Get ready to lose money on BAC!

[twacowfca]

LOL EXACTLY PARSAD ITS ZERO......

 

And I had this same argument with one of our LP's who has $5 million with Kynikos, hes had that $5 million with him since 1999.

 

 

Are you saying that the principal didn't budge over 12 years? What is your LP's reasoning for staying in the fund versus a simple hedging strategy?

 

Here's their pitch: it's worth it because you'll outperform when the market tanks.  At other times you can load up on high beta stocks without worrying that you'll underperform when the market turns down. 

[PlanMaestro]

I wasn't trying to imply that tangible book value is unimportant. But the fact that Buffett himself does not seem to pay attention to TBV in valuing banks supports peter_burke_ceo's point that at some point in the future banks will be valued on earnings and not on TBV. Besides, doesn't Buffett's method make a lot of sense? Sure, you can use TBV and other metrics to ensure that a bank is safe, but it seems to me that the best way to value a bank is by using normalized earnings. Note that Buffett does say that the profits have to be earned conservatively; presumably he won't invest if he doesn't think operations are conservative.

 

TreasureHunt, I do not know what will be, I think we can only discuss what should be.  Also what should be today does not mean it is the answer forever. We do not want to suffer man-with-a-hammer syndrome.

 

Today I agree. Most large banks should be valued on earnings. Not only that, they should be valued based on their pre-provision earnings. And they are not: they are being value on TBV and TCE ratios.

 

However, it is important to remember that earnings multiples are leverage agnostic, while the banking business model is founded on leverage.  So much that some value investors NEVER invest in banks: levered black box and all that.  There is no equivalent to EBIT/EV or EBITDA/EV multiples that I know of and DCFs analysis needs some specific adjustments for banks (only industry with its own chapter in Copeland's Valuation).

 

Not easy to value banks. Just when they start to be valued on earnings it is the moment you should start worrying about the balance sheet. Incentives do matter. 

 

PD: Regarding Buffett's view on TBV, once in a blue moon he makes mistakes you know. Irish banks one that he himself acknowledged in his letters. In this interview he splits "doing dumb things" from "making money of TBV", but both are interrelated.  Sorry I cannot sit back and just let them lever just because they have a low cost deposit franchise, like the Irish banks. That is a potential sign of risk taking (ie: Bank of America, Wachovia and Fifth Third 2008) and Well's team is not going to be great forever.

 

http://variantperceptions.wordpress.com/2011/09/15/thinking-about-investing-in-us-banks-a-short-answer-to-david-merkel/

 

 

[Guest Hester]

BAC becomes binary - either they get obliterated or survive to surpass all past highs. I am convinced that the latter is happening with how the management is pushing the risk off the table and taking in cash.

 

Buffett could have bought common but prefers to save the banks with cash for the coming years while the problem resolves itself.

 

Banks are not going to be state owned for long, the storm has already passed with Bank of America. Look for AIG to have a similar emergence, along with Citigroup and to a less extent Wells/JP Morgan.

 

As it stands Bank of America has so much cash they don't even know what to do with it. They could buy the entire company back from the market if they kept getting punished. We are talking about cash dividends that will be double digit yield on the current market cap.

 

I feel like a shark smelling blood in water!

 

In the same post you reference a semi-desperate capital raise at unbelievably generous pricees (The Buffett deal), and also claim they have more cash than they know what to do with.

 

BAC is probably a good risk/reward at these levels but there is no reason to be delusional and pretend they are not going through some serious issues right now, and likely in the future.

[BargainValueHunter]

Dick Bove has a note out:

 

http://www.forbes.com/sites/halahtouryalai/2011/12/23/bank-of-america-could-end-up-paying-53-billion-for-countrywide-mess-bove/

 

Without Countrywide, Bove estimates that the company’s tangible book value would be an estimated $3 per share higher, and that the price to tangible book would be closer to 100% than the current 40%. He adds, “Assuming a value of 100% times 16 ($12.97+$3.03), the stock would have a market capitalization approximately $100 billion higher than it has at present.”

