txlaw

Man, I'd love to see the strike price on the warrants start to drop at that level so soon. Best not to get too hopeful yet, but hey we'll see what happens.

At current prices, JPM is already yielding over 10% if you count buybacks. They've on track to return more than $10b to shareholders this year. The company increased its quarterly dividend to $0.25 from $0.05 per share and set plans to buy back $8 billion in stock this year as part of a $15 billion stock buyback program. http://www.mysmartrend.com/news-briefs/news-watch/jpmorgan-chase-topped-q1-estimates-plans-15b-buyback-program-jpm Good point. WFC has also been buying back shares and yields more than the 10-year.

This time I expect that BAC gets the approval. They've been hitting the gym the past few months trying to get in shape for this. There were probably given a cheat sheet to study. After all, it's in everyone's interests to help them pass with flying colors. It would be a positive sign of confidence in the banking system -- help weaken some rumors. No, I don't think just yet. BAC's litigation overhang means that it has to be better capitalized than its peers to allow dividends or buybacks. I think WFC, JPM will get the greenlight. Possibly C, but their European exposure may mean a little longer. And I disagree totally with the comment by MisterStockwell that it is a total blackhole. At these prices, BAC may be one of the cheapest and misunderstood stocks I have seen since Fairfax at $57. Actually, BAC outside of the litigation, is in significantly better shape than Fairfax was at $57 with losses still ahead of them. BAC has put much of their losses behind and will drag litigation out for years if settlements aren't in their favor. As I said, I find it incredibly hard to see how BAC will not trade at a slight discount to tangible book within a year or two, and at book value at some point within the next 3-4 years. Outrageously cheap in my opinion...just plain stupid! Cheers! I don't think the litigation overhang will affect the results of their stress tests. The accounting value of a contingent claim that can't be estimated accurately is generally zero. Ergo: no impact on a stress test. :) But don't you think the regulators will consider litigation risks even if they do not affect the balance sheets for reporting purposes? If I were a financial regulator, I would certainly have a more robust test that looks behind the FASB standards for recognizing contingent claims (whatever they may be). Perhaps, but the reason for doing a public stress test is not really to toss out bad apples, but to reassure the market. :) Haha, very true. :D I think it's pretty likely that BAC passes the stress test, for the reason you just pointed out. Whether they get to resume the dividend at the same time as a WFC or JPM is another matter. Bring on the stress test!

This time I expect that BAC gets the approval. They've been hitting the gym the past few months trying to get in shape for this. There were probably given a cheat sheet to study. After all, it's in everyone's interests to help them pass with flying colors. It would be a positive sign of confidence in the banking system -- help weaken some rumors. No, I don't think just yet. BAC's litigation overhang means that it has to be better capitalized than its peers to allow dividends or buybacks. I think WFC, JPM will get the greenlight. Possibly C, but their European exposure may mean a little longer. And I disagree totally with the comment by MisterStockwell that it is a total blackhole. At these prices, BAC may be one of the cheapest and misunderstood stocks I have seen since Fairfax at $57. Actually, BAC outside of the litigation, is in significantly better shape than Fairfax was at $57 with losses still ahead of them. BAC has put much of their losses behind and will drag litigation out for years if settlements aren't in their favor. As I said, I find it incredibly hard to see how BAC will not trade at a slight discount to tangible book within a year or two, and at book value at some point within the next 3-4 years. Outrageously cheap in my opinion...just plain stupid! Cheers! I don't think the litigation overhang will affect the results of their stress tests. The accounting value of a contingent claim that can't be estimated accurately is generally zero. Ergo: no impact on a stress test. :) But don't you think the regulators will consider litigation risks even if they do not affect the balance sheets for reporting purposes? If I were a financial regulator, I would certainly have a more robust test that looks behind the FASB standards for recognizing contingent claims (whatever they may be).

