PlanMaestro

I live South of Rio Grande and I am amazed how people quickly forgot the Latin debt crisis, Volcker, Brady bonds, and how deep were Citibank and Bank of America moving petrodollars south of the border. Nothing new under the sun. Banks in my country were BK, nationalized and then floated again. They could be bought 10y after the crisis at BV and 6-7 P/E and still had a large government ownership... that was the stigma. I will not tell you their current valuations (OK, check Santander Chile SAN that I think is at 4x BV). For me the Citigroup situation is even more amazing than Bank of America considering they own Banamex and they do not have the MBS hangover. By itself Banamex is worth more than 30B and is a well managed bank. Worried about insider buying? Just look at what Medina Mora and Hernandez are doing. We in Latin America have seen it all, and this too shall pass. I do not know in what conditions ... but at least for the US it does not look remotely what we had to suffer (my thoughts are for the Greeks).

That is Euro Europe minus France (UK numbers should not be included, and no German Exposure). France numbers are big but still, less than 6 months of PTPP and around 1% of assets. Remember that all these numbers include relations w/ multinationals that will not do that badly even in a crisis. France Public Sector: 1B Banks: 8B Private: 16B Total: 25B

Agree, but probably cash flow is half that. I would like to ask our friends from the MBIA board (valuecfa, Rabbitisrich, ERICOPOLY?) what would be their reaction with a $8b settlement? And MBIA's price has also been under pressure as MS, GS, C,... This is not about BAC and its MBS, it is about Europe and the potential ramifications of a credit freeze. That is a more interesting subject to discuss.

No, it just shows how a value investor thinks. First, downside protection. That scenario is not very probable and even if it happens it is not that bad? That is how you make money. OK Munger, show us your best. Is not bad to have a skeptic in the house but you have to amp your game. At least throw some numbers.

Emotions? Imagine if I had the stock. You are the one comparing LEH and BAC (that are in no way related, not even their leaders style and performance)

30:1 leverage is the same as 8:1 leverage investments 1y into a recession are the same as loans 4y into a recession ST repo funding is the same as LT deposit funding investment banking is the same as commercial banking war is peace, freedom is slavery, ignorance is strength

They have been setting reserves aside (one reason their earnings do not show their cash flow from operations) they just do not disclose them. And I think the reason is pretty obvious Bank spokesman Jerry Dubrowski said Bank of America and other companies don’t disclose their total litigation reserves because it would signal to plaintiffs how much they’re willing to spend to resolve legal cases. I thought we were talking about 2011 and the future. Did not know that discounting future cash flows included the past.

As I have been telling others, if Bank of America's loans are so bad (and Citibank's) how is it that its cash flow operations/assets is comparable to Wells Fargo and better than JP Morgan? And that is 3 years after September 2008 and more than 4 years after the peak in Real Estate. By now there surely must be some indication of terrible u/w. The only thing we have are the Countrywide lawsuits that I do not want to minimize but reserves have already been set aside and the worst estimates are less than 1 year of PTPP earnings. But I guess Munger will say that the whole banking system is bankrupt.

Munger I hope you realize that those estimates are less that 1/2 of one year of pretax pre-provision earnings. If that is your main worry you should not worry at all.

No dog in this fight while waiting for some cash from a special situation that went wrong (30% loss). Luckily that cash is coming just in time to take advantage of one of the most incredible gifts of Mr Market (and it is not just BAC). To put some perspective. A $50B capital raise at current prices, that is way beyond what BAC needs given its fortress balance sheet, would less than double the current number of shares. When the company is trading at least of 1/6 IV even with that ridiculously high capital raise BAC would be trading at less than 1/3 IV. Amazing

That does not look so bad considering recent earnings ($4+) and that the economy has not recovered. The problems with HPQ are more with their acquisitive past (Compaq, EDS, Pal, 3Par). I am considering including HPQ in the "5xFCF BigCap Club". Current Inductees: DELL, XRX, AIG. With the first two buying back shares big time. I did not include RIMM, and HPQ is probably in that camp too, because that these turnarounds are already turning. Any others?

Aberhound, you made my day .... hilarious.

Thanks Packer, both converts are still trading at a discount and one is putable next year.

I did not know he had Compucredit. I have tried several times to find downside protection, but receivables keep going down and it is not clear to me how to value the residual value of the credit card securitizations. There was a VIC write-up but I was disappointed ... no smoking gun Has anyone seen/prepared a clear thesis for Compucredit?

Thanks Carvel, http://variantperceptions.wordpress.com/2011/08/12/munger-on-ideology/

Great quote, source?

Sanjeev, what is your reaction to how they handled that last question (exposure to European banks)?

Well, you do not want to leave ZIRP too soon. Even Milton Friedman criticized the Bank of Japan on that. Zero interest rates with deflation is not expansionary, real interest rates is what should be followed (check 10y TIPS today 0%!). I thought you were talking about heterodox monetary tools like Quantitative Easing.

Actually he is not in the "print money" camp. He thinks QE is wasteful and of little use. He is in the increase G camp. And with 2 year treasury yields as they are today and I do not see what is wrong with it (no politics just economics)

Bank of America is a great bank as it is. The problem is the Charlotte crowd and their empire building ambitions. BofA was in great shape (Wells Fargo shape) getting into the recession and they are getting out of this mess without significant earnings dilution (compare with Citi for example) despite those risky acquisitions. All we need from Moynihan for a home run is to stop any acquisition temptation, control the Charlotte crowd, bring people from the outside, and use capital for dividends and buybacks.

Wilbur Ross for the win. Very good interview, thanks MrB

and I forget... the last days I bought AIG warrants and GKK. But there is so much to choose from.

Considering the subject, i can not resist repeating the three rules of forecasting (1) Do not forecast. But if you do, do it often (2) Do not forecast. But if you do, forecast either value or timing but not both (3) The stock market has forecasted nine of the last five recessions. Not bad for a forecaster. Paraphrased from the same professor that Munger makes fun off for proposing and defending Random Walk and Efficient Markets while being an early Berkshire investor.

I am for free speech but also demand my right to keep reading efficiently the best investment forum in existence. Rabbitisrich is fighting the good fight but three times I stopped short from asking: Is there a way to block some threads? I could not stop asking the fourth time.

10% ROE for 7 years? BAC might well be above $60 in 2019