tag:blogger.com,1999:blog-4815867514277794362.post8857401642974019418..comments2024-03-08T06:18:28.125+11:00Comments on Bronte Capital: Bank of America: time everyone took a long cold shower and sobered upJohn Hemptonhttp://www.blogger.com/profile/03766274392122783128noreply@blogger.comBlogger35125tag:blogger.com,1999:blog-4815867514277794362.post-88835466176011863102013-12-02T02:41:01.462+11:002013-12-02T02:41:01.462+11:00Just re-reading this.
Wouldn't this sort of ...Just re-reading this. <br /><br />Wouldn't this sort of "government uber alles" provide the same reasoning for owning a Big Four Chinese bank? <br /><br />Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-4815867514277794362.post-63153740950429880252011-09-06T23:28:18.417+10:002011-09-06T23:28:18.417+10:00Dear Author,
Aren't you concerned about the $...Dear Author,<br /><br />Aren't you concerned about the $4 trillion in credit default swaps they have in their derivatives exposure.<br /><br />You can see it in the notes section of their annuals<br /><br />Your thoughts on that would be appreciated.<br /><br />best<br /><br />Alalnoreply@blogger.comtag:blogger.com,1999:blog-4815867514277794362.post-46487512435979394062011-08-27T12:19:56.284+10:002011-08-27T12:19:56.284+10:00Cumberland advisors also agrees with you and so do...Cumberland advisors also agrees with you and so do I. Basically you are buying an option with bac at the prices. Let's see in 5 -10 years. I think it will be at $50 <br /><br />For contrary investors I can't think of a sector, financials more out of favor. <br /><br />My concerns are 1) has longer term earnings potential been impaired or over estimated. 2) a possible equity raise. <br /><br />All these bloggers commentors calling for the end if the world dont live in reality. The system has always been corrupt and it's always easy to find flaws. If the system does fail bac is the least of your worries.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-4815867514277794362.post-69452385168400880872011-08-27T08:58:10.141+10:002011-08-27T08:58:10.141+10:00If in the US money center banks are defacto agents...If in the US money center banks are defacto agents of the government, implied by the Henry Paulson "No systemically important banks will fail" policy; then management at these banks should be compensated at government scale wages, and the banking function treated as a utility business model; like the electrical generation sector.Scotthttps://www.blogger.com/profile/12392288826388903607noreply@blogger.comtag:blogger.com,1999:blog-4815867514277794362.post-27842704917501913422011-08-27T00:25:45.537+10:002011-08-27T00:25:45.537+10:00"politically driven finance bloggers (Yves Sm..."politically driven finance bloggers (Yves Smith at Naked Capitalism) should be seen for their (I think justified) anti-bank agenda" and "Ultimately the credit of Bank of America is synonymous with the credit of the United States of America and last I looked at US bond pricing that credit was good."<br /><br />You are so good normally on stocks it seems to me that when it comes to macro, or more importantly the interaction between macro and stocks (especially banks), your big government bias leads you badly astray.<br /><br />Just like in Eurozone, the big banks are the leveraged way to bet against the sovereign. They fall first and the sovereign follows as it tries to rescue them. The rubbish I hear that the US can't default is just that, see the CDS for any Eurozone country in trouble to watch how quickly calm turns to storm. The same could happen to the US anytime, as old Bill Rhodes found out about the numerous countries to whom he'd lent money.<br /><br />And please don't bring up the old chestnut that countries that can print their own currency can't go bust. That excuse is as pathetic as it is sickening in its brutal, big government, realpolitik.james in londonnoreply@blogger.comtag:blogger.com,1999:blog-4815867514277794362.post-56703972985264923342011-08-26T13:41:10.560+10:002011-08-26T13:41:10.560+10:00T wrote:
>>Assuming the BNY settlement is al...T wrote:<br />>>Assuming the BNY settlement is allowed to stand (which it should, this was an agreement between two private parties at arms length and there's no need for government involvement).....<br /><br />No, it should not be allowed to stand. First, BAC offered BNY's indemnity for breach of fiduciary liability over failure to obtain proper documentation and notify investors of servicing defaults AND indemnity against potential claims over Mellon's participation in settlement negotiations. Because Countrywide has insufficient funds to provide the indemnity, BAC is backstopping them, raising questions about the true relationship between Countrywide/BAC. In addition, under the agreement, the attorney for BYNM receives an $8.5M contingency if the deal is approved. <br /><br />Also, the settlement precludes other injured parties (investors), who were denied the opportunity to participate in negotiations, from opting out of the settlement. Other investor groups, e.g. a public pension fund with milti-billion dollar investment, feel the 5 cent on the dollar settlement (based on current outstanding balance, 2 cents if use original investment value) is too low for pools where 66% of loans failed to meet reps and warranties. There should have been massive put-backs. <br /><br />It was BNYM's duty, per the trust documents, to notify investors, at the time of the trust's creations, of loans that had insufficient documentation. BNYM did not do this. Furthermore, BYNM provided annual certification of custody of same documentation. It is now known, and was even admitted in BYNM's petition against BAC, that missing documentation was widespread. <br /><br />Therefore, you have investors denied the opportunity to participate in a lawsuit whose outcome they are legally bound to. You have rampant fraudulent origination loan docs and mortgages and notes that are missing or were not assigned into the trusts within 60 days of trust creation as required and that can not, under NY trust