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Is There Any Reason Why BAC Should Not Be At Citi's Price to Book?


Parsad
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Other than litigation, after examining the results of the Fed's stress tests, at the very least, BAC should be trading at the same price to book as Citi.  In fact, with less overseas exposure and even with litigation (the biggest case already settled - $25B deal with the states), BAC should be at Citi's 0.6 price to book now in my biased opinion!  Cheers!

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Other than litigation, after examining the results of the Fed's stress tests, at the very least, BAC should be trading at the same price to book as Citi.  In fact, with less overseas exposure and even with litigation (the biggest case already settled - $25B deal with the states), BAC should be at Citi's 0.6 price to book now in my biased opinion!  Cheers!

 

* Overseas exposure is a positive (Banamex at least worth 2x book value today)

* No mortgage hangover

* No mortgage litigation

* The stress test assumes consumer loan deterioration when it will not.

* And despite that, they have similar capital ratios in stress test with no approval of capital plan

* Better capital and credit ratios today

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Here is where the prices need to be to see 0.7x tangible book value per share

 

BAC:

$9.20  (coming soon to a screen near you)

 

C:

$35.20  (after hours' price right now)

 

 

BAC has tons and tons of goodwill embedded in it's $20 book value.  Had they grown organically rather than largely by acquisition we'd just be staring at the tangible numbers and not discussing the massive discount to book (although 30% discount is still quite large).

 

However I feel like BAC has the steeper discount to intrinsic value.  Only time will tell.

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Incidentally, the numbers used in the stress test were 3rd quarter 2011 numbers.  BAC raised their Tier 1 common to 9.86% from 8.7% in the 3rd quarter, and their Tier 1 capital increased to 12.40% versus 11.5% in the stress test...on par with JPM and WFC in the 4th quarter.  Under the same stress test using 4th quarter numbers, I would expect BAC to fair significantly better than they did in the actual results.  Moynihan should have BAC incredibly well-capitalized by the end of 2012 relative to peers!  Cheers! 

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It's amazing to witness first hand the improving sentiment around BAC, and the fins in general, the higher the price. The general RIA population that I am in contact with truly feels more comfortable owning these things AFTER this gigantic move, and particularly after the stress test. Behavorial finance at its best.

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It's amazing to witness first hand the improving sentiment around BAC, and the fins in general, the higher the price. The general RIA population that I am in contact with truly feels more comfortable owning these things AFTER this gigantic move, and particularly after the stress test. Behavorial finance at its best.

 

What does RIA stand for?

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It's amazing to witness first hand the improving sentiment around BAC, and the fins in general, the higher the price. The general RIA population that I am in contact with truly feels more comfortable owning these things AFTER this gigantic move, and particularly after the stress test. Behavorial finance at its best.

 

What does RIA stand for?

 

guessing .... Registered Investment Advisor

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Once again BAC is proving that EMT fans are wrong. From 5$ to 9$ stock price in 3 months for a large cap company! Did BAC sign a major contract lately? Did they made a one time big gain lately? Did they improve their balance sheet in just 3 months? No! All has changed is PERCEPTION. And in this market you can make a whole lot more betting on change of perception than on harvesting earnings from the asset you invest in.

 

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It's amazing to witness first hand the improving sentiment around BAC, and the fins in general, the higher the price. The general RIA population that I am in contact with truly feels more comfortable owning these things AFTER this gigantic move, and particularly after the stress test. Behavorial finance at its best.

 

What does RIA stand for?

 

guessing .... Registered Investment Advisor

 

Ah, ok. 

 

That makes sense, I guess.  Why take the career risk of owning BAC until everyone likes it?

 

 

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It's amazing to witness first hand the improving sentiment around BAC, and the fins in general, the higher the price. The general RIA population that I am in contact with truly feels more comfortable owning these things AFTER this gigantic move, and particularly after the stress test. Behavorial finance at its best.

 

What does RIA stand for?

 

guessing .... Registered Investment Advisor

 

Roger

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It's amazing to witness first hand the improving sentiment around BAC, and the fins in general, the higher the price. The general RIA population that I am in contact with truly feels more comfortable owning these things AFTER this gigantic move, and particularly after the stress test. Behavorial finance at its best.

 

What does RIA stand for?

 

guessing .... Registered Investment Advisor

 

Ah, ok. 

 

That makes sense, I guess.  Why take the career risk of owning BAC until everyone likes it?

 

Exactly. No saying describes this phenomenon better, IMO, than "It's better to fail conventionally than succeed unconventionally". Riding Apple down from $1,000 to $500 along with everyone else is much easier to explain away to clients than holding a stock showing up on A-1 of the WSJ everyday with litigation headlines.

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Once again BAC is proving that EMT fans are wrong. From 5$ to 9$ stock price in 3 months for a large cap company! Did BAC sign a major contract lately? Did they made a one time big gain lately? Did they improve their balance sheet in just 3 months? No! All has changed is PERCEPTION. And in this market you can make a whole lot more betting on change of perception than on harvesting earnings from the asset you invest in.

 

I tend to agree, but people did not know for sure how those stress test results were going to come out.

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Once again BAC is proving that EMT fans are wrong. From 5$ to 9$ stock price in 3 months for a large cap company! Did BAC sign a major contract lately? Did they made a one time big gain lately? Did they improve their balance sheet in just 3 months? No! All has changed is PERCEPTION. And in this market you can make a whole lot more betting on change of perception than on harvesting earnings from the asset you invest in.

