situation.  I am assuming there will be some return of capital, but that it will most likely be light.  I am not sure whether that's just for 2013 or not.  We shall see.

[alertmeipp]

I thought Fed's process depends on certain predefined models?

[Edward]

I am personally assuming little to no capital returned to shareholders in the next 2, maybe 3 years. Still quite a bit of litigation and restructuring to be done.

[ECCO]

 

BofA CEO: Fed wants bank to show consistent earnings

2012-12-18

 

http://finance.yahoo.com/news/bofa-ceo-fed-wants-bank-013958694.html

 

I hope this doesn't mean the fed is going to keep the buybacks/dividends at much lower levels than other banks for another year, to "prove" the consistent earnings.

 

Probably a tighter leash than WFC or JPM, but they'll be allowed to return capital.  JPM has to actually raise capital to reach the buffer levels, whereas BAC is already well above.  So assume both companies will have to use significant amounts of cash flow for non-dividend, non-buyback issues...BAC (litigation and loan losses)...JPM (raising capital levels).  Moynihan is just stating that the bulk of the capital return won't happen until almost all of the legacy issues are behind them.  But there is enough behind them now, with settlement precedents set, where they will be able to return more capital regardless.  Cheers!

 

I hope everyone is right, but it wouldn't surprise me if they are kept on a very tight leash.  The problem with spigots is once you turn them on, you can't get the water back.  But if you keep it in the off position you can let it build.  Regulators are not known necessarily for their creative thinking.  Jobs are lost not when they are "generous" but when they change course and something bad happens.  I do hope for the best though.

 

 

From the Fed's point of view, if the economy goes south and banks have to build huge loss reserves, the only thing this can come from is earnings power.

 

So if your earnings generation machine is only working at 1/2 of capacity, the Fed might ask you to stack more sandbags (which can be converted to loss reserves in a pinch).

 

So I'm starting to join the boat of analysts who are expecting a relatively light capital return for 2013.

 

I think that's right.  There is no incentive for the regulators to let it fly.  They can only lose in that situation.  I am assuming there will be some return of capital, but that it will most likely be light.  I am not sure whether that's just for 2013 or not.  We shall see.

 

Moynihan said that what they will ask for will be approved by regulator. How can you be so sure of that? If you ask for small return, you can be sure it will be approved. Dont expect much for 2013. 2014 will be much better imho.

[kevin4u2]

 

BofA CEO: Fed wants bank to show consistent earnings

2012-12-18

 

http://finance.yahoo.com/news/bofa-ceo-fed-wants-bank-013958694.html

 

I hope this doesn't mean the fed is going to keep the buybacks/dividends at much lower levels than other banks for another year, to "prove" the consistent earnings.

 

Probably a tighter leash than WFC or JPM, but they'll be allowed to return capital.  JPM has to actually raise capital to reach the buffer levels, whereas BAC is already well above.  So assume both companies will have to use significant amounts of cash flow for non-dividend, non-buyback issues...BAC (litigation and loan losses)...JPM (raising capital levels).  Moynihan is just stating that the bulk of the capital return won't happen until almost all of the legacy issues are behind them.  But there is enough behind them now, with settlement precedents set, where they will be able to return more capital regardless.  Cheers!

 

I hope everyone is right, but it wouldn't surprise me if they are kept on a very tight leash.  The problem with spigots is once you turn them on, you can't get the water back.  But if you keep it in the off position you can let it build.  Regulators are not known necessarily for their creative thinking.  Jobs are lost not when they are "generous" but when they change course and something bad happens.  I do hope for the best though.

 

 

From the Fed's point of view, if the economy goes south and banks have to build huge loss reserves, the only thing this can come from is earnings power.

 

So if your earnings generation machine is only working at 1/2 of capacity, the Fed might ask you to stack more sandbags (which can be converted to loss reserves in a pinch).

 

So I'm starting to join the boat of analysts who are expecting a relatively light capital return for 2013.

 

I think that's right.  There is no incentive for the regulators to let it fly.  They can only lose in that situation.  I am assuming there will be some return of capital, but that it will most likely be light.  I am not sure whether that's just for 2013 or not.  We shall see.

 

Moynihan said that what they will ask for will be approved by regulator. How can you be so sure of that? If you ask for small return, you can be sure it will be approved. Dont expect much for 2013. 2014 will be much better imho.

 

They are allowed to resubmit CCAR twice this year just in case first round needs some modifications.  I would suspect more the capital return will lean toward the share buybacks because the government can quickly turn that off like they did with JPM after the London whale. 

