txlaw Posted August 25, 2011 Share Posted August 25, 2011 BAC is now only up 6% from the 20% a few hours ago... This is certainly not a good sign. An even worse sign is that Jim Cramer said earlier this morning that this is the beginning of a short cover. Sure doesn't feel that way. What the stock does in the short-term is meaningless. Cheers! Not if the only reason BAC did this deal was to create confidence in the company (and the stock). They didn't do it for capital. They did it solely for confidence. If the market shrugs it off that's a very bad sign even if BAC isn't in trouble financially. Perception is important here, as you have repeatedly said and I agree with. The closer BAC common gets to 0 the worse they are, even if financially they are sound. Confidence in the company and its businesses is different, though not completely separate, from confidence in the stock. The confidence needed to be instilled was with BAC customers, not stock market participants. I agree, however, that if the market shrugs off the investment and the stock tanks further, that could mitigate some of the value of this expensive capital. Link to comment Share on other sites More sharing options...
rjstc Posted August 25, 2011 Share Posted August 25, 2011 We told him that there was value in the business. That management seemed to be doing the correct things. That there was significant over-reaction by the market and nonsensical innuendo. That the business had enough cash flow to cover it's legal liabilities going forward and enough non-core assets available for sale to bolster Tier 1 Capital. That many of the analyst reports were making far-fetched guesses without actually examining the company's loan portfolio. I guess you are correct. We didn't tell him anything. Cheers! Huh??? This is funny. All of my posts in relation to you Parsad simply asserted the reality that your bullish opinion was based on the platitudes you so eloquently express above and not any independent fact based analysis of the perceived risks driving the stock price lower 1) the quality of the assets underlying reported book value and the corresponding assumptions 2) the risk to BV and solvency in a recession 3) put back risk 4) the risk to the company from a Euro implosion. You and others were/are just guessing. Nothing about today gave you any greater insight into these risks. SO ANOTHERWARDS YOU DON'T THINK BUFFETT PUT ANY THOUGHT INTO THIS. HE'S JUST GUESSING! Maybe he should call you more often to get your thoughts and insights so he doesn't make a huge mistep! Link to comment Share on other sites More sharing options...
Parsad Posted August 25, 2011 Author Share Posted August 25, 2011 I agree that you said all those things Sanjeev. I mostly believe them myself which is why I'm long BAC. I just don't see how this morning's news confirms any of those points to the degree of warranting an "I told you so". I chalk that up to waking up at 6:15am and then posting on here after hearing the news on Bloomberg. My apologies for the outburst. The news confirmed our sentiment on the direction of the business and the degree of irrationality around the company. How can any reasonable person not believe that Buffett investing in BAC, be it through preferreds, common, notes, warrants, or even bridge loans, not be a positive thing for the company? He mitigated his own risk, but that does not change his sentiment around the business. Cheers! Link to comment Share on other sites More sharing options...
coc Posted August 25, 2011 Share Posted August 25, 2011 He mitigated his own risk, but that does not change his sentiment around the business. Bingo. Link to comment Share on other sites More sharing options...
Parsad Posted August 25, 2011 Author Share Posted August 25, 2011 Nothing about today gave you any greater insight into these risks. Correct Munger. Our platitudes were enough. Cheers! Link to comment Share on other sites More sharing options...
Munger Posted August 25, 2011 Share Posted August 25, 2011 SO ANOTHERWARDS YOU DON'T THINK BUFFETT PUT ANY THOUGHT INTO THIS. HE'S JUST GUESSING! Maybe he should call you more often to get your thoughts and insights so he doesn't make a huge mistep! I do get a kick out of this...so let's try again. Buffett risked $0 capital on the common equity unlike every owner of the stock today. Buffett is being paid 400bps over the 10 year and 600 bps over the 2 year. In addition, Buffett has been given a large chunk FREE equity exposure. Of course I think Buffett thought it through!!!!!! Link to comment Share on other sites More sharing options...
txlaw Posted August 25, 2011 Share Posted August 25, 2011 Huh??? Repeat after me -- he has more cash than opportunities and will have more cash next year and every year thereafter. No point in arguing over this ad nauseam. Listen man -- you bougth too high. Don't let that cloud your thinking with such nonsense. Funny how wishful thinking can impede the ability to process simple facts. Actually, no. My exposure to BAC is through warrants and LEAPs, and I'm basically flat on the investment. Here is reality -- Buffett is getting paid 400 bps over the 10 year and 600 bps over the 2 year. In addition, BAC gave him FREE equity exposure. In other words, unlike you, Buffett risked $0 capital on the common stock. Also no point in arguing over this ad nauseam , since you refuse to believe that Buffett had an opportunity cost with this investment. And I repeat another simple, common sense fact... If you are running a fully capitalized bank with nothing but massive free cash flow on the horizon, the CEO of BAC tells Warren Buffett "thanks for your interest, we share your opinion but you can capitalize on the upside by buying common stock just like everyone else." -- ESPECIALLY SINCE YOU TOLD THE WORLD YOU DIDN"T NEED CAPITAL JUST TWO WEEKS AGO. You don't give WEB a sweetheart deal (FREE equity exposure and 400 bps over the 10 year) because he is a nice guy with a good reputation. Are you kidding me? I did say that BAC did not need to raise capital. And the preferred investment was accepted after WEB brought it to BAC not because BAC needed to raise capital. It was accepted by Moynihan in order to instill confidence in customers so that they can avoid the noise in the markets re: the BAC stock price. Link to comment Share on other sites More sharing options...
