Buffett Puts $5B Into Bank of America!

[S2S]

Lock expired this month on their entire stake. I think they are not able to find a buyer for their entire stake.

 

Vinod

 

I'd imagine there is some opposition from Chinese banking authorities given the turnaround at CCB is still in process and BAC's withdrawal of support, both expertise- and reputation-wise, could prove troublesome.

 

 

While on topic, this McKinsey report might offer another view on what "normalized earnings" look like for moneycenters;

 

INVESTMENT banks face a fight for survival as returns and revenues shrink, according to two reports released today.

 

A study by McKinsey & Co claims that investment banks are heading for a “day of reckoning” that will see many firms fall by the wayside. And figures compiled by data provider Dealogic show that European revenues from primary advisory business have slumped to a 14-year low.

 

Data for primary business deals announced in August 2011 – such as advice on mergers and acquisitions, floats and debt sales – show revenues fell to just $546m (£334.8m) in Europe. The last time they were lower was in August 1997, when they hit $474m, whereas last August banks netted $935m.

 

The dire numbers coincide with McKinsey’s assessment that, without drastic action, investment banks’ returns on equity will drop to just seven per cent from a current average of 20 per cent. That is below McKinsey’s nine to 11 per cent estimate of the cost of equity, making most banks non-viable as businesses if they fail to take action.

 

New capital requirements from Basel III will be responsible for three quarters of the hit to returns, McKinsey claims. Worse still, it did not model the additional effect from unilateral measures such as the UK’s bank levy or proposals by the Independent Commission on Banking (ICB). With mitigating actions, such as shutting down chunks of their business, altering pay schemes and hiking prices, McKinsey says banks should be able to push returns up to 11-12 per cent and, with successful overhauls of business models, to 12-14 per cent. But the study warns that the decline in trading volumes that has seen banks lay off thousands of workers “will be exacerbated by regulation, especially in structured credit and rates”. The knock-on effect will see the cost of financial services and credit rise for businesses, as banks pass on some of the costs of regulation.

 

McKinsey adds that banks’ fixed income, commodity and currency (FICC) divisions and structured credit will be worst hit. Some products like collateralised debt obligations (CDOs) “may even cease to exist” while others will see a “six-fold increase in capital requirements”, potentially making them unprofitable. The charge for counterparty risk could rise by a factor of 2.5, McKinsey suggests, for trading unusual over-the-counter (OTC) derivatives that cannot be cleared by central clearing houses.

Source: http://www.cityam.com/news-and-analysis/investment-banks-face-bleak-future

 

More detail on the report here: http://news.efinancialcareers.co.uk/newsandviews_item/newsItemId-34625?source=RSS:efc_eu=3863

 

 

 

[tooskinneejs]

Here is an article on Berk's Bank of America investment titled, "No, You Can't Invest Like Warren Buffett."

 

http://www.slate.com/id/2302540?wpisrc=xs_wp_0001

 

Buffett is creating value for his fellow shareholders literally out of thin air by using a significant intangible asset that isn't recognized under GAAP on Berk's balance sheet - his and Berk's reputation. 

[Junto]

Article worth the read from @ToddSullivan

 

Here Is Why The BAC/Bank of NY Settlement Will Happen http://bit.ly/pGjpyJ

 

Before you listen to anyone opine on the $BAC settlement, please ask them if they have read any of the legal docs. If the answer is not “yes” please ignore whatever comes next.

 

Now, the settlement with $BNY. It is going to happen. We are simply now seeing political posturing by people with higher aspirations than State AG’s ( Mr. Schneiderman? Mr. Biden?) and other parties. What will end up happening is $BAC will agree to pay a token amount more, the AG’s and other parties can thump their chests and claim victory and everyone will walk away. Why?

 

Below is a detailed description of why $BAC, far from costing it billions more in litigation is likely not only to pay less, but could even win OR even win if they lose. How? Even if they were to lose, since Countywide still operates as an individual entity and piercing the corporate shield here is HIGHLY unlikely, a judgement against them would simply result in an 11 filing for Countrywide as there is no way they can pay claims.

