As BAC stock continues to fall, interesting perspective

[moore_capital54]

Munger here is the response from Larry Dirita a spokesman for BAC verbatim:

 

"(The following is a reformatted version of a statement from

Larry DiRita, a Bank of America spokesman. The statement was

confirmed by the sender.)

 

Mr. Blodgett is making “exaggerated and unwarranted claims”

which is what the SEC stated publicly when he was permanently

banned from the securities industry in 2003.  The sovereign

exposure is off by a factor of 10.  The commercial real estate

figures are off by a factor of four.  The mortgage analysis was

provided by a hedge fund that has acknowledged it will benefit

if our stock price declines.  The recommendations on goodwill

accounting would be prohibited by generally acceptable

accounting practices.  Traditional bank valuation relies upon

tangible book value per share, which excludes by definition 100

percent of goodwill and other intangibles.  As of June 30, our

tangible book value per share was $12.65.

[txlaw]

will be interesting to see how this plays out...no opinion here

 

maybe someone could adress these issues instead of just responding w platitudes, which is all i've seen from the bulls

 

From CNBC

So what's going on? Henry Blodget at Business Insider sums up the "bear case" against Bank of America [bAC  6.30    -0.12  (-1.87%)  ]. The short version: a lot of people don't believe that Bank of America is correctly valuing its assets and liabilities.

 

Here are some of the things that the Bank of America observers think should or will be subtracted from the bank's $222 billion of book value:

 

$15-$20 billion in increased mortgage-litigation reserves. Zero Hedge thinks BoA is understating the liability for mortgage litigation costs by this amount. See explanation here.

 

Some percentage of $80 billion of "second mortgages." Yves Smith thinks these should probably be written down by 60%, or $48 billion.

 

You can pick your own number.

 

Some percentage of $182 billion in commercial real estate loans. The "extend and pretend" game in commercial real-estate is even more pronounced than in residential real estate. So as Yves Smith observes, there's almost no chance those loans are actually worth $182 billion.

 

A healthy percentage of $78 billion of "goodwill." Bank of America built itself by acquisition. "Goodwill" is what's left over when management overpays for something. As Yves Smith observes, Bank of America's former CEO Ken Lewis loved overpaying for things. He overpaid for Countrywide, for example, which has since been written off to zero, and Merrill Lynch, which he could have had for free by waiting a couple more days.

 

Untold amounts of exposure to collapsing European banks and sovereign debt. Yves Smith says Bank of America says its sovereign exposure is $17 billion. Really? Has the firm not written any credit default swaps protecting customers in the event that European banks or countries go belly up? Might the firm have to post some cash "collateral" to satisfy these contracts? That's what Lehman had to do, after all. And that's what made Lehman go from "having plenty of capital" to being broke overnight.

 

So, taking some back of the envelope numbers, it looks as though we could easily come up with, say, $100-$200 billion in write-offs and exposures to "clean up" Bank of America's balance sheet.

 

So you would characterize BofA's direct response to Blodget's numbers, which they say are orders of magnitude off the mark, as platitudes?

 

Mr. Blodget is making “exaggerated and unwarranted claims,” which is what the SEC stated publicly when he was permanently banned from the securities industry in 2003.

 

The sovereign exposure is off by a factor of 10.

 

The commercial real estate figures are off by a factor of four.

 

The mortgage analysis was provided by a hedge fund that has acknowledged it will benefit if our stock price declines.

 

The blogger's recommendations on goodwill accounting would be prohibited by generally acceptable accounting practices.

 

Traditional bank valuation relies upon tangible book value per share, which excludes by definition 100 percent of goodwill and other intangibles. As of June 30, our tangible book value per share was $12.65.

 

They probably shouldn't have put the part in about the ban on Blodget, but I get their frustration.

 

By the way, weren't you the guy who was claiming that that BAC's share price has an affect on BofA's capital position?

 

Also, you need to look up the definition of "platitudes."

 

 

[Munger]

This bank is trading at 0.32 times book now.

I'll also ask that unless you've seen all of the loans and understand all of the assumptions underlying reported book value, how do you have any confidence in reported book value?  Not once have I seen any "bull" support their conclusion with an analysis of the "assets" and the assumptions that underly reported tangible book value. 

