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How are you betting on BAC?


How are you investing in BAC?  

178 members have voted

  1. 1. How are you investing in BAC?

    • Long equity
    • Long warrants
    • Long options
    • Short equity or writing put options or whatever other way you bet on their demise
    • No position
    • Mixture of equity, warrants, and/or options.


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Long equity from last year at 11, continued buying every few months down to 5 and now just sitting on it. No changes to the position however if it goes back down another dollar I would be interested in averaging down.

 

No options, warrants, just strictly common. Hoping for a major dividend payout over the next few months and hopefully a big buyback.

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About 70-30 common to A warrants. 6 years is a long time, and the A warrants get interesting if BAC pays out $3 over that horizon. Depending on how you model the long-term earnings power and the mix of buybacks to dividends, the A shares can greatly outperform the common.

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A and B warrants plus options - I have lots of exposure.

 

Capital ratios are high, Merrill Lynch is making money, favorable rulings in the courts, housing market is recovering, nasty loans are further through the system, NIM won't stay like this forever.

 

Edit: oh yeah, and Brian Moynihan is CEO.

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I have common, $3 strike calls, and "A" warrants.  Very few $10 calls.

 

Hoping for no dividends ever.  Better to just use that cash to buy shares that I can in turn sell and come out way ahead by not paying taxes on my cost basis.

 

I might find only 48 cents on the dollar left of my dividend very soon here (dividends taxed at top income rate + ObamaCare investment tax + California state income tax).  I mean jeeze... can't the BAC's of the world just get rational and stop talking about raising dividends?  What a waste of my shareholder capital.

 

 

 

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Hoping for no dividends ever.  Better to just use that cash to buy shares that I can in turn sell and come out way ahead by not paying taxes on my cost basis

 

Yeah but sometimes  paying a dividend change the investor's attitute and inspire confidence on a stock and this one can soon start to rise and then you can harvest capital gain. Specialy on a hated stock like BAC.

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So if they are at 9% will the Fed let them, in theory, return 100% of earnings to shareholders?

 

Moynihan previously said about 1/3 retention, 1/3 buyback, and 1/3 dividend.  But if the economy is in doldrums and there's no loan growth, then why not return it all?

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There is a flaw in the idea that TBTF banks will return large amounts of capital to shareholders.  This is likely to be against public policy with the government running a huge deficit.

 

JPM is currently approved to return roughly a 10% yield on tangible equity -- before they cancelled their own buyback over the Whale tempest/teapot thingy.

 

BAC returns 10% of tangible equity under a similar approval and that translates to nearly a 20% yield on the current market price.

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Just wanted to point out that this choice:

 

"Short equity or writing put options or whatever other way you bet on their demise"

 

Is not quite correct.  If you are writing put options you are getting money to buy their stock at a given strike price.  As such, it is a bullish not bearish position.  Now buying puts would be a bearish position.

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There is a flaw in the idea that TBTF banks will return large amounts of capital to shareholders.  This is likely to be against public policy with the government running a huge deficit.

 

JPM is currently approved to return roughly a 10% yield on tangible equity -- before they cancelled their own buyback over the Whale tempest/teapot thingy.

 

BAC returns 10% of tangible equity under a similar approval and that translates to nearly a 20% yield on the current market price.

 

This effect may be subtle.  For example, Basel III type requirements may force banks to load up on low yielding government debt ( highest quality )  thus pinching dividend paying ability.

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Interesting to see these articles after the financial crisis, and after banks have seriously scrubbed and improved their balance sheets:

 

http://www.reuters.com/article/2012/07/25/us-banks-earnings-roundup-idUSBRE86O06R20120725

 

Revenue from lending, trading and advising corporate clients on mergers is still weak, and low interest rates continue to squeeze profits on loans and other investments. Banks and their already depressed stocks appear headed for a long, grim future.

 

Nancy Bush, who has been a bank analyst and investor for three decades, said she is ready to throw in the towel on banks of all sizes.

 

"What's left at this point, barring a really significant improvement to the economy and a miraculous ramp-up in lending?" Bush asked. "Why invest in these companies? Somebody, give me a reason to believe."

 

...

 

GIVING UP

 

Analysts, however, say their top institutional clients are increasingly reluctant to invest in any bank stocks. Last week prominent hedge fund manager Bill Ackman said his firm sold its big position in Citigroup, despite his general admiration for the bank's management, because the banking system has become too risky.

 

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Moved entirely from warrants and 2013 LEAPS into the 2014 LEAPS earlier this year, after the big runup.

 

Actually have reduced a bit to reallocate into AIG warrants and JPM LEAPS.  Will slowly add back to my LEAPS position, as I get the chance.

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1) Tarp warrants (A) combined with series L preferreds. 1.11X leverage. Meaning, 83.5 common shares per par equivalent pref. Total cost of warrant + pref = 97.9% of par with an annual cash yield of 7.4% (done in Nov/Dec 2011).

 

2) Underlying common position combined with the sale of out of the money puts at an annualized cash yield of 14.4%. Yes I will have to buy more common if the stock price declines 15% from here, but I am okay with that (done recently).

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