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BAC Morgan Stanley Presentation - June 12, 2012


Parsad
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Is that me or deleveraging continues big time? Assets are shrinking and they are repaying LT debt at an astonishing rate but that does not seem to be their choice but the fact that they can't put that money to work and get returns on it. So if BAC can't put their money to work, who is, and most importantly... at what costs/risks?

 

From page 7

The greatest opportunity to reduce funding costs is continued reduction in long-term debt as this expense is 5X the cost of deposits and long-term debt is one third the size of deposit funding.

 

BeerBaron

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Is that me or deleveraging continues big time? Assets are shrinking and they are repaying LT debt at an astonishing rate but that does not seem to be their choice but the fact that they can't put that money to work and get returns on it. So if BAC can't put their money to work, who is, and most importantly... at what costs/risks?

 

BeerBaron

 

Umm... JPM  :P

 

I look at it this way.  They can delever today, and relever anytime they like when conditions are more profitable.  Better than reaching for yield.

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Is that me or deleveraging continues big time? Assets are shrinking and they are repaying LT debt at an astonishing rate but that does not seem to be their choice but the fact that they can't put that money to work and get returns on it. So if BAC can't put their money to work, who is, and most importantly... at what costs/risks?

 

BeerBaron

 

Umm... JPM  :P

 

I look at it this way.  They can delever today, and relever anytime they like when conditions are more profitable.  Better than reaching for yield.

 

Not criticizing BAC deleveraging at all, I'm pretty neutral about it, up bottom line short term, no idea on long term. Just stating the facts about the current banking market and most importantly which company to avoid investing in!

 

BeerBaron

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Is that me or deleveraging continues big time? Assets are shrinking and they are repaying LT debt at an astonishing rate but that does not seem to be their choice but the fact that they can't put that money to work and get returns on it. So if BAC can't put their money to work, who is, and most importantly... at what costs/risks?

 

This article should answer that:

 

http://finance.yahoo.com/news/insight-wells-fargos-mushrooming-mortgage-201150179.html;_ylt=AgtzGQCsW5AwCpc4O7UiybiiuYdG;_ylu=X3oDMTNyYmNpcjA3BG1pdANGUCBUb3AgU3RvcnkgTGVmdARwa2cDYjExNmQ5MzctZDYxNS0zYzFiLWJmNjItNmYxNDY3Nzg3Y2E1BHBvcwMyBHNlYwN0b3Bfc3RvcnkEdmVyAzQ2NDM5M2UwLWJjYjItMTFlMS05ZTdmLTQ4NDNhZDk1MTFjYw--;_ylg=X3oDMTFpNzk0NjhtBGludGwDdXMEbGFuZwNlbi11cwRwc3RhaWQDBHBzdGNhdANob21lBHB0A3NlY3Rpb25z;_ylv=3

 

It will depend on what happens I guess.  If housing has stabilized and is going to be moving up, then Wells is going to make a killing.  If things continue downhill, then Wells better have hedges in place and BAC's deleveraging would have been the way to go. 

 

Regardless, I think Moynihan is just doing the simple and smart thing by reducing debt until the costs are on par, or less than, their deposit investment returns.  He's keeping it simple...which I really like!  And they are keeping it relatively simple at WFC too...credit quality is high, costs are low, there is a vacuum they are filling presently and can shut it down pretty quick if things start to go in the wrong direction. 

 

I think they are both very well run banks...one is getting its health back, and one is exploiting investment oppportunities because it always had its health.  Cheers!

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Is that me or deleveraging continues big time? Assets are shrinking and they are repaying LT debt at an astonishing rate but that does not seem to be their choice but the fact that they can't put that money to work and get returns on it. So if BAC can't put their money to work, who is, and most importantly... at what costs/risks?

 

BeerBaron

 

The beauty of owning companies at a discount to TBV is that there is no need for growth, and management can actually create value for shareholders by shrinking the business.

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>>The beauty of owning companies at a discount to TBV is that there is no need for growth, and management can actually create value for shareholders by shrinking the business.

 

 

high TBV compared to PPS is meaningless if the return on book is also compressed. Now, BAC is working crazy on the expenses side (cutting jobs, replacing high-cost debt, etc...), the PPS will start uptrending when the revenue side finally come together when the econ turn.

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