 

Further, the bull story has now devolved from the stock being a screaming buy at $11-12 to the stock is now a screaming buy because the company will almost certainly soon get a capital infusion through the sale of pfd shares.  Well if book value is so sound and the stock was a screaming buy at $11-12, why would management and any shareholder even consider taking outside money? -- wouldn't make any sense if book value is legit

 

[moore_capital54]

I personally don't think the company needs to sell any preferred shares.

 

JPM just upgraded BAC. Here is the research note from JPM:

 

"We estimated a capital shortfall $12bn (assuming a target Basel III Tier 1 common equity ratio of 7.5% at YE’12) under our base case; our Bear case suggests a $25bn shortfall. At this point, we think it is important to maintain perspective; our estimated shortfall is not huge, and is eminently feasible in our view. This is also a relative shortfall; the company remains very well capitalized by historical standards.

 

The equity and credit markets are becoming increasingly clear in their message that the company needs to address the capital and mortgage issues; we think it is getting more difficult for management to ignore this sentiment. In our view, this raises the likelihood of a credit-positive development, such as an announcement of a capital raise.

 

We cannot ignore the reality that current challenges are solvable. With CDS trading wider than at the peak of the financial crisis, current valuations appear to us to reflect irrationality, rather than the true, manageable, scope of issues facing the company."

[ShahKhezri]

I think the best thing to do is decision tree and place probabilities on the outcome.

 

Really, raising capital through new issuance happens if the settlement is 1.5-2x more than they have reserved.  Right now, you're hearing $50Bn from Jeffries (the analyst who made that statement is from the derivative desk btw), and $100-200Bn from Blodget (who can't work in the securities industry). 

 

The argument that the CDS market may force them to raise capital is ludicrous.  So the implied volatility on their debt goes up and they have to raise capital.  If that's your theory, short it. 

 

If your conclusion is that they will raise capital through sell of assets (which they have a lot of) and earnings retention...well then...

 

Lehman and '08 casualties went out because although they had assets, there wasn't any liquidity (forced sellers and unwilling buyers).  Take for example, Archstone, it's a solid asset, Lehman has a 47% stake, BAC has a 28%, and Barclays 25%.  In '08, there wasn't a way to liquidate an asset such as this.  Now there are talks of an IPO.  (another + to liquidity).

 

Last weeks deal to sell card assets to TD.  Potential sell of Irish and UK card assets (which I think would be smart for FFH's new investment to buy if the price is right), another source of liquidity.  These kind of transactions weren't happening in 08.  The only transaction that did happen other than forced purchases (wamu, Bear, Merill, etc) was Visa (treasure).

 

BAC sold Blackrock and raised $2.5Bn in May at $188 ($30 higher than now)...and you know what another Jeffries analyst said:

 

“This is cash coming in, which is a positive event, as opposed to all the other remaining tasks” Moynihan has related to resolving mortgage liabilities, said Jonathan Hatcher, a credit strategist at Jefferies & Co. in New York. “It’s nice to get $2.5 billion, but that’s probably a drop in the bucket relative to everything else they have going on.”

 

How do you go from "drop in the bucket" to "they may have to raise $50Bn"????

 

Merill's in talks to sell their real estate assets to Blackstone....

 

There are a lot of naysayers out there and that's fine, you have to treat the position for what it is.  But, I think the resolution is quicker than what the market thinks...

 

Q3-Q4: Gary Lynch joins the Company from his "garden leave", settles the mortgage crap, either they raise capital (equity) or they don't (my guess is CCB, Archstone, Irish/UK card, additional sell of non-core assets and reserves will suffice), in which case the biggest cloud has passed, Treasury ok's the dividend/sharebuybacks...it's going to happen fast. 

 

Good luck to all.

 

 

 

[moore_capital54]

One more thing, Short Interest on BAC is up to almost 150mm shares roughly where it was in March of 2009.

[Munger]

Absolutely nothing but a combo of shoot the messenger and platitudes.

 

Bulls are basing their positive outlook on hollow statements:

The sovereign exposure is off by a factor of 10.

The commercial real estate figures are off by a factor of four.

 

Are you kidding me????  Where is the supporting analysis? 

 

The stock has been destroyed, with the company now valued at 0.32x supposed book value and the best management can do to refute the analysis and create confidence is to attack the messenger and throw out numbers without any supporting analysis?  Stunning.

 

Again -- I have no idea if the stock is a buy or a sell but I do know that I have seen NO legit analysis supporting a raging bull opinion. 