This time I expect that BAC gets the approval. They've been hitting the gym the past few months trying to get in shape for this. There were probably given a cheat sheet to study. After all, it's in everyone's interests to help them pass with flying colors. It would be a positive sign of confidence in the banking system -- help weaken some rumors. No, I don't think just yet. BAC's litigation overhang means that it has to be better capitalized than its peers to allow dividends or buybacks. I think WFC, JPM will get the greenlight. Possibly C, but their European exposure may mean a little longer. And I disagree totally with the comment by MisterStockwell that it is a total blackhole. At these prices, BAC may be one of the cheapest and misunderstood stocks I have seen since Fairfax at $57. Actually, BAC outside of the litigation, is in significantly better shape than Fairfax was at $57 with losses still ahead of them. BAC has put much of their losses behind and will drag litigation out for years if settlements aren't in their favor. As I said, I find it incredibly hard to see how BAC will not trade at a slight discount to tangible book within a year or two, and at book value at some point within the next 3-4 years. Outrageously cheap in my opinion...just plain stupid! Cheers! Pretty much agree with everything you just said, though it does seem they are trying to get to that point where they are better capitalized than their peers at a much faster rate now.

thx for digging up these TRS disclosures. but i think those notional values for wfc & usb should be in millions not billions. Whoops, sorry about that! Yes, you're right. Those should be millions. I will edit. Billions in notional would have been scary, wouldn't it?

Yes. In the ORH filing, there is $94 million notional TRS with $31.64 strike price. There is probably more elsewhere. Also notable are the following TRS positions at ORH: WFC -- $226 million notional at $25.45 USB -- $159 million notional at $22.17 FFH is going to make a killing on these WFC and USB total return swaps. Funny, though, how people still insist that you don't want to be in financials at these price levels. Side question. Why doesn't FFH put their insurance filings on their website? Are they barred from doing this by NAIC? If not, they should put all such filings online for the benefit of shareholders.

Nice presentation. I love the slide that compares FAIRX to "our heroes" -- BRK and LUK. Thanks for posting!

Uccmal, I respectfully disagree. If anything, MSFT has shown us that building these sorts of platforms can create amazing businesses. Apple and MSFT have done it. GOOG is doing it. Amazon might do it. Hell, even Facebook is trying to do it. Devices will be commodities, sure. But you can't have an OS that is a commodity if it is built to integrate into your life, whether it's on your phone, PC, or TV, or in any number of places in your home. That's why Apple is so far ahead. They have the best vision of an integrated user experience across devices and networked things. It's not a fad, as some like to say it is. Now, RIMM's problem, IMO, is that they have put lots of energy into their devices and OS without understanding that you must have a phenomenal understanding of design and user interface to be successful in a world where everyone will use these devices. They need to concentrate on their enterprise services. Maybe even partner up with or sell themselves to somebody (I have a company in mind). Or they could divest their hardware business and focus on the service side.

I am not done reading the Jobs bio yet, but I do wonder whether the innovation gap between Apple and competitors will start to close at an accelerated rate due to Jobs' departure. Some things have struck me so far reading about him: -He was always thinking about how products should be better designed, while at the same time having the forcefulness to make people heed his desires and ideas about design (he wasn't always right, of course, but when he wasn't, he would often change his mind based on what his people were telling him) -He had the ability to scrap a product and start over even if a lot of work had already been expended on the product (pipeline products could be revised shortly before putting them into production) -He had an amazing ability to recognize secular trends and the business potential of these trends, even when they were pointed out to him by someone else. MP3 players weren't his idea, but he knew how far they could take the company. Multitouch interface wasn't his idea, but he saw that it could be used for a phone and that Apple needed to buy up that IP. I'm sure he was really fond of the Google Guys and Eric Schmidt (prior to the release of Android) because they were on a mission to create the best search, AI, and AR service on the planet. The buying of AdMobQuattro Wireless (iAd predecessor) and the release of Siri demonstrates that he knows where things are going. -He could convince people to do the impossible. Just read the story of Gorilla Glass -- can't believe he got Corning to do that so quickly. Or any of the stories about the original Apple computers. If there are people like Jobs who are still at Apple, they haven't been displayed to the public, and it isn't clear to me that a team can pick up the slack. So, again, I wonder what happens to the innovation gap with Jobs gone and whether that has an impact on Apple's ability to sustain their current margins. I'm not saying that Apple won't be successful going forward or won't take market share away from competitors (in an expanding market), but I need more info to figure out what margins will look like going forward and whether Apple can continue to get their OS into the lives of as many people as possible. I also wonder whether the vertically integrated hardware/software approach will work once we start having a UI software layer in places we are not expecting.

