bmichaud

This could potentially be massive, along the lines of what BB has talked about AIG moving into. I wonder if BB doesn't have plans for AIG to become part of this in some way shape or form.... So the Treasury's cash cow would remain in place.

That's probably because the legal side is happening whereas the restructuring side might happen. Treasury owns 79.9% of the equity of the company through warrants. Why would they agree to forego that ownership and turn over ownership to the private preferred shares? My point was that when I woke up this morning to this news I came on here expecting 5 new pages of analysis. I understand why the legal analysis is happening ;D

Endless debate for months on end about the legal side of F&F, yet zero discussion thus far regarding one of the largest potential restructurings ever!!! FT said there are various documents floating around regarding the investor group's proposal. Anyone come across anything? This whole situation makes far more sense IMO if in fact this is what Berkowitz had in mind the whole time - i.e. private capital coming in to restructure F&F. Why else would he take such a large stake in something that has a legitimate possibility of going to zero?

What I struggle with though is that while a rise in WFCs NIM from 3.5 to 5 would appear to be a giant boon to earnings, they are already earning a significant return on assets and equity, relatively in line with historic norms when adjusted for leverage. I'm a TBTF world, is WFC going to earn 20% on equity? If BACs core earning power shines through, I can easily see a 1% roa or 10% roe, implying at least a $20 stock price. Will it get a WFC-like 1.5% roa or 15% roe? Tough to say.

Precisely - there are so many moving parts for BAC it makes my example almost not even worth discussing. I just am hesitant to model "new BAC" at a clean 3.5% NIM without any other consequence such as the need to rebuild capital for several years. Who knows. I'd rather just assume book value is a reasonable approximation of fair value and reevaluate when it gets there.

I was wrong in buying BBRY as an event play under what I thought was a conservative TBV calculation. But I cut my losses. I don't understand how one could have honestly viewed PW as capable of getting a deal done when the stock was below $8 the Friday before the deadline. The market is not that dumb especially with rampant insider information.

The Deutsche Bank report I posted talks about the various historical rising rate environments.

Eric, I'm an idiot - should have heeded my own warning of not thinking clearly. I misread something you said previously, and I had WFC's 3.5%+ NIM in my head. BAC's current NIM of less than 2.5% is huge upside relative to its own historical norms and the industry norm (see the attached DB report, and specifically the chart that shows the industry average NIM since 1935 around 3.2%, and closer to 3.75% if you look since the 1950s). Also attached is the historical NIMs for WFC and BAC. Regarding a rate rise's impact on the b/s and i/s.... I've attached a very messy example of what I'm talking about. I have not quite figured this out, so this is just me thinking outloud. Say a very simple bank has the following balance sheet/income statement: Loans 1,000 - average yield 6%, duration 5 (i.e. 5% move in value for every 100bps move in rates) Deposits 900 - average cost 2% Equity 100 (i.e. levered 10 to 1) NIM 4% ALL .50% Expense Ratio 45% of NII Tax Rate 35% Shares Out 10 Fair Value PE 12.5X FVPS $13.81 Now - say the long-end of the curve rises 2% and the cost of funds rises 1%, resulting in a 1% boost to NIM. Obviously it is not entirely realistic, BUT...say that the loan book is sold immediately for a 10% loss (5 duration x 2% rise in rates = 10% loss), or $65 after-tax, and reinvested at the new 8% rate. 1. The equity base is reduced to $65, and with total assets at $935, leverage is now 26.7X 2. Net Income rises to 13.67, or to with ROA rising to 1.46% versus 1.11% previously So in theory yes, earnings rise and the bank should be more valuable. BUT, in my example, leverage ratio skyrockets to 26.7X versus the 10X regulatory limit.... What should this hypothetical bank do to boost its capital base? In my example i assume the bank raises 65 of capital at the "new" FVPS price, which obviously assumes the market gives the bank the benefit of the doubt on the multiple. this capital raise dilutes the share count by over 30%, bringing the "new new" FVPS down to $12.38 assuming a 12.5X fair value PE. Obviously there are TONS of moving parts with this. First off, banks do not MTM their loan books - on the flip side this means that the loan book will take longer to reprice to market rates than it takes the deposit base to reprice (i.e. deposits likely do not have a 5y duration in this example), thus crimping NIM in the medium term. Second, what portion of BAC's asset base is comprised of assets that are currently over-earning for this low-rate environment? In other words, how much of the asset base will not in fact reprice upwards when rates rise b/c they are already earning a fair yield in a higher-rate environment? Clearly I have not yet figured this out in my head. It just seems too easy that boom we should buy banks and insurance companies because they will do well in a rising rate environment. There has got to be some consequence of rising rates. Deutsche_Bank_US_Large_Cap_Banks_101.pdf WFC_and_BAC_NIM.xlsx Rate_Rise_Analysis.xlsx

