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Bruce Berkowitz on BAC


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Moynihan is doing that...take the big hit, clean it all up...move forward.  Eventually, the market will recognize this when things look clearer.  Cheers!

 

Yes but they only have $40b in reserve and can only produce about $130b over the next few years in PTPP.  How will they ever survive another $2b hit from Fannie/Freddie?

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http://www.zerohedge.com/news/here-comes-tarp-2-bank-america-implodes-687-bac-cds-20-260-bps-bankruptcy-contemplated

 

Just to stop this right now: I shouldn't have mentioned 'talks of bankruptcy'. There will always be 'talks of xxxx' to different degrees. And once words like bankruptcy are thrown around, they tend to snow ball. So my apologizes.

 

That said, the CDS spread is concerning.

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Berkowitz must be in a world of hurt.....

 

I am sure he is the reason for the drops in MBIA and AIG. He has to sell something at this point I am guessing.

 

Could be.

 

This is unbelievable.  I'm on vacation, but watching CNBC right now.  Dow is down 600. 

 

I said a couple months ago that I didn't think we could have a downward trajectory like this in the market again.  Boy, was I wrong!

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BAC just told CNBC that they do not need to raise capital.

 

 

aww fuck.

 

You know what's going to happen next, right?

 

Nah.  It's not gonna happen.  I'll gladly eat crow if they do. 

 

I mean, BAC is going into BK?  Not bloody likely.

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They aren't going bankrupt anytime soon.  They've got assets they can sell to raise cash.  They've got a ton of cash as it is right now...so they can continue funding their business. 

 

But these types of situations can create a lack of confidence, and if you have enough people pulling deposits over time...if there is sustained downward pressure on the stock...then it is possible over the longer term. 

 

You know as soon as the hedgies hear the word "bankruptcy", they pile in with the shorts.  So that downward pressure over a period of time can push a company to the brink if they have no other source left for financing.  Berkowitz is going to get killed like he did in 2008, and then rebound over time.  Cheers! 

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But these types of situations can create a lack of confidence, and if you have enough people pulling deposits over time...if there is sustained downward pressure on the stock...then it is possible over the longer term. 

 

I'm convinced, though, that BAC deposits are gonna go up markedly this quarter.

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One of the things that happened as a result of the banking crisis was that we now have a massive concentration of desposit among a very few banks -- JP, Citi, BoA and Wells. 

 

There is no where to put the deposits of BoA should people start to pull their money -- this could get interesting.

 

Through the haze of CDO's and TARP and all that, what was actually happening during the peak of the banking crisis was a simple run on banks...think back to the fact that people were pulling their money out of Wamu and Wachovia -- just regular joes were rapidly pulling their money out. 

 

If one of these large banks named above experiences a run, where will the FDIC move the deposits this time. 

 

IIRC, the 50th largest bank in the US has about 2% of the assets of a BofA. 

 

What are they gonna do?

 

The President, the Treasury secratary, the leader of the FDIC -- they should have been out the last few days reminding people that there is ZERO reason to pull their money from ANY bank in the United States, that there is ZERO chance that anyone will lose a dime, etc.  (I know, if you have more than $250k in a bank you could but you get the idea).

 

I don't get it.

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This is an excellent point. Thanks! In BAC I do not TRUST!

 

 

I completely agree regarding the black box issue. I would guess Buffett does as well, and that's why he chooses to own WFC, which fully discloses its "Other Asset" category, does not make dumb acquisitions and has a relatively simple business model.

 

All I ask before buying BAC is to have some idea of what those assets are. Investors got smoked back in 2008 and 2009 buying AIG, Fannie, Freddie, BAC and C based on perceived "earnings power" and assuming the risk of a black box.

 

I would contend as well that this period of time is NOT akin to the early 1990s. We are in the process of unwinding a massive credit bubble, which will take much longer to unwind than the 1990s banking crisis. I say that to say there is a very big risk bank balance sheets are inflated due to accounting shenanigans (read any of John Hussman's commentary since the recession started), and thus investors must not simply "have faith" in BAC's ability to fairly account for its "Other Asset" category.

 

 

 

 

 

 

I love BB's BAC analysis, and I would put money (literally and figuratively) on it that he ends up right in the long run. However, I have a question that continues to dog me as I look at this company...

 

How do we know within reason what is on BAC's balance sheet? For example, in the line "Other Assets" on its balance sheet, BAC dumps over $100MM of assets and does not disclose very succinctly what is in that line...I was able to find in a note that one of the assets in their is their China Construction Bank investment that is currently carried at roughly $19B. There is very little information regarding what else is in that bucket, and if for some reason that entire bucket was wiped out, shareholder equity would be gone.

 

Just the CCB investment alone is worrisome - they've had that on the block for awhile now, and with China's real estate mess only getting worse, who know what that is truly worth.

 

 

All that to say - Parsad, it sounds as if you potentially are in BAC...if so, how do you get comfortable with what is on BAC's balance sheet outside of the Bruce argument that BAC earnings $45 to $50B PTPP and can earn their way out of it? If in fact BAC is forced to write down fluffy assets in the next couple of years, that is not enough time to "earn" their way out of it due to limited profitability over the near term.