[Parsad]

$15-$20 billion in increased mortgage-litigation reserves. Zero Hedge thinks BoA is understating the liability for mortgage litigation costs by this amount. See explanation here.

 

Why set up a reserve until you've actually discovered what your reasonable estimation of litigation costs are.  If Zerohedge can come up with that number without actually seeing BAC's loan portfolio, then they've got a skill-set that no other person in the industry does. 

 

Some percentage of $80 billion of "second mortgages." Yves Smith thinks these should probably be written down by 60%, or $48 billion.

 

You can pick your own number.

 

Some percentage of $182 billion in commercial real estate loans. The "extend and pretend" game in commercial real-estate is even more pronounced than in residential real estate. So as Yves Smith observes, there's almost no chance those loans are actually worth $182 billion.

 

A healthy percentage of $78 billion of "goodwill." Bank of America built itself by acquisition. "Goodwill" is what's left over when management overpays for something. As Yves Smith observes, Bank of America's former CEO Ken Lewis loved overpaying for things. He overpaid for Countrywide, for example, which has since been written off to zero, and Merrill Lynch, which he could have had for free by waiting a couple more days.

 

Untold amounts of exposure to collapsing European banks and sovereign debt. Yves Smith says Bank of America says its sovereign exposure is $17 billion. Really? Has the firm not written any credit default swaps protecting customers in the event that European banks or countries go belly up? Might the firm have to post some cash "collateral" to satisfy these contracts? That's what Lehman had to do, after all. And that's what made Lehman go from "having plenty of capital" to being broke overnight.

 

You speak of platitudes, but these numbers are pulled out of thin air.  How does Smith know exactly what loans are on the books.  She's basing the decision on acquired portfolios of loans, and past underwriting standards.  How many of these loans have already been rung out?  How much new business has been brought in of significantly better quality?  Any future losses from these portfolios should be incurred as they take the hit, quarter after quarter, and they will be offset by business from newer loans. 

 

BAC today said that the analysis of their foreign soverign exposure was off by a magnitude of 10!  So who knows their books better...the analyst who has no access to them, or the CEO & CFO?  Moynihan hasn't done anything to date that would indicate he's playing games.  In fact, he took the higher road on the settlement side so that the company could move forward.  He could have dragged these cases through the courts for years, but he didn't.

 

So, taking some back of the envelope numbers, it looks as though we could easily come up with, say, $100-$200 billion in write-offs and exposures to "clean up" Bank of America's balance sheet.

 

Yup, it looks pretty easy.  Just like St. Joe should have taken huge write-offs.  Just like Fairfax should have taken huge write-offs.  I've seen plenty of people throw around numbers who have no clue what the actual liabilities for a business are.  Remember John Gwynn's $4B number at the time?  He then cut it in half a couple of weeks later.  And this was an insurance analyst who dug as deep as he could into Fairfax and had all sorts of hedge funds and journalists on his side. 

 

I remember being told not to buy WFC at $9 and GE at $7, because things could get worse.  Easy to come up with worst case scenarios, but hard to come with probable scenarios.  It's why some people missed the rebound in 2009 and 2010.  Same reason they'll miss it again in the next year or so.  Cheers! 

 

 

 

 

 

[txlaw]

This bank is trading at 0.32 times book now.

I'll also ask that unless you've seen all of the loans and understand all of the assumptions underlying reported book value, how do you have any confidence in reported book value?  Not once have I seen any "bull" support their conclusion with an analysis of the "assets" and the assumptions that underly reported tangible book value. 

 

Further, the bull story has now devolved from the stock being a screaming buy at $11-12 to the stock is now a screaming buy because the company will almost certainly soon get a capital infusion through the sale of pfd shares.  Well if book value is so sound and the stock was a screaming buy at $11-12, why would management and any shareholder even consider taking outside money? -- wouldn't make any sense if book value is legit

 

No, the bull case is that regardless of whether there is a capital infusion, BAC won't go to $0 and is worth far more than what it is trading at.  Keep in mind that there are multiple entities involved here.  The Countrywide entity is the one that's causing the most problems.

 

I'm not  exactly sure that Moynihan would actually take a preferred investment akin to the BRK-GS transaction, but because financial institutions rely on confidence, he may very well do so, provided that he gets the capital on decent terms. 

 

We'll see what happens.

[Munger]

And what about this...bulls never address...

