I was wondering why BAC and GS were acting so weak...

[moore_capital54]

Obviously, S&P has leaked information for the second time having done the same to preferred clients a few days before the US downgrade.  I hope the SEC goes after these guys...

 

Anyone who was watching BAC or GS intraday saw the activity, it was obvious.

[alertmeipp]

yup.. they really should be investigated. Normally, BAC and C are very correlated, since Monday C has been traded better than BAC. BAC probably know this is coming.

[twacowfca]

Obviously, S&P has leaked information for the second time having done the same to preferred clients a few days before the US downgrade.  I hope the SEC goes after these guys...

 

Anyone who was watching BAC or GS intraday saw the activity, it was obvious.

 

Heard Eveillard speak today.  He used to work for a big bank, and he doesn't trust their earnings and doesn't know how to value them.

[Parsad]

The article is here:

 

http://tinyurl.com/8y9we5b

 

They all pretty much got taken down a notch.  I suspect BAC knew they were possibly going to be downgraded with everyone else, thus the sale of almost all of their stake in China Construction Bank.  Cheers!

[ERICOPOLY]

BAC started underperforming peers after that Fed stress test news came out.

 

My guess is that the stress test is freaking somebody out regarding dilution risk, so their impression is that BAC is not really as discounted as it looks (market is adjusting for the large perceived share issuance that's coming).

 

Just a guess.

 

[tombgrt]

Could window dressing in december have extra impact on stock prices of financials? Or is the effect hardly noticeable? Not that I plan to invest accordingly, just curious! 

 

Tier 1 for BAC will be around 9% by the end of this year, they have a lot of reserves in place and they can spin out lawsuits in the coming years. Previously masked earnings are going to add substantially to BAC's capital, hopefully already in 2012. Not sure where the dilution is supposed to come from.  :-X?

[moore_capital54]

I agree, the latest short interest shows 239,000,000 shares short, the highest since march 2009.

 

Even today we see BAC uncorrelated to C and others. I believe that one more quarter of positive economic results will confirm that no significant dilution should be coming.

 

Funny that Facebook is being valued at 2x BAC, with less than $1B in EBITDA and I even doubt that will be sustainable for FB.

[ERICOPOLY]

I agree, the latest short interest shows 239,000,000 shares short, the highest since march 2009.

 

Even today we see BAC uncorrelated to C and others. I believe that one more quarter of positive economic results will confirm that no significant dilution should be coming.

 

Okay, the company was selling 125.5 million new shares into the market during this period -- report mentions 9 days in late November into December:

 

http://www.reuters.com/article/2011/12/02/bankofamerica-swap-idUSN1E7B117K20111202?feedType=RSS&feedName=financialsSector&rpc=43

 

[treasurehunt]

The 8K filed by BofA says this: "In total, through December 1, 2011 and including those agreements previously reported on the November 17, 2011 Form 8-K, the privately negotiated exchanges have covered the exchange of approximately $4.0 billion aggregate liquidation preference of Preferred Stock and Trust Preferred Securities into 311,011,300 shares of Common Stock and Senior Notes with an aggregate principal amount of approximately $1.4 billion. In the aggregate, the Registrant expects that the exchanges reported in this report and in the November 17, 2011 Form 8-K, together, will result in an increase of approximately $2.90 billion in Tier 1 common capital, and increase the Registrant’s Tier 1 common capital ratio by approximately 21 basis points under Basel I."

 

So 311 million shares were issued to retire 2.6 billion in preferred stock and TRUPs. This works out to $8.36 per share, which is well under IV by my estimate, but at least well above where the shares are trading right now.

 

This transaction and the recent CCB sale have boosted Tier 1 Common (under Basel I) by 45 basis points. Add in the impact of earnings and some other transactions that closed recently, and BofA's Tier 1 Common ratio should be close to 9.5% by the end of this quarter. This ratio was 8.65% at the end of the last quarter.

[ERICOPOLY]

BofA's Tier 1 Common ratio should be close to 9.5% by the end of this quarter. This ratio was 8.65% at the end of the last quarter.

 

Wells Fargo's ratio will also be about 9.5%.

 

BAC's performance on getting the ratio up:

7.6% in Jan 2010

8.6% in Jan 2011    (100 bps improvement)

8.65% at end of Q3  (an improvement of only 5 bps)

~9.5% in Jan 2012  (close to 100 bps improvement)

 

The dilution was painful but I guess the authorities want to see consistent improvement in the ratios so they can brag that all the big banks made it to 9.5% at EOY.