 

I love his analysis as well and would and have put money on it.  I have answered the question about the balance sheet before.  The answer is simple, but perhaps not satisfactory.  In terms of how you get comfortable with it . . . you just do.  You have to take a leap of faith.  Banks are a black box in that way.  You will never be able to analyze their assets in a way that will give you 100% comfort.  But at the end of the day, how is this so different from other companies that are non-financials? 

 

Take FFH or BRK, for example.  You have a list of assets and you think you know what they are worth.  But all you know is what is listed on a piece of paper.  They both have countless subsidiaries, etc.  What is an insurance company really worth?  You think you know and you do, so long as the numbers on the piece of paper are correct.  Are you actually going to various insurance companies and doing an audit on their figures?  Even if you had that kind of access, would it even be possible to do?  Is one capable of doing it?  Then, in BRK's case, there are all the operating companies both wholly owned and the investments.  What is KO really worth?  They tell you they have operations all over the world.  Have people been to Nepal to analyze their exposure there?  What about China?  What about all their bottling companies? 

 

At the end of the day as with any investment, all we know is what is listed on a piece of paper in the 10-K.  Either you take the numbers at face value with your own bit of analysis built in, or you don't.  I'm not saying that one shouldn't discount or whatever, as appropriate, but if you think BAC is playing games, don't invest.  I can assure you that no one knows exactly what any of these banks is truly worth in the sense of putting an exact valuation on it.  Buffett doesn't really know what WFC is worth.  Berkowitz doesn't really know what BAC is worth.  The structured assets alone, even if you had a list of each and every one is impossible to value accurately.  But you don't need precision to know that at the current price BAC is undervalued.  As they used to say on an old tv show, believe it . . . or not.

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I love his analysis as well and would and have put money on it.  I have answered the question about the balance sheet before.  The answer is simple, but perhaps not satisfactory.  In terms of how you get comfortable with it . . . you just do.  You have to take a leap of faith.  Banks are a black box in that way.  You will never be able to analyze their assets in a way that will give you 100% comfort.  But at the end of the day, how is this so different from other companies that are non-financials? 

I thought this was supposed to be a value investing forum?

 

I can assure you, when Warren Buffett invests in a financial, he certainly does not take any leaps of faith. The numbers are all out there, if you're diligent enough, you will find them.

 

I can't help but HAHAHAHAH~~~~

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BAC just told CNBC that they do not need to raise capital.

 

 

aww fuck.

 

You know what's going to happen next, right?

 

Nah.  It's not gonna happen.  I'll gladly eat crow if they do. 

 

I mean, BAC is going into BK?  Not bloody likely.

 

Already posted this on another thread, but it probably fits here better.

 

http://dealbook.nytimes.com/2011/08/11/for-bank-of-america-countrywide-bankruptcy-is-still-an-option/

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http://news.morningstar.com/articlenet/article.aspx?id=391215

 

During the Q&A, he asked Moynihan whether the bank could earn 1% on its assets and a 10% return on equity over an entire business cycle. Recall that Berkowitz suggested at the Morningstar conference in June that his belief in the stock was predicated to some extent on the company hitting these numbers. Moynihan said that a 1% return on assets was a reasonable target for the balance sheet, but only if the Federal Funds rate was at 1.25% to 1.50%. Given that the Federal Reserve now believes economic conditions will warrant keeping rates close to 0% until mid-2013, it doesn't appear that the company will hit the 1% target any time soon.

 

[sorry if this has already been posted.]

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Who believes BAC CEO Moynihan that his "net worth" is all in BAC stock when it amounts to a paltry $3.5 million. Surely it cannot be this low...

 

I think this important.

 

Its reassuring if he has all his net worth in the company stock,

 

If he is lying or stretching the truth about this, then its a bad sign i.e. how can the rest of what he said or his running of the company be trusted.

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Who believes BAC CEO Moynihan that his "net worth" is all in BAC stock when it amounts to a paltry $3.5 million. Surely it cannot be this low...

 

If it's any consolation a short while ago it would have been 'a paltry' 5-6 million.  I wish I was part of the club where 3.5 million was considered 'paltry'!

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I wish I was in that club too, however Brian's rap sheet means his net worth should be much higher than $3.5mm.  He was probably making $1mm-$2mm a year in salary. 

 

Straight from the Proxy Statement

 

Prior to his appointment as Chief Executive Officer and President, he served in various leadership positions at our company: President, Consumer and Small Business Banking (August 2009 to December 2009); President, Global Banking and Global Wealth Management (January 2009 to August 2009); General Counsel (December 2008 to January 2009); President, Global Corporate and Investment Banking (October 2007 to December 2008); and President, Global Wealth and Investment Management (April 2004 to October 2007).

-  Prior to Bank of America’s acquisition of FleetBoston Financial Corporation, he served as Executive Vice President of FleetBoston from 1999 to April 2004, with responsibility for Brokerage and Wealth Management from 2000 and Regional Commercial Financial Services and Investment Management from May 2003.

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