 

Sure enough, in a filing today at the Supreme Court in New York, the Federal Home Loan Banks which are pursuing more information from the bank in an attempt to generate greater recoveries, have suggested that the the entity conducting the recovery assumptions that generated the $8.5 billion settlement was potentially incompetent (and arguably criminally negligent - our assumption not theirs), and that a "reasonable settlement" would nearly triple the amount of money that Bank of America would have to charge off: a range of $22 billion to $27.5 billion. Of course, should BAC do this, its Tier 1 Capital would plunge, it would immediately be forced to access the equity capital markets, and confidence in the bank's books would evaporate instantaneously, with all the nightmarish AIG-esque consequences envisioned by Jon Weil materializing immediately.

 

Let's take a look at the FHLB's filing:  HERE IS THE CONCLUSION -- THE ASSUMPTIONS ARE LUDICROUS...HOW CAN ANYONE BE CONFIDENTLY BULLISH GIVEN THIS SAMPLE OF ASSUMPTIONS

BNYM notes that it has now released on a website “all of the expert reports submitted to the Trustee in connection with the Settlement” and implies that those reports may provide all the additional information that the FHLBs need to decide whether to object to the proposed settlement.  Unfortunately, however, the expert reports raise more questions than they answer. By way of example, BNYM published a report from Mr. Brian Lin of RRMS Advisors about the reasonableness of the $8.5 billion that BNYM agreed to accept as part of the proposed settlement. Mr. Lin concluded that “a settlement figure somewhere between $8.8 and $11 billion is reasonable.” But to reach that conclusion, Mr. Lin made certain assumptions, the bases for which are not fully disclosed in his report.

 

Mr. Lin started with the full remaining principal balance of the loans in the 530 trusts that would be covered by the proposed settlement, plus the amount that the trusts have lost on loans that have already been liquidated. Together, Mr. Lin calculates that to be $208.9 billion. Mr. Lin then assumed that (1) only a certain percentage of those loans would go into default and (2) even for those loans that went into default, the trusts would recover between 45% and 60% of the principal balance through foreclosure. Both of these assumptions are quite controversial, and the FHLBs need to understand Mr. Lin’s basis for them. Using those assumptions, Mr. Lin concludes that the potential shortfall to the trusts, and therefore the amount that the trusts could potentially recover from Countrywide and Bank of America, is reduced from $208.9 billion to $61.3 billion.

 

To get from $61.3 billion to a “reasonable” settlement range of $8.8 to $11 billion, Mr. Lin made two more assumptions. He assumed that only 36% of loans that go into default will have breached Countrywide’s representations and warranties about the quality of its underwriting. That assumption is difficult to understand. Mr. Lin did not do any independent analysis of this assumption. Instead, he simply adopted Bank of America’s estimates of this percentage, which in turn appear to have been based on a completely different portfolio of loans that were subject to the underwriting standards imposed by Fannie Mae and Freddie Mac. Moreover, Mr. Lin’s assumption is inconsistent with widely publicized reports by professional loan auditors that even Countrywide loans that are merely delinquent (that is, behind on payments but not yet in default) have a “breach rate” of well over 60% and often as high as 90%. Finally, Mr. Lin assumed that only 40% of loans that both go into default and have breached Countrywide’s representations and warranties could be successfully put back to Countrywide and Bank of America. This assumption similarly demands investigation.  It is hard to imagine why a court would not require Countrywide and Bank of America to repurchase all loans, not just 40% of loans, that are both in default and have breached a representation or warranty.

 

Each of these assumptions has a great effect on Mr. Lin’s estimate of the amount of a reasonable settlement. As an example, even if just the last assumption were changed from Countrywide and Bank of America having to repurchase all, rather than just 40%, of loans that were both in default and breached Countrywide’s representations and warranties, then Mr. Lin’s estimate of a reasonable settlement would rise from a range of $8.8 to $11 billion to a range of $22 to $27.5 billion. Modifying any of his other three assumptions would cause that range to rise much more.

 

Similarly, BNYM also published a report by Prof. Robert Daines about Bank of America’s liability as a successor to Countrywide. But Prof. Daines’s report leaves unanswered several critical legal and factual questions.  Indeed, Prof. Daines admits that his opinion is “limited by the available factual record and certain assumptions that I make,” and he concedes in several parts of his report that he  relied on unverified information provided by Bank of America

 

[txlaw]

Are you kidding me????  Where is the supporting analysis? 