 

That said, they don't need to stockpile capital to the sky.  The revised capital levels provide for a much large cushion for the banks to begin with, then there are SIFI buffers on top of that.  Sounds like many on this board think that is not enough and the regulators will want more.  When will it be enough?

[JRH]

Also, they have started referring to the litigation reserves as being "ring-fenced" (as in, they have a confidence interval for how large they could grow).  It is likely they are working to make the case for that ring-fencing as robust and certain as possible (and I assume the regulators will want to understand how they come to that conclusion).  If you assume the Basel III capital ratios are to protect against macroeconomic uncertainty, and the litigation and loan loss reserves protect against earnings hits based on legacy mortgage issues, then what reasons are left not to allow full excess capital return?  In my mind, it is merely a degrees-of-separation issue.  The more certain the case that reserves are adequate, the larger the proportion of excess capital that can be returned.

[wescobrk]

Article on bloomberg in case some haven't seen this. Pretty busy at work. I'll read in more detail later.

 

http://www.bloomberg.com/news/2012-12-19/bank-of-america-delinquent-loans-mean-losses-mortgages.html

[ERICOPOLY]

They are allowed to resubmit CCAR twice this year just in case first round needs some modifications.

 

This is true but for headline/reputational reasons Moynihan has already stated that nobody wants to be denied on that first request.

 

So they're not going to test the limit.

[Kraven]

They are allowed to resubmit CCAR twice this year just in case first round needs some modifications.

 

This is true but for headline/reputational reasons Moynihan has already stated that nobody wants to be denied on that first request.

 

So they're not going to test the limit.

 

I would be surprised if they aren't told in one of those "private" calls how much to ask for.

[jeffmori7]

They are allowed to resubmit CCAR twice this year just in case first round needs some modifications.

 

This is true but for headline/reputational reasons Moynihan has already stated that nobody wants to be denied on that first request.

 

So they're not going to test the limit.

 

Sure, but they can ask very conservatively at first, and as capital continue to build up during the years, ask for more.

[CONeal]

They are allowed to resubmit CCAR twice this year just in case first round needs some modifications.

 

This is true but for headline/reputational reasons Moynihan has already stated that nobody wants to be denied on that first request.

 

So they're not going to test the limit.

 

I would be surprised if they aren't told in one of those "private" calls how much to ask for.

 

That's why I was suprised the first time they were rejected along with Citi.  Always though the Fed was telling them how much they could return to shareholders ahead of time.  Wish they would jsut cut out the cat and mouse games.

[Kraven]

They are allowed to resubmit CCAR twice this year just in case first round needs some modifications.

 

This is true but for headline/reputational reasons Moynihan has already stated that nobody wants to be denied on that first request.

 

So they're not going to test the limit.

 

I would be surprised if they aren't told in one of those "private" calls how much to ask for.

 

That's why I was suprised the first time they were rejected along with Citi.  Always though the Fed was telling them how much they could return to shareholders ahead of time.  Wish they would jsut cut out the cat and mouse games.

 

I should re-phrase.  They will never be told what they can do in so many words.  But there will be conversations along the lines of "Fed, how would you feel if we did X?"  It is surprising they were rejected, but it shows the extent of the negative feelings at the time.  Who knws what exactly happened, but it could have been miscommunication, it could have been BAC and C feeling too big for their britches or it could have been a change of heart by the Fed.  These haven't really been normal times though.  They still aren't.  But things have obviously calmed down. 

[ERICOPOLY]

I believe Moynihan is saying that all of the additional capital generation will be returned.  However what he didn't say is that there may be a lag between when it comes in and when it gets returned.

 

That lag would be the period in which they are not at their full regular earnings power, due to this LAS stuff.

 

They can use it to fill sandbags until LAS normalizes , and then they can get the greenlight to empty the sandbags.

 

I believe Buffett looks at Wells Fargo as the best capitalized bank because the earnings are so strong that when losses mount they can build their loan loss reserves while still building capital.  Were this to be a canal, Wells Fargo's canal is very deep and so can better handle a flood.  Bank of America's canal right now is nowhere near as deep, so they have to build the walls up higher with sandbags.  Over the next couple of years the canal (BAC's) will be dredged so that it can handle more water without the need for additional sandbags.

[Olmsted]

From the Fed's point of view, if the economy goes south and banks have to build huge loss reserves, the only thing this can come from is earnings power.

 

You're probably right on with regulators' thinking - but isn't this what required capital ratios are supposed to be for?