 

Indeed.

 

In my opinion, the BAC story also shoots down the theory that you must focus on the less followed names -- particularly, those stocks that operate in countries that are secular economic growth stories -- to make outstanding returns.  My opinion is that this is a myth that RIAs or hedge fund managers perpetuate because that's their niche in the market.

 

When you get a punch card opportunity like BAC, one of the most followed stocks on the planet, you damn well better take it if you are confident in your analysis and can summon up the intestinal fortitude.

 

Unless you're an RIA, of course.

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Someone messaged me a few months ago, and I forgot who it was, but everytime "Munger" shows up on the board...just go long!  ;D  I suppose absence makes the heart grow fonder. 

 

Regardless, while I think the U.S. will do better than just about every other economy in the world going forward, we are now officially out of bullets.  So it's either this thing gets its legs going and GDP starts revving, or we go through a continued slow, slog of deleveraging for another 3-5 years.  Cheers!

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Someone messaged me a few months ago, and I forgot who it was, but everytime "Munger" shows up on the board...just go long!  ;D  I suppose absence makes the heart grow fonder. 

 

Regardless, while I think the U.S. will do better than just about every other economy in the world going forward, we are now officially out of bullets.  So it's either this thing gets its legs going and GDP starts revving, or we go through a continued slow, slog of deleveraging for another 3-5 years.  Cheers!

 

 

If and when ECRI's call (http://www.businesscycle.com/news_events/news_details/5065) materializes, it will be interesting to see what bullets we try to conjure up - Dalio's interview back in October at the Economist's Buttonwood conference seemed to indicate the next downturn may not be pretty....

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Someone messaged me a few months ago, and I forgot who it was, but everytime "Munger" shows up on the board...just go long!  ;D  I suppose absence makes the heart grow fonder. 

 

Regardless, while I think the U.S. will do better than just about every other economy in the world going forward, we are now officially out of bullets.  So it's either this thing gets its legs going and GDP starts revving, or we go through a continued slow, slog of deleveraging for another 3-5 years.  Cheers!

 

 

If and when ECRI's call (http://www.businesscycle.com/news_events/news_details/5065) materializes, it will be interesting to see what bullets we try to conjure up - Dalio's interview back in October at the Economist's Buttonwood conference seemed to indicate the next downturn may not be pretty....

 

There truly isn't much left that would assist the economy and not cause any future problems.  QE3 would create problems going forward.  I think we'll have a better idea of how things are as the housing inventory shrinks.  If prices don't start to rebound, and unemployment doesn't rebound, then it could be a slow slog.  So far, things look quite positive, but China is slowing and we will have to wait and see exactly how they stop the hard landing.  Cheers!

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Once again BAC is proving that EMT fans are wrong. From 5$ to 9$ stock price in 3 months for a large cap company! Did BAC sign a major contract lately? Did they made a one time big gain lately? Did they improve their balance sheet in just 3 months? No! All has changed is PERCEPTION. And in this market you can make a whole lot more betting on change of perception than on harvesting earnings from the asset you invest in.

 

Indeed.

 

In my opinion, the BAC story also shoots down the theory that you must focus on the less followed names -- particularly, those stocks that operate in countries that are secular economic growth stories -- to make outstanding returns.  My opinion is that this is a myth that RIAs or hedge fund managers perpetuate because that's their niche in the market.

 

When you get a punch card opportunity like BAC, one of the most followed stocks on the planet, you damn well better take it if you are confident in your analysis and can summon up the intestinal fortitude.

 

Unless you're an RIA, of course.

 

 

Given that the crowd is so often WRONG, why NOT go to the most followed names? Aeropostale has 22 estimates on it right now - it's more than doubled since last September. You have the best of all worlds with heavily followed names - 1) the influence of the crowd in both directions, and 2) untold amounts of research on the names, making the analysis process that much more efficient, and 3) greater liquidity, so size isn't as great of an issue.

 

 

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Someone messaged me a few months ago, and I forgot who it was, but everytime "Munger" shows up on the board...just go long!  ;D  I suppose absence makes the heart grow fonder. 

 

Regardless, while I think the U.S. will do better than just about every other economy in the world going forward, we are now officially out of bullets.  So it's either this thing gets its legs going and GDP starts revving, or we go through a continued slow, slog of deleveraging for another 3-5 years.  Cheers!

 

 

If and when ECRI's call (http://www.businesscycle.com/news_events/news_details/5065) materializes, it will be interesting to see what bullets we try to conjure up - Dalio's interview back in October at the Economist's Buttonwood conference seemed to indicate the next downturn may not be pretty....

 

There truly isn't much left that would assist the economy and not cause any future problems.  QE3 would create problems going forward.  I think we'll have a better idea of how things are as the housing inventory shrinks.  If prices don't start to rebound, and unemployment doesn't rebound, then it could be a slow slog.  So far, things look quite positive, but China is slowing and we will have to wait and see exactly how they stop the hard landing.  Cheers!

 

Someone said today that it will be interesting to look back in ten years at the fact that Apple's market cap is greater than the entire US retail sector. I think the same can be said (not a new revelation whatsoever, I'm just saying) for Bernanke's ZIRP. I'm not nearly smart enough to figure out what he is distorting, but there has to be some type of distortion building up in the system right now that will materialize within the next ten years. I'm not particularly anxious to find out....

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