 

 

I find it hilarious that you are calling for supporting analysis. 

 

You're willing to quote Blodget, ZH, and Yves Smith as credible evidence that BAC will be overwhelmed by its liabilities and must go to $0.  But now you say that BAC's response is BS because there is no supporting analysis?

 

Do you see the asymmetries in your argument?

[PlanMaestro]

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

[txlaw]

Are you kidding me????  Where is the supporting analysis? 

 

 

I find it hilarious that you are calling for supporting analysis. 

 

You're willing to quote Blodget, ZH, and Yves Smith as credible evidence that BAC will be overwhelmed by its liabilities and must go to $0.  But now you say that BAC's response is BS because there is no supporting analysis?

 

Do you see the asymmetries in your argument?

 

Actually, I think I've exaggerated your position.  You think BAC will have to issue highly dilutive equity capital at the price it's trading at.

[given2invest]

One more thing, Short Interest on BAC is up to almost 150mm shares roughly where it was in March of 2009.

 

Which is a teeny tiny amount of the outstanding shares and just 1/3 of today's trading volume.  Damn shorts! 

[Munger]

I remember being told not to buy WFC at $9 and GE at $7, because things could get worse.  Easy to come up with worst case scenarios, but hard to come with probable scenarios.  It's why some people missed the rebound in 2009 and 2010.  Same reason they'll miss it again in the next year or so.  Cheers!

 

Again -- ZERO analysis supporting a bullish opinion.

 

Some remember WFC and GE but have we forgotten BAC (the first time around), C, Bear Stearns, Fannie, Freddie, LEH etc where management maintained all was good right up until the end, with numerous "bulls" lapping up their every word while "loading up" on the opportunity of a lifetime? 

 

It's why some people missed the rebound in 2009 and 2010.  

Investors didn't have to blindly invest in speculative unknowable risk/reward positions in order to realize strong returns during this period and def not needed in order to realize strong returns in future periods.

 

 

[moore_capital54]

Munger, according to your claims the share price and credit spreads warrant the analysis in the first place. This is a post 2008 invention given the fact that investors can't seem to take the 90 day periods in between two quarterly statements of financial condition.

 

Management is taking the position, as most long-term shareholders should, that the analysis should be taken from the actual fundamental results of the business, as reported every 90 days. On October 19th, we will get to see for ourselves what the true figures are and whether any additional capital is required. Management team which views the numbers on a daily basis sees no reason imminent reason to obtain capital and the numbers from the last quarterly don't indicate to anyone other than yourself and the short players that the company requires additional capital. They've already done enough by spelling it out quite clearly on the Berkowitz call and CNBC interview that everything is FINE. What more should they do? Come out every day with a 24 hour conference call?

 

I have seen short arguments ranging from European exposure to the now apparent fake it till you make it argument on the loan portfolio side.

 

Intelligent investors should take a lesson from history. 

 

If it was August 2008, I would tell you in this scenario that the only black swan here is the potential for a Bank Run, that is the single most dangerous thing that would cause BAC into a forced liquidation. But again, I have to learn from history.

 

We now know that in a fiat-money world, the central bank will expand it's balance sheet as much as required and exchange it for any garbage asset in order to prevent any systemic shocks. Moral Hazard, no longer exists.

 

If every single BAC account holder moves their money out, all that will happen is that Ben Bernanke will accept any asset on the balance sheet of BAC in exchange for newly printed US Dollars, after several days/weeks deposits will flow back in as investors will depositors will realize the government has backed the banks once again.

 

Investors, will panic and sell their position or go short, while an intelligent investor such as Tepper in 2009, will scoop up a bunch of cheap common shares. This would all coincide with the next wave of QE3 which is going to make QE2 look like a beta test. 

 

That is the worst case scenario, and I see it as the lowest probability event.

 

Geez, I almost feel like nobody on this board has anywhere near a complete understanding of the Fiat Money system you all operate within, both for it's fallacies and/or it's "strengths".

 

2008 was probably the most important point in time for the fiat money system after its official starting date of 1971. This is due to it being the first time, moral hazard was thrown out for the sake of the system. Not only can we print money at will but we now use it to extinguish fires. Only fools would dismiss these clear indications of future policy.