PlanMaestro Posted August 25, 2011 Share Posted August 25, 2011 He mitigated his own risk, but that does not change his sentiment around the business. Bingo. +2 Link to comment Share on other sites More sharing options...
txlaw Posted August 25, 2011 Share Posted August 25, 2011 He mitigated his own risk, but that does not change his sentiment around the business. Bingo. +2 Yup. Link to comment Share on other sites More sharing options...
Munger Posted August 25, 2011 Share Posted August 25, 2011 Correct Munger. Our platitudes were enough. Cheers! Enough for what? I actually like my patience. If I chose, I could now invest in BAC at a minimum 30-40% lower price than you or your hero Berkowitz, with full knowledge that I now have Buffett at my back. Let's just say, I like my position. So much for those platitudes! Link to comment Share on other sites More sharing options...
libor.plus1 Posted August 25, 2011 Share Posted August 25, 2011 I agree that you said all those things Sanjeev. I mostly believe them myself which is why I'm long BAC. I just don't see how this morning's news confirms any of those points to the degree of warranting an "I told you so". I chalk that up to waking up at 6:15am and then posting on here after hearing the news on Bloomberg. My apologies for the outburst. The news confirmed our sentiment on the direction of the business and the degree of irrationality around the company. How can any reasonable person not believe that Buffett investing in BAC, be it through preferreds, common, notes, warrants, or even bridge loans, not be a positive thing for the company? He mitigated his own risk, but that does not change his sentiment around the business. Cheers! Here's my problem with this line of logic: you (nor anyone long BAC) didn't really invest in the same thing that WB invested in. What WB invested in has much higher return potential and much lower risk profile than your investment. Ticker aside, the BAC investment of longs on this board and the BAC investment of WB are VERY different. This is like an investor who invested in a tier 3 tranche of a structured vehicle having a sense of confidence simply because a well known investor invested in a tier one tranche of the same vehicle. The two investments will go in the same direction, but the risk/reward profile is sun and moon. Link to comment Share on other sites More sharing options...
Munger Posted August 25, 2011 Share Posted August 25, 2011 He mitigated his own risk, but that does not change his sentiment around the business. Let me get this straight. Buffett refused to risk a single penny of capital on the common stock. He demanded 600 bps over the 2 year and 400bps over the 10 year as well as large chunk of FREE equity expsure in return fo his capital. And Moynihan apparently didn't waste a second of time to say DONE!!! Soooo...what does this tell us about sentiment around the business? Link to comment Share on other sites More sharing options...
Guest Hester Posted August 25, 2011 Share Posted August 25, 2011 The giddiness of the first couple of pages is hilarious. I particularly like the "Ok which investment is next!" As if this one has been decided. Let's all start a fund after Buffett gets free warrants on a stock we own! This is definitely a sweetheart deal for Buffett, and nothing like any of us can get by buying the stock or warrants. He is taking a fraction of the risk and gets all the upside we have. With that being said, don't underestimate the Buffett seal of approval. Banks are about perception. Do you think people care more about the ratings agencies opinions or Buffett's at this point? That means this is akin, or better than, massive ratings upgrades. This has plenty of implications for the business. Also, Buffett wouldn't invest I'm sure if he thought the equity cushion under the preferreds was a little solid. Granted, dilution could demolish much value for the common, but it's a better downside scenario than BK. Despite not being God (this sentence may upset some here), he knows more about BAC than any of us, and this investment tells us he thinks the overall credit is strong. The market was/is doubting this. My thoughts. Link to comment Share on other sites More sharing options...
