PlanMaestro

Sorry SD, so an investor should not buy a company at less than 2x normalized earnings, less than 0.3x book value, with capital ratios that can withstand any macro event, because of ... I thought that the long game was to buy companies that are here for the long run at a substantial discount. The game where BAC keeps increasing capital, keeps winning legal battles, keeps streamlining the organization/resources and keeps reducing its credit issues. Amazing how the macro event of three lifetimes can distract people so much from the real game. I will leave the why hedges were invented for for another time.

$20+

Exactly!

Bank of America is shaping up into a value investing case for the history books. People will ask, where were you when BAC was at $5 in Dec 2011?

Moynihan is rapidly becoming the dream CEO. When the time comes let's see if he is also a good capital allocator.

At the end of the write-up I mention that the banks are expending more in mortgage servicing than any LT provisions would merit. They also have substantial non-earning assets.

Oh man, I hope you are right--I was thinking more in the 40-45 range than 60. Any reason you have it that much higher? http://variantperceptions.wordpress.com/2012/01/24/charting-banking-xxiv-pre-tax-pre-provision-earnings/

There are downsides and downsides,. Short term movements consequence of market sentiment I do not care. Hits to long term profitability I do. Nothing being discussed on macro today is a hit to the long term profitability of the banks. Those Warren buys at $30, that is also close to today's price, were cheap: 50% of intrinsic value as of today. Actually the crisis opened the possibility for Wells to buy Wachovia at a fire sale price. It is only a matter of time. Crisis can be good if you are prepared.

Rabbitisrich, check BAC results. With those capital ratios I do not care about macro.

Me, Me! 28% Tarp Warrants 72% Special Situations 0% Cash 0% Shorts

John Reed on the error of eliminating the Glass Steagall act and importance of the Volcker rule.

Citigroup cut investment bank bonuses by 30 percent http://www.reuters.com/article/2012/01/28/us-citigroup-idUSTRE80R04F20120128?feedType=RSS&feedName=businessNews&utm_source=dlvr.it&utm_medium=twitter&dlvrit=56943

Volcker Rule having its impact, I like it. Less need to worry on what 20-something year old might be gambling. http://dealbook.nytimes.com/2012/01/27/citigroup-to-close-prop-trading-desk/?smid=tw-nytimesdealbook&seid=auto The bank is shutting its equity principal strategies desk, which made trades using the firm’s own capital, the firm announced in an internal memo on Friday. Most of the desk’s employees will leave Citigroup after Feb. 6, according to the memo. [...] In October 2010, the proprietary trading group at Goldman Sachs left the bank to start a similar operation at Kohlberg Kravis Roberts, the private equity giatn. JPMorgan Chase moved its proprietary desk out of its investment bank and into its asset management unit last year, and Morgan Stanley has said it will spin its proprietary operation into a separate entity later this year. Some of those banks still have ownership stakes in their own hedge fund and private equity businesses. Under the proposed rule, they are required to bring those stakes down to 3 percent or less. Citigroup’s remaining stake in its Citi Capital Advisors unit is roughly 5 percent, according to the person, and will be brought down further to comply with the rule.

Hehehe, there may be much more to that USA vs ROW cultural argument. I do not talk to management, but the one time I was invited by a hedge fund to join a conversation I was shocked by the questions they asked. Luckily, the CFO played a masterful avoidance game but I wonder how many American hedge funds and analysts are getting away with those type of questions. "Einhorn asked Punches’ CEO straight out if there was a capital raised definitively planned"

Einhorn's recalled his analyst saying, "We want to sell our shares and we would like to sell all of them. It's price sensitive and it's rather timely....We think there are a bunch of shareholders who know secret bad things... We might have a window to sell before bad news comes out and the stock plummets." I wonder if a transcript of the conference call will leak.

Not sure about that. His own version looks bad and the arrogance does not help.

Thanks!

Parsad, In the CNBC summary there are mentions of the reduction of some lines like Private Equity and Prop Trading but nothing on the live interview. There is only one segment on the site,. Do you know if more are coming?

When I was in retailing, I saw people trying to emulate Wal-Mart's every-day-low-pricing without their every-day-low-cost to disastrous consequences. I suppose that is not their plan so I can only speculate that they might be planning to move to be more of a niche player with a more exclusive product mix, a reduced footprint, and higher gross margins ... like an Apple store?

Well Vinod, it took 24 parts of Charting Banking before getting there! At the beginning I put much more emphasis on credit, capital and reserves. I even tackled issues of funding and liquidity when they were of no real importance in this environment (but a source of risks in others). Regarding the links, I could not open the first and the second maybe was butchered by the journalist but it does not have a clear line of attack. That thing about classifying deposits as cash from operations because the very health of a bank's operations depend on its deposit base sounded goofy to me. Anyway, I subtract WC lines from PTPP because they do not have the same meaning as in a non-financial company so there may be something to it. Others opinion?

OK, here we go TreasureHunt. Here is my best, at the moment, view of the differences on USB's PTPP. The numbers I presented were based on the 2010 10k, I have done more analysis to see how things have changed this year. USB used to have much higher profitability ratios. As an example, for 2009 with an estimate of $7B 2009 PTPP I get: 2009 PTPP / Assets: 2.5% PTPP / Equity: 26.2% PTPP / Revenues: 42.3% So, I was not crazy. I did remember much higher profitability ratios for USB and that was usually the norm for them. However in 2010, PTPP practically did not move ($7B again) despite growing revenues 16.5B -> 17.9B so it must be something about higher non-interest expenses that I have not pinpointed yet (USB is not in my watchlist and just follow it as an industry leader). At the same time the balance sheet grew so is no surprise that the profitability ratios deteriorated. Assets 281B ->308B Equity 26.7->30.3 Now, I tried to see if something changed in 2011. We do not have the 10K so there are cash flow statements only for the first 3Qs. With those, I am getting an annualized $7.6B PTPP, that is higher, but the "mediocre" profitability ratios have not changed much 2011 Q3 annualized PTPP / Assets: 2.3% PTPP / Equity: 22.2% PTPP / Revenues: 42.8% Considering that the numbers you share are for Q4 2011 I would need that 10K to see if things have changed or if it includes some one-times. For example, the income statement might include profits from sale of REO or loans. I will adjust the PTPP for USB in my spreadsheet to $7.6B. Considering that they are one of the few large banks that have managed to grow it recently it distorts the multiples when compared against the others.

Me2. It is cash flow break-even, they did a good job in the reorganization, and there must be some interesting value in the legacy assets. Difficult to get much info on the CDOs though.

I have to recognize when I was writing the article I had in the back of my mind much higher profitability numbers for US Bancorp from previous estimates. It does stand out so I will check it out. And thanks for the bump Racemize.

But the economy is depressed, in large part, because of the housing bust, which immediately suggests the possibility of a virtuous circle: an improving economy leads to a surge in home purchases, which leads to more construction, which strengthens the economy further, and so on. And if you squint hard at recent data, it looks as if something like that may be starting: home sales are up, unemployment claims are down, and builders’ confidence is rising. Krugman also thinking about this. http://www.nytimes.com/2012/01/23/opinion/krugman-is-our-economy-healing.html?_r=1&smid=tw-NytimesKrugman&seid=auto

I used cash flow from operations (pre- WC adjustments) to estimate PTPP. I get numbers so much higher than those being discussed, and much more in line with BAC's historic profitability, that I will keep them to myself to avoid looking ridiculous. Value investors are truly conservative.