 

[PlanMaestro]

 

Each of these assumptions has a great effect on Mr. Lin’s estimate of the amount of a reasonable settlement. As an example, even if just the last assumption were changed from Countrywide and Bank of America having to repurchase all, rather than just 40%, of loans that were both in default and breached Countrywide’s representations and warranties, then Mr. Lin’s estimate of a reasonable settlement would rise from a range of $8.8 to $11 billion to a range of $22 to $27.5 billion. Modifying any of his other three assumptions would cause that range to rise much more.

 

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.

[given2invest]

It is true what Munger says.  I made a fortune on BoA and Merrill TruPS in the spring of 2009 and I believe I risked very little.  They would have been converted into common stock before the bank was nationalized, they set a precedent with the C transaction.  Buying bank common stock is kind of crazy.  Leveraged beast.

 

 

[Munger]

txlaw -- I think you letting emotions get the best of you because I assume you can read. 

 

You write

You're willing to quote Blodget, ZH, and Yves Smith as credible evidence that BAC will be overwhelmed by its liabilities and must go to $0.

Actually, I think I've exaggerated your position.  You think BAC will have to issue highly dilutive equity capital at the price it's trading at.

 

 

Yet I have consistently written that I have no idea of BAC is a buy or a sell.

 

I am questioning how anyone could be pounding the table on BAC as a BUY without any supporting analysis -- simply trusting management.  Further -- the buy thesis has dramatically devolved over the past month, without any reconciliation by the bulls.

 

Still waiting for any bull and/or management to address FHLB.

 

 

 

[moore_capital54]

One more thing, and this ties into our previous discussions on this board. I truly believe that the Central Banks are doing the right thing as there is no other way to counter the madness in trading activity which is fueled by concentrated short-sellers, naked CDS buyers and HFT.

 

The market is more volatile than ever, and common shares are being used to manipulate the fundamentals of the business.

 

Do you think the average depositor gives a shit about the fundamentals of BAC? They look at the share price and infer "something is wrong". The only way to cure this is to support the banks with the balance sheet of the Central Bank.

[Munger]

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.

 

If the consequences are so trivial, why wouldn't the company be highly conservative or even just realistic in their assumptions in this case.

 

Further -- the point is that if the assumptions are so grossly and obviously flawed in this case, how can anyone have any confidence in the remaining assumptions underlying the determination of book value?  Moreover, someone who was given a look under the covers suggests "factual records" are limited.  Crazy.

 

 

[Junto]

Absolutely nothing but a combo of shoot the messenger and platitudes.

 

Bulls are basing their positive outlook on hollow statements:

The sovereign exposure is off by a factor of 10.

The commercial real estate figures are off by a factor of four.

 

Are you kidding me????  Where is the supporting analysis? 

 

The stock has been destroyed, with the company now valued at 0.32x supposed book value and the best management can do to refute the analysis and create confidence is to attack the messenger and throw out numbers without any supporting analysis?  Stunning.

 

Again -- I have no idea if the stock is a buy or a sell but I do know that I have seen NO legit analysis supporting a raging bull opinion.

 

I have written off Munger for anything more than entertainment value. I wish him the best of luck.

[PlanMaestro]

You speak of platitudes, but these numbers are pulled out of thin air.  How does Smith know exactly what loans are on the books.  She's basing the decision on acquired portfolios of loans, and past underwriting standards.  How many of these loans have already been rung out?  How much new business has been brought in of significantly better quality?  Any future losses from these portfolios should be incurred as they take the hit, quarter after quarter, and they will be offset by business from newer loans.

 

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.

[ERICOPOLY]

Probably only trading at 3x normalized earnings, maybe less.

 

Where is the margin of safety if they have to dilute shares by 50% at these prices?

 

Just kidding  ::)

 

I think a purchase of the common here will probably be yielding 10% - 12% in a couple of years when they restore the dividend.

 

The cost of retirement goes down when the dividend yields get this high.

[Munger]

moore_capital54 -- your last two post sound an awful lot like the arguments Dick Fuld made when resisting the push to raise capital.  Didn't work out so well for him or Lehman.

 

You could well prove correct as could all the bulls but let's recognize that NO ONE has provided any supporting fundamental analysis for their bullish positions and that ain't investing, that's speculating.

 

And further, most of the bulls on BAC stock have already gotten slaughtered in their position -- so something was clearly wrong in the original analysis....a doubling of the stock from current levels will still only bring those longstanding raging bulls back to even.  Berkowitz and Tepper bullish opinions were based on nothing but platitudes.  Long positions based on nothing but platitudes carry great risk.