Guest Hester Posted August 25, 2011 Share Posted August 25, 2011 Buffett once again plays Yoda to counter the short / distort Sith Lords. The best part about this deal is that since BofA did not have to issue new shares into the marketplace, the huge shorts can't cover -- I love it. I'm going to miss Buffett when he is gone. I may be wrong, but the game looks so obvious to me. Patrick Byrne is right. It doesn't matter that he's right and I know that this board is one of the few places where Byrne isn't completely trashed. You have to know how these guys are playing the game...and set up your affairs appropriately. But, with this deal, the shorts once again have to be worried about playing their game against any company that Buffett might invest in. It will be interesting to see if they move on to AIG in full force -- but they've got to be worried that Buffett could easily do this type of deal with AIG (a company they must know he knows intimately). They have so much capital that they need to go after large market cap companies. I guess the smaller hedge fund players can go after relatively smaller cap. companies but it seems like that happens less than it used to as hedge funds have gotten so much larger. After Ericopoloy, it seems like Berkowitz is a big winner today (and Buffett too). Funniest comment of the thread. "If anyone wants to naked short Berkshire, they can do it until the cows come home. In fact, we’ll hold a special meeting for them." Link to comment Share on other sites More sharing options...
Parsad Posted August 25, 2011 Author Share Posted August 25, 2011 I actually like my patience. If I chose, I could now invest in BAC at a minimum 30-40% lower price than you or your hero Berkowitz, with full knowledge that I now have Buffett at my back. Let's just say, I like my position. So much for those platitudes! Well that would be the kicker Munger. We're waiting for you to invest, so that we know we made the right decision. I hope you buy common! It's funny that you assume our price in BAC is that much higher. Apparently, none of us average down when we have an idea we like. Good luck to you! Link to comment Share on other sites More sharing options...
jose Posted August 25, 2011 Share Posted August 25, 2011 I agree. We never bought BAC common, because of the risk from legal liability and loan losses. We invested through the warrants. Sanjeev - can you explain what you mean here? How would the warrants be less risky than common in the case of large liability/loan losses? Do you just mean that in terms of risk/reward, the warrants passed your criteria while common did not when you started buying? Would love to know if there are any clauses that somehow protect the warrant vs common in case of large losses or dilution. I haven't seen any and highly doubt it, but, um, that would be great to know if so. I actually switched from the "a" warrants to common early this week when the warrants were well above their lows, at around 3.20 and common was tanking around 6.50. Partly because the math meant only a significant difference in payoff between common vs warrant starting north of $32/share in 2019, and partly because I had less perceived risk with the common in the event of large liability/loan losses, a lost decade or two, or any other wacky things that could keep the share price low for 7.5 years. BTW, thanks for your commentary on BAC recently. Very informative. Link to comment Share on other sites More sharing options...
moore_capital54 Posted August 25, 2011 Share Posted August 25, 2011 I actually like my patience. If I chose, I could now invest in BAC at a minimum 30-40% lower price than you or your hero Berkowitz, with full knowledge that I now have Buffett at my back. Let's just say, I like my position. So much for those platitudes! Well that would be the kicker Munger. We're waiting for you to invest, so that we know we made the right decision. I hope you buy common! It's funny that you assume our price in BAC is that much higher. Apparently, none of us average down when we have an idea we like. Good luck to you! Precisely Parsad!! We are basically flat on our BAC position and imho the intrinsic value has increased after today's events. We sold RIMM into strength today generating a good profit and redeploying in BP/DELL/MT Link to comment Share on other sites More sharing options...
AZ_Value Posted August 25, 2011 Share Posted August 25, 2011 He mitigated his own risk, but that does not change his sentiment around the business. Let me get this straight. Buffett refused to risk a single penny of capital on the common stock. He demanded 600 bps over the 2 year and 400bps over the 10 year as well as large chunk of FREE equity expsure in return fo his capital. And Moynihan apparently didn't waste a second of time to say DONE!!! Soooo...what does this tell us about sentiment around the business? buffett wouldn't put a dime in prf if he didn't think the equity was solid as a rock. he just endorsed moynihan and what he has been telling us. this is a repeat of 1992. everybody thinks they are smarter than buffett. bulletin. they aren't. he is going to OWN the shorts. again. Agreed. I liked his endorsement of Moynihan as some of us have begun to think that he is definitely the man for the situation; He is not the best banker in town, that goes to Dimon no contest, but just like Dimon I like how does seem to genuinely worry. I like when bankers worry, a good sign in my book, as opposed to those who spend their weekends playing bridge and smoking weed for example and never show a worry in the World ;D Congrats to the Longs... Whatever happens there are worse things that can happen to an investment thesis than waking up to a Buffett endorsement. My 2 cents. Ron Link to comment Share on other sites More sharing options...
Munger Posted August 25, 2011 Share Posted August 25, 2011 Well that would be the kicker Munger. We're waiting for you to invest, so that we know we made the right decision. I hope you buy common! I'm sure you're waiting with bated breadth!;) I'm sitting tight for now re BAC. Wishing you the best as well. Link to comment Share on other sites More sharing options...