Cardboard, I respectfully disagree with you regarding DELL. Basically, my view on DELL is encapsulated in the following post:

You're right. Warren's hit rate is better by far than any other investor -- ever! Charlie's isn't far behind since he stopped investing in tech 50 years ago, although he has an occasional lapse like the more risky BYD. Why does everyone keep contending that BYD is a lapse in judgment and blaming (as opposed to praising) Mr. Munger for the investment? Last I checked, Berkshire made a strategic investment that is worth a hell of a lot more than they paid for it in a company that's just getting started. Once again, investors' lack of capacity to suffer gets the best of them.

I hope you're wrong, but I'm worried you're right. What a mess.

As Keynes and WEB have argued, central banks should not give up their ability to print money. The ECB needs to to start printing Euros like they're going out of style because the European governments can't get their acts together.

Cardboard, don't worry too much about DELL. What the market and many smart people fail to understand is that our DELL stake is like WEB's buying into IBM . . . only before the market figures out what's going on. As WEB pointed out with his IBM stake, having the share price stay stagnant or even go down isn't so bad, since DELL really cares about its shareholders. They'll buy back shares and continue to do what needs to be done with operations. 2014 LEAPs might be a good idea for DELL.

I haven't done the math, but a large portion of that increase in common is likely related to the conversion agreement between LVLT and FFH that was signed this summer.

+1 Agreed. Thanks, Jacob.

It is true that they could have done a pilot program like WFC. On the other hand, if they really were going to roll out the fees in order to get rid of low value/negative value accounts, then it made sense to say flat out that they were going to do it while they were the whipping boy of the financial sector. They were going to get flak for the decision no matter what, so you might as well take the pain all at once. I'm sure they figured that a pilot program announcement would have done little to spare BAC the fury of the press and general public. However, I do think that they misjudged how negatively the move would be viewed across the entire media in light of OWS and escalating rhetoric by Congressional Dems and the Administration. I mean, this was headline news. In normal circumstances, it would never have been covered the way it was. They and others probably got some pressure put on them by the regulators because of the fact that it blew up the way it did.

I've been wondering about that. My gut says they are trying to get approved for a dividend raise so they don't get left being the only one without a meaningful dividend after Citigroup gets theirs in 2012. Otherwise, what's the explanation? I don't buy the official argument that it's about retiring securities at a discount when in order to do so they have to issue shares at a huge discount -- 3x 1% ROA. I think you might be right on that. It sounds like they are probably trying to get into a capital position where the regulators will let them resume a real dividend at the same time as some of their big bank rivals. Does anyone recall whether WEB's BAC warrants get adjusted downwards for dividend payouts? If not, then we could very well see WEB exercise his warrants upon a dividend resuming. That would further increase BAC's capital ratios for Basel III.

I've been wondering about that. My gut says they are trying to get approved for a dividend raise so they don't get left being the only one without a meaningful dividend after Citigroup gets theirs in 2012. Otherwise, what's the explanation? I don't buy the official argument that it's about retiring securities at a discount when in order to do so they have to issue shares at a huge discount -- 3x 1% ROA. I think you might be right on that. It sounds like they are probably trying to get into a capital position where the regulators will let them resume a real dividend at the same time as some of their big bank rivals.

Haha, thanks for sparing me, Uccmal. ;D I'm not too worried about the debit card fee reversal. The goal of getting rid of high cost accounts has pretty much worked out -- a lot of accounts that left for credit unions on Bank Transfer Day aren't necessarily the most desirable accounts to have. And by caving, it throws a bone to the folks who really believe that they made a difference by protesting, it indicates that the big banks are at least paying heed to public sentiment (most importantly, Congressional rhetoric), and it gets the media to stop talking about the big banks being so powerful and TBTF that they can essentially ignore their customers.

I agree that some product development cannot be outsourced, particularly the design aspects of creating products and services that face US customers. But I just worry sometimes that people in the US think we will always have a lock on the higher end of the supply chain. We should have policies that make sure that we remain an attractive place for businesses that will employ science and engineering grads. For example, the Green Card for every science/engineering graduate student idea is a good one because a lot of those guys might stay in the US and create science and engineering jobs in the US. But if we make life difficult for these guys, they may take what they've learned and create new Silicon Valleys in their home countries. Nothing wrong with that, of course, but it doesn't benefit people in the US, who may find themselves having to go abroad to work on cutting edge stuff.