[moore_capital54]

I just read the entire case against BAC and other Banks. I Am obviously biased being a BAC long, but doesn't it strike you all as a lot less severe given the total claims against BAC are for $30B? The stock has lost way more than that in market value.

[ubuy2wron]

I just read the entire case against BAC and other Banks. I Am obviously biased being a BAC long, but doesn't it strike you all as a lot less severe given the total claims against BAC are for $30B? The stock has lost way more than that in market value.

I do not think the bears believe their arguements I think they only want to scare you the BAC shareholder into believeing they might be correct. It is called short and distort .They get some one like my favorite analyst  Henry Bludgeon sic to get out the story

[ERICOPOLY]

I just read the entire case against BAC and other Banks. I Am obviously biased being a BAC long, but doesn't it strike you all as a lot less severe given the total claims against BAC are for $30B? The stock has lost way more than that in market value.

 

A lot of stocks have lost value though.  They don't need to have a reason to go down in price do they?

 

Again, the day of the AIG $10b lawsuit announcement both AIG and BAC went down in price.  The pundits said that BAC dropped because of the new lawsuit (and it was more than a $10b drop that day), but did AIG go up 25% that day (about $10b)?  Nope, it went down of course!

 

There is just no logic out there.

[moore_capital54]

In fairness, I have never been more worried about the Macro than I am going into this weekend. I have been processing a lot of data that looks absolutely terrible. I sincerely think we need QE3, otherwise its going to get really ugly out there.

 

 

[ERICOPOLY]

In fairness, I have never been more worried about the Macro than I am going into this weekend. I have been processing a lot of data that looks absolutely terrible. I sincerely think we need QE3, otherwise its going to get really ugly out there.

 

Which items are you worried about? 

[Santayana]

Not sure what moore_capital had in mind, but the Europe situation is weighing large in my decisions.  Then you have the employment number today and what's looking like contraction in the various Fed industrial/manufacturing surveys.   

[ERICOPOLY]

I think I'd be more concerned about those macro things if my stocks were expensive.  Like if BAC were trading at 12x peak earnings, rather than say 3x-4x.

 

[moore_capital54]

Everything that Santayana mentioned Eric, but a few things happened this week that kind of caught me off guard. The first was I was talking to a friend in London who was fired, he has worked at the same firm for nearly a decade, and is an amazingly intelligent person, great education etc. He worked for a well known firm that has not even publicly announced they were firing yet. For him to be out of a job, is nuts. 

 

The second was the amount of redemptions I have been seeing both internally, and with some of my colleagues that are very successful managers. The investors redeeming, appear to be going through a sincerely difficult time with their real economy businesses, guys that I never imagined would find themselves in a position where they are illiquid but they are.

 

In our main fund we are down -1.2% for the year, in our resource fund we are up about 8%, and both got hit with redemptions. My colleagues that manage funds have performance ranging from -20% to +12% and have all been hit with serious redemptions. Serious as in greater than 10% of AUM. One of our investors owns one of the largest trucking companies in Canada, the guy is as good a barometer as rail car loadings, he is talking about business being as dry as it ever was.

 

Don't get me wrong, we are going to finally face the music and go through the original deleveraging that we needed to. I am all for this, it's just that the FED made us believe we could get out of it with QE, it seems to me the cycle is only in the 3rd or 4th inning as we are now seeing the cycle felt by even the upper echelon wage earners and what appeared to be "High Net Worth" Individuals. This is healthy but when you put it all together you realize no exogenous event is going to be the catalyst for a knee jerk reaction to the upside ala TARP or March 2009. Just as the HFT trading activity controls the decline throughout the day (I am sure you have all noticed this) setting lower highs on down days and higher lows on up days almost like clockwork every 15 minutes, that is kind of how I feel about the next stage of the Macro Economy, its going to be another wave down and another wave down and another wave down. We will bottom no doubt, but I don't see facts supporting that we are anywhere near the bottom, and I have lost faith in the long-term potential of QE. Morever, I do not know of any value managers with the exception of Loeb and some posters on this board that have any significant cash to deploy, and if they do they will most probably be hit with at least 5% redemptions this coming quarter.