[ERICOPOLY]

Dick Bove has made a lot of meaningless analysis, like when he says that the banks are trading for less than the cash on their balance sheets.

 

And if you go back over his prior comments, he was saying Citigroup would be at $200 (split adjusted) a share by the end of 2011 or 2012.  http://wallstnation.com/bove-citi-1122009

 

What did Dick do in his career that made people listen to him?  He seems to not be a very good bank analyst at all.

[Aberhound]

Chris Whalen on King World News Dec 21 interview suggests that BoA be put into receivership because they are losing the mortgage litigation. Do the bank analysts have information which the public does not hear?

[Guest misterstockwell]

Jim Rogers interview "Rogers advises against investing in the U.S. financial system, especially Bank of America Corp. (BAC)"

[given2invest]

Dick Bove has made a lot of meaningless analysis, like when he says that the banks are trading for less than the cash on their balance sheets.

 

And if you go back over his prior comments, he was saying Citigroup would be at $200 (split adjusted) a share by the end of 2011 or 2012.  http://wallstnation.com/bove-citi-1122009

 

What did Dick do in his career that made people listen to him?  He seems to not be a very good bank analyst at all.

 

Yah, THIS.  The guy is an idiot. 

[eclecticvalue]

Chris Whalen on King World News Dec 21 interview suggests that BoA be put into receivership because they are losing the mortgage litigation. Do the bank analysts have information which the public does not hear?

 

IMO, BOA and other banks that were failing should have been receivership in the first place instead of the bailouts that have occured

[given2invest]

Chris Whalen on King World News Dec 21 interview suggests that BoA be put into receivership because they are losing the mortgage litigation. Do the bank analysts have information which the public does not hear?

 

IMO, BOA and other banks that were failing should have been receivership in the first place instead of the bailouts that have occured

 

agreed

[Guest misterstockwell]

Jim Rogers interview "Rogers advises against investing in the U.S. financial system, especially Bank of America Corp. (BAC)"

 

rogers advises against investing in anything but "my index fund".

 

I've never heard him say that. What index fund?

[ERICOPOLY]

Chris Whalen on King World News Dec 21 interview suggests that BoA be put into receivership because they are losing the mortgage litigation. Do the bank analysts have information which the public does not hear?

 

no. CW is basically still upset that usa did not nationalize the banking system back in 2008.

 

Whalen writes that the US economy would improve if BAC were to be restructured:

 

Economists from Irving Fisher to Henry Kaufman have noted that without credit expansion, the US economy cannot grow. In fact, credit is contracting with public confidence in America’s banks. The solution to the financial crisis affecting BAC and the US economic malaise are the same, namely an orderly, immediate public process of restructuring for the top banks and housing agencies.

 

http://blogs.reuters.com/christopher-whalen/2011/08/09/uncertainty-and-indecision-threaten-bank-america-and-global-markets/

 

 

The trouble I see with his thinking is that we already have well capitalized banks with untapped excess lending capacity.  So what will adding more untapped capacity solve?  Nothing.

 

 

 

 

[alertmeipp]

I think ppl are crazy to even suggest that. BAC is a publicly traded company and it's well capitalized by all accounting standard, u can't just put it to rest. It's not FRE/FNM we are talking about here.

 

 

[ERICOPOLY]

It is sort of fun to go back and read some of CW's comments from October 2010.  He say it's not just BAC, but "all lenders" that are in a crisis.  Then he says the largest US banks are insolvent!:

Mounting cash flow stress on all lenders is reaching crisis levels.  Non-payment by borrowers and mounting foreclosure backlogs are creating the conditions for the collapse of some of the largest U.S. banks in 2011.

 

The largest US banks remain insolvent and must continue to shrink.  Failure by the Obama Administration to restructure the largest banks during the 2007-2009 period only means that this process is going to occur over next three to five years -- whether we like it or not.

 

http://www.businessinsider.com/chris-whalens-foreclosure-crisis-2010-10#subprime-losses-have-been-hidden-by-bad-accounting-1

[Mariana Segala]

People, hello all! Does anybody have some information - recent information - about Jim Chanos' funds returns? Where can I find this? Thanks!