Parsad Posted August 25, 2011 Author Share Posted August 25, 2011 Sanjeev - can you explain what you mean here? How would the warrants be less risky than common in the case of large liability/loan losses? Do you just mean that in terms of risk/reward, the warrants passed your criteria while common did not when you started buying? I just meant that the outlay of capital was significantly lower buying the warrants rather than common equity. The bank warrants also have the benefit of being adjusted if any dividends are paid out, unlike most other warrants. We just felt more comfortable buying through the warrants at the time. We were much more comfortable with WFC and bought the common equity. Cheers! Link to comment Share on other sites More sharing options...
jose Posted August 25, 2011 Share Posted August 25, 2011 I just meant that the outlay of capital was significantly lower buying the warrants rather than common equity. The bank warrants also have the benefit of being adjusted if any dividends are paid out, unlike most other warrants. We just felt more comfortable buying through the warrants at the time. We were much more comfortable with WFC and bought the common equity. Cheers! Ok, makes sense. I just wanted to double check on anything weird with the warrants I may have missed. Thanks. Yes the dividend aspect is a nice bonus with bac.ws.a, especially the .01 minimum compared to the other tarp warrants. Link to comment Share on other sites More sharing options...
txlaw Posted August 25, 2011 Share Posted August 25, 2011 Here's my problem with this line of logic: you (nor anyone long BAC) didn't really invest in the same thing that WB invested in. What WB invested in has much higher return potential and much lower risk profile than your investment. Ticker aside, the BAC investment of longs on this board and the BAC investment of WB are VERY different. This is like an investor who invested in a tier 3 tranche of a structured vehicle having a sense of confidence simply because a well known investor invested in a tier one tranche of the same vehicle. The two investments will go in the same direction, but the risk/reward profile is sun and moon. Nobody is disputing that WEB got a better deal than anyone else in the room or that the risk profile of common versus preferred equity is generally different. What many longs, including me, are saying is that WEB would not have invested in preferred stock at a yield of only 6% if he did not believe the common was worth more than the warrant strike price, given the other opportunities that have presented themselves over the past month. Further, given WEB's shrewdness, he likely believes the common is worth quite a bit more than the strike price. Now, just a couple days ago, people went from saying that BAC needed to issue capital immediately in order to avoid being deemed undercapitalized by the regulators to saying that BAC common would go to $0 because of solvency issues. Does anyone who has followed WEB closely believe that he would put an investment in preferred equity--at a yield of only 6%--where there is a risk of the common going to $0? He did learn from the Solomon Brothers investment. Finally, I would add that price is another variable that you must take into consideration when assessing the risk of common versus preferred or debt. If you believe that in a reorg, common shareholders will retain $7 of intrinsic value, then if you can obtain a purchase price of, say, $1 for the common, then buying debt that trades at a yield of, say, 2%, is actually more risky. The point being is that price matters. Remember Howard Marks' words: "There’s no such thing as a bad asset. It’s a question of pricing." Link to comment Share on other sites More sharing options...
Cardboard Posted August 25, 2011 Share Posted August 25, 2011 I think it is a TARP event or the old Morgan stopping a bank run. BAC did not need this money and $5 billion means nothing with $2.2 trillion of assets. At stake is the global recovery. Equity destruction in the stock market kills confidence and eventually the economy. When I went to Subway the other day and heard a regular 50 years old worrying with his friend about the market you realize how important it is nowadays. There was much more at stake here than weather Buffett or BAC is getting a good deal. IMO, the Fed, the White House and possibly the Europeans strongly encouraged BAC to do this. Tomorrow we have the Fed at Jackson Hole and it would not surprise me to see some big move. They may finally get to the root of the problem and do something to directly impact house prices and their sales. If they can reinstill confidence there we may finally see the economy recovering for good. Cardboard Link to comment Share on other sites More sharing options...
DCG Posted August 25, 2011 Share Posted August 25, 2011 The giddiness of the first couple of pages is hilarious. I particularly like the "Ok which investment is next!" As if this one has been decided. Let's all start a fund after Buffett gets free warrants on a stock we own! yep..and I posted something similar earlier in this thread as well. People were starting to get optimistic seeing the stock up 25% this morning. People who bought this morning are already down around 17%. BAC has been very volatile recently, with frequent daily moves of over 10%, both directions. Daily moves of a stock do not mean anyone is right or wrong. Lots of posts based on emotion (almost to the level of Yahoo finance message boards...or the lvlt thread :P). Link to comment Share on other sites More sharing options...
ericd1 Posted August 25, 2011 Share Posted August 25, 2011 Although Buffett has more than enough experience to make his own assessment of BAC's prospects, don't forget that Todd Combs has a fair amount of experience with financials. I would imagine Buffett had been viewing the carnage in BAC over the past several weeks and he had some time to do enough due diligence to make the investment. I wish Buffett had waited a little bit longer, so I could have added to my position, but he didn't. BTW, I'd like to find some 6% preferreds with attached free warrants. -- Long BAC Link to comment Share on other sites More sharing options...
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