 

Mutual Fund redemptions may be worst.

 

[ERICOPOLY]

Regarding mutual fund redemptions -- they can change their minds pretty quick:

 

http://seattletimes.nwsource.com/html/businesstechnology/2016004853_fundnews28.html

 

[ERICOPOLY]

Here is a more upbeat spin on flat data:

 

http://ceridianindex.com/multimedia/video/july-index-dips/

 

"The critical postponable items, which are homes and cars, are not in a position to contribute significantly to a downturn for the rest of this year".

[shalab]

Here is the railroad traffic - it is down slightly compared to last year but the drop is bigger in canada but it is up in mexico.

 

http://www.aar.org/AAR/NewsAndEvents/Freight-Rail-Traffic/2011/09/01-railtraffic.aspx

 

 

[shalab]

Trucking volumes are also up in the U.S with demand for truck drivers also being up.

 

http://www.bloomberg.com/news/2011-08-25/driver-shortage-shows-gain-in-u-s-truck-cargo-freight-markets.html

 

 

[JAllen]

Here is the railroad traffic - it is down slightly compared to last year but the drop is bigger in canada but it is up in mexico.

 

http://www.aar.org/AAR/NewsAndEvents/Freight-Rail-Traffic/2011/09/01-railtraffic.aspx

 

Grain and coal were down quite a bit: -17% and -3.1% respectively, for the week ending 8/27/11.  If you mark those at the same numbers as last year, which is part of "seasonality" the AAR mentions in their below report, total loadings were up 1.79%.  I think some volatility should be counted for grain and coal but not all of it, especially since the August economic commentary (http://www.aar.org/NewsAndEvents/~/media/aar/railtimeindicators/2011-08-rti.ashx) mentions that farm product shipments in general were down substantially in July due to weather; it looks like that's continued and is most of the reason the total car loadings were down but warrants further research.

 

Also, total estimated ton-miles were flat; doesn't Powder Basin coal travel all the way to Florida sometimes?  If these super-long trips were down substantially, then maybe the rest of the normal trips weren't (but I'm leaving out the even longer intermodal LA-CHI-NY type of stuff too which were slightly up).

 

Does anyone know or have an estimate to the average lead time for the average car loading?  It seems like economic fundamentals aren't too bad, but the media and associated panic in August could have reflexive effects on the fundamentals - this is my only concern.  I would say that if the lead time to the average railcar loading is less than two weeks (8/27- 14 days back to the panic; note: of course some heavy equipment might be ordered months in advance) we could be quite sure that ex. grain and coal, loadings were slightly up year-over-year.

 

 

[shalab]

In 2008, the drop in rail car loadings was immediate and dramatic. We aren't seeing anything of the sort now. The EU needs to cut the interest rates and China/India will need to stop the interest rate hikes - the interest rate hike has caused the current slow down.

 

 

[wallynet]

Feds sue big banks over sales of risky investments

 

(AP)  NEW YORK — The government on Friday sued 17 financial firms, including the largest U.S. banks, for selling Fannie Mae and Freddie Mac billions of dollars worth of mortgage-backed securities that turned toxic when the housing market collapsed.

 

Among those targeted by the lawsuits were Bank of America Corp., Citigroup Inc., JP Morgan Chase & Co., and Goldman Sachs Group Inc. Large European banks including The Royal Bank of Scotland, Barclays Bank and Credit Suisse were also sued.

 

The lawsuits were filed by the Federal Housing Finance Agency. It oversees Fannie and Freddie, the two agencies that buy mortgages loans and mortgage securities issued by the lenders.

 

The total price tag for the mortgage-backed securities sold to Fannie and Freddie by the firms named in the lawsuits: $196 billion.

 

The government didn't say how much it is seeking in damages. It said it wants to have the securities sales canceled and wants to be compensated for lost principal, interest payments as well as for attorney fees.