Eric, I have had a long weekend so am likely not thinking clearly, but why would BAC earn money on its NIBD base if the base rate went up to 2%? Are those NIBD not already lent out in the form of mortgages and securities held? If the base rate went up to 2%, would BAC not need to in fact pay the $7B extra you are referring to? Again I'm likely not thinking clearly, but generally I am struggling to see why the banks will benefit from rising rates when NIMs are near historic norms right now. In fact, I would imagine a rising rate environment with NIMs near historic norms would be rather negative for book values as securities are MTM via the OCI line on the balance sheet that is conveniently excluded from the income statement....witness BAC and AIG's book values this quarter declining bc of rising rates....

The article is complete garbage. Pretending to not "know" what true valuation metrics mean is just a cover to pitch a macro approach. I like his economic analysis, but whenever he ventures into the investment side of things I'm not a fan.

http://pragcap.com/ben-bernanke-slayer-of-value-investors

http://nypost.com/2013/10/30/bad-news-piling-up-on-third-points-dan-loeb/

Muscleman, What was the price of Brent, versus now, back when gas was 3.90 in your area? If Brent is now lower, that is likely part of it, as WTI is not a good barometer of gas prices because it is landlocked. Also, it's a seasonally weaker time for gas demand as the summer months wind down.

A) You do not build a $14B hedge fund by simply being "smart" B) Last I checked, Yahoo!, Sony and Nokia were not being touted by a wide swath of investors before he got in. Of course every single stock traded is "someone's" idea at some point in time.... Another line in the article (not related to Chapman) said Loeb's goal is reportedly to manage $40B.....he just returned $1.4 to investors. All in all, a rather sketchy article. you're misattributing that first quote, though i don't disagree ur right! my bad.

You beat me to it.

Robert Champman is a complete clown - vomiting forth his opinion on other managers every chance he gets. Funny how you don't see anyone worth their salt quoted in articles on other managers..... Two complete B/S quotes by Chapman: A) You do not build a $14B hedge fund by simply being "smart" B) Last I checked, Yahoo!, Sony and Nokia were not being touted by a wide swath of investors before he got in. Of course every single stock traded is "someone's" idea at some point in time.... Another line in the article (not related to Chapman) said Loeb's goal is reportedly to manage $40B.....he just returned $1.4 to investors. All in all, a rather sketchy article.

Good comments today by Jeff Saut on the likelihood this market isn't going anywhere (on the downside that is) anytime soon.... http://www.raymondjames.com/multimedia2.htm?url=Saut_Daily.wma&player=wmp&target=int&width=300&height=0

Excellent! Thanks for posting ;D Edit: had chills the entire article

My understanding is that it was a technically correct call. That is, he did interfere with the baserunner, but most of the time some judgment is applied. I would agree with you. He fell and while he may have interfered, there was nothing else he could do. To me "interference" to some extent implies a purposeful action. But the rule doesn't seem to require scienter. Ur right - intent doesn't matter in the case of that rule. Seems odd, but true.

lol at best he has some bizarre nervous habit - very strange.

I know I'm biased b/c I'm a fan, but I don't fully understand how that play at 3rd in Game 3 was not akin to a wide receiver and corner back getting tangled up on a pass, with neither player receiving an interference call. There was literally no way for him to actually get out of the way without "interfering". Whatever. Last night more than made up for it. Although the stat they showed (might have been on Sportscenter) where like 97% of teams that win game 3 after the series starts 1-1 go on to win is rather disturbing. But hey, I'm sure if you looked at hitting stats for world series losers, Boston's current offense would be among the worst hahaha - they've won on what like 5 swings all postseason?

hahahah so true!! the beards are phenomenal, ala Johnny Damon 2004. Love it.

Not sure how many Red Sox fans are on this board, but I can't help but say SOMETHING about last night's unbelievable game 4. Gomes' 3-run shot after starting the series 0-9, with the Sox down 2-1 in the series and Cards pitching picking apart everyone but Papi had to have been one of the most clutch swings in team World Series history. Phenomenal stuff. GO SOX 8)

http://www.cnbc.com/id/101142283 Is the contrarian move to go against the headlines that keep saying it's time to be "contrarian"?

Makes sense. Thanks a lot!