The problem with the idea that we just need to incentivize more Americans to get engineering and science degrees is that supply and demand factors apply to those jobs as well. There are quite a few engineering and science majors who are being laid off or who have jobs where they are being paid far less than what they would have made a decade ago. This is because a lot of work has been transferred abroad. The US does not have a monopoly on good scientists and engineers. So the most important thing, in my mind, is to be educated in a way that is translatable to multiple jobs and to be nimble. Being entrepreneurial is even better. Ironically, higher skilled services where a higher education degree is not necessary and where the service cannot be shifted abroad may be the way to go for a lot of Americans. Plumbers make a pretty good living. Utility workers who do maintenance can do pretty good too. On the ground construction work also cannot be outsourced, although low cost laborers can be imported (sometimes illegally), and you are subject to the construction cycle. Lots of "low skilled" folks are making a lot of money working for energy companies too, although they are also subject to cyclical forces.

Would love to see the details of the data behind the mental illness chart at 6:46. Cultural differences seem more relevant (for data quality purposes) than correlation to income inequality. Let's interview some Japanese, Spaniards and Italians on their stance towards mental illness and compare with the rest... Also, the Scandinavian countries are conspicously missing, whilst they are present on every other chart. I find it extremely hard to believe that there is no comparable data from our countries on that. A quick google gave me some numbers on Sweden from our government statistics bureau. Self-reported numbers of 23% of women ages 16-84 feeling mentally unwell and 13% of men. I don't know if those numbers are comparable to the statistic that is reported in the chart, but if they are they would emphatically break the correlation to income equality in the chart and to me seem to suggest there is some cherry-picking of data going on, despite what professor Wilkinson says at the end. I'm not sure I would rely on a quick Google search to determine whether is cherry-picking of data going on. I'm sure there are peer reviews that discuss the methodology of the guy's research and that find that his data has or has not been cherry-picked. I could be convinced that there's something wrong about his presentation if you could cite those critiques. I didn't determine anything from that, although I find it very curious that the Scandinavian countries are left out of that chart and since I'm aware that rising mental health problems are a big part of our domestic debate it got me a bit suspicious. That there wouldn't be comparable statistics for Scandinavia strikes me as pure nonsense (the Nordic countries probably have more extensive data on their populations in all respects than any other country and the suggestion that they wouldn't fit with the other data while numbers from a dozen separate countries can be justly compared seem far-fetched), which was what he seemed to suggest in the last part of the speech. That then begs the question: why are the numbers left out? Of course I'm not critiquing his research - I'm not competent to do that - but his presentation is clearly lacking in that specific area, whatever the reason for that is. As for the numbers I googled: like I said they are from SCB, the government agency that handles official statistics in Sweden, and should therefore have been subject to severe scrutiny. But since I don't know what methodology was used for the data in the chart professor Wilkinson presented, I cannot make a direct comparison (although anything but a self-report questionnaire would be unlikely). What those numbers seem to suggest to me is that there is an untold story, though. I don't know how anyone could disagree with that. The accuracy of his research or even the rest of his presentation was not something that I addressed. My apologies. I may have read more into your post than what you were saying. Your point is well taken -- it is odd, indeed, that he does not present any data on the Scandinavian countries on the mental illness chart. I think it makes sense to be a little skeptical. I don't know enough about the guy's political background or the methodology of the study to comment on the accuracy of the research either.

Good point. Could also be due to distortion from the stock market bubble caused in the 90s. Hard to say, though. Regardless, income inequality in the US has been increasing since the 80s. Don't think you can blame it on particular presidents -- that would be too cute by half. More likely, it has resulted from secular changes in the US economy combined with policies favoring the wealthy and the general trend of shifting risk from firms back onto households. While I agree it is too simplistic to blame or credit Presidents, The University of Michigan economist argues that the growth in inequality occurred between 1979 and the mid 1990's. That is interesting since the common perception is that is has occurred since that time and primarily under Bush, which according to the article is not accurate. Even your comment that inequality has been rising since the 80's could infer that it is ongoing. Yet according to the article, one could also say that inequality has not been rising since the mid 1990's which gives an entirely different understanding of the situation. You also state that inequality has resulted from secular changes in the US economy combined with policies favoring the wealthy. That seems non-specific and simplistic as well. That's funny -- because when I said that income inequality has resulted in part "from secular changes in the US economy" and the "general trend of shifting risk from firms back onto households," I was trying to acknowledge that the situation is more complex than simply blaming income inequality on class warfare (or on Republicans). But somehow you took it differently.