 

The government action is a big blow to the banks, many of which have seen their stock prices fall to levels not seen since the financial crisis in 2008 and 2009. Until now, the stocks have been undermined mostly by unrelated worries about the U.S. and European economies.

 

It is particularly damaging to Bank of America, which bought Countrywide Financial Corp. in 2008 and Merrill Lynch in 2009. All three are being separately sued by the government for mortgage-backed security sales totaling $57.5 billion.

 

After Bank of America, JPMorgan Chase was listed in the lawsuits with the second-highest total at $33 billion. Royal Bank of Scotland followed at $30.4 billion.

 

Bank of America has already paid $12.7 billion this year to settle similar claims. Last month insurer American International Group Inc. sued the bank for more than $10 billion for allegedly selling it faulty mortgage investments.

 

In a statement Friday, Bank of America rejected the claims in the government's lawsuits.

 

Fannie and Freddie invested heavily in the mortgage-backed securities even after their regulator said they didn't have the needed risk-management capabilities, the bank said. "Despite this, (Fannie and Freddie) are now seeking to hold other market participants responsible for their losses," it said.

 

Bank stocks fell sharply on Friday as news of the government's lawsuits emerged. Bank of America tumbled 8.3 percent, JP Morgan Chase fell 4.6 percent, Citigroup lost 5.3 percent, Goldman shed off 4.5 percent and Morgan Stanley's ended down 5.7 percent.

 

Residential mortgage-backed securities bundled pools of mortgages into complex investments. They collapsed after the real-estate bust and helped fuel the financial crisis in late 2008.

 

The FHFA said the mortgage-backed securities were sold to Fannie and Freddie based on documents that "contained misstatements and omissions of material facts concerning the quality of the underlying mortgage loans, the creditworthiness of the borrowers, and the practices used to originate such loans."

 

The FHFA filed a similar lawsuit in July against Swiss bank UBS AG, seeking to recoup more than $900 million in losses from mortgage-backed securities.

 

Also sued Friday were are Ally Financial Inc., formerly known GMAC LLC, Deutsche Bank AG, First Horizon National Corp., General Electric Co., HSBC North America Holdings Inc., Morgan Stanley, Nomura Holding America Inc., and Societe Generale.

 

JPMorgan, Goldman, Citigroup and Morgan Stanley declined to comment on the lawsuits. Ally Financial said in a statement said the government's "claims are meritless, and the company intends to defend its position aggressively." A spokeswoman for First Horizon said the bank intends to "vigorously defend" itself.

 

Ken Thomas, a Miami-based banking consultant and economist, said he expects the banks to settle soon with the government.

 

"This will be nothing but a distraction to them and the quicker you settle something like this the better," he said.

 

___

 

Christina Rexrode contributed to this report.

[ERICOPOLY]

Feds sue big banks over sales of risky investments

 

I believe I read that the upcoming month is the deadline for filing these lawsuits (something akin to a statute of limitations).

 

If that's correct, it explains the feeling that they just keep coming every week.  They have to file just to keep their foot in the door (or lose their right forever), and later they can decide what they want to actually do with the lawsuit.

[Kraven]

Feds sue big banks over sales of risky investments

 

I believe I read that the upcoming month is the deadline for filing these lawsuits (something akin to a statute of limitations).

 

If that's correct, it explains the feeling that they just keep coming every week.  They have to file just to keep their foot in the door (or lose their right forever), and later they can decide what they want to actually do with the lawsuit.

 

I think that this is exactly right.  The deadline for filing was next week I believe.  I understand that the parties have been in negotiations for quite a while.  However as a legal matter, they need to file in order to preserve their rights.  It really doesn't alter things too much although it's usually better to resolve these types of issues outside the courts.  It tends to get much more contentious once negotiations are conducted via the legal system, although it could be a catalyst for resolution too.

 

[JoJo1]

After I have read everything written about BofA here on this message board, I've made ​​my decision: the probability and uncertainty that this one develops into a 2nd Salomon debacle, is high to me and to high for my stomach. I wish all those who have invested here the very best and wants like to say "thank you all".

 

JoJo