law, be assigned post-ex-facto. You have conflicts of interest. And you have a settlement negotiated for pennies on the dollar. <br /><br /><br />William Black, who led the savings and loan investigation in the late '80's has theorized (albeit before Buffett's tithing) that the reason for the $8.5B number was that this was the highest number that could be reached and leave BAC solvent. I suspect he may well be right. <br /><br />Nonetheless, the deal stinks. The role of state attorneys general is to protect consumers. When did it become acceptable for financial institutions to lie to investors about the nature of investments? When did enforcing laws and protecting citizens from fraud become government interference? Schneidermann is one of the few who is doing the job the taxpayers pay him to do, trying to clean out corruption in our financial system. I spend a fair amount of time looking at land records and I promise you, <b>nothing</b> has changed. The industry isn't going to do it. And until the corruption is cleaned up and laws and regulations are enforced, systemic risk will remain and investors will shy away from plunking down their money.<br /><br />Disclosure: No financial sector positions.LucyLulunoreply@blogger.comtag:blogger.com,1999:blog-4815867514277794362.post-34420518755902537732011-08-26T13:28:31.942+10:002011-08-26T13:28:31.942+10:00John, highest compliments for your integrity and i...John, highest compliments for your integrity and intellectual honesty. I have ambivalent opinions about financials, have stayed away for now, so will refrain from commenting on that.<br /><br />I will say...Mr. Buffett has gifted you with:<br /><br />(1) Some decent unrealized (?) gains/recoveries<br /><br />(2) Nice (well-deserved) publicitylongshorttraderhttp://www.twitter.com/longshorttradernoreply@blogger.comtag:blogger.com,1999:blog-4815867514277794362.post-78251228975265941312011-08-26T13:16:28.084+10:002011-08-26T13:16:28.084+10:00Your analysis conflates the risks to debt holders ...Your analysis conflates the risks to debt holders vs equity holders.<br /><br />Even though BAC is "too big too fail", a government bailout would likely decimate equity holders like yourself, while rescuing bond holders in order to mitigate systemic risk. Needless to say, this is the government's modus operandi in the case of bank failures.<br /><br />Secondly, in the absence of a reliable measure of capital, one can infer BAC's capital position based on the actions of senior management. <br /><br />In the past few weeks, Moynihan has taken steps to raise more capital, by divesting assets and of course accepting an investment from Buffett at unfavorable rates. Granted, one could argue that the latter was purely for signalling purposes.<br /><br />Lastly, a "deep, nasty double-dip" recession isn't necessary to spark another round of credit losses. The credit losses are already occurring due to the continued decline of the housing market. Case Shiller 20 City Composite touched a new multi-year low in May, the most recent data point available.sentimentArbhttp://twitter.com/sentimentArbnoreply@blogger.comtag:blogger.com,1999:blog-4815867514277794362.post-4910251469261627592011-08-26T08:14:12.472+10:002011-08-26T08:14:12.472+10:00John
I enjoyed going through your analysis on BOF...John<br /><br />I enjoyed going through your analysis on BOFA, but I have to make one of the Anonymous’ words mine…<br /><br />“Based on your own comments - this looks like a good opportunity to cut your losses.”<br />August 26, 2011 2:05 AM<br /><br />I also would like to thank Hiflyer for writing something that actually makes sense on this post. He made my life easier and my comment shorter.<br /><br />Come on guys! Let’s get back to earth! <br /><br />Assets completely mispriced, horribly run bank, huge litigation risk, US recession a certainty, Europe sovereigns and financial system literally imploding…<br /><br />BOFA shares are worthless. <br /><br />US government will not allow BOFA to fail but not by injecting equity alongside with current shareholders but wiping them out. Follow the “wipe-out” stream: shareholders, preferred holders, sub debt holders and senior debt will suffer haircut and will be partially converted into equity. US government will fill the rest of capital structure with hot and fresh dollars from the printing press.<br /><br />Make no mistake we are ahead of a crisis much worst then 2008 in both sides of the Atlantic. <br /><br />Jesse Livermore once said:<br />“Losing money is the least of my troubles. A loss never troubles me after I take it. I forget it overnight. But being wrong – not taking the loss – that is what does the damage to the pocket book and to the soul.” <br /> <br />John your pocket is already damaged on this trade, don’t hit your soul. Cut your position fast.<br /><br />All the bestObserverhttps://www.blogger.com/profile/05974771071575179166noreply@blogger.comtag:blogger.com,1999:blog-4815867514277794362.post-71067240526744818192011-08-26T08:08:03.737+10:002011-08-26T08:08:03.737+10:00Hey John,
First of all, congrats on the masterful...Hey John,<br /><br />First of all, congrats on the masterful timing of your post.<br /><br />Second, just to give you a (mildly) indicative data point. I'm a BoA customer and have been since 1998 (or so) ... with an Oregon based account.<br /><br />When I was in San Francisco last month, I went to a branch to reset my PIN, and was informed that their IT systems for California don't integrate with those for Oregon.<br /><br />So, for over a decade they have been unable to get their systems integrated nationwide. This does not speak well to the caliber of their Systems staff.<br /><br />SBAnonymousnoreply@blogger.comtag:blogger.com,1999:blog-4815867514277794362.post-15457105244959613112011-08-26T03:20:53.883+10:002011-08-26T03:20:53.883+10:00I hope you don't feel too raped by uncle Warre...I hope you don't feel too raped by uncle Warren. After all GS went up the last time he did the same.<br /><br />Forget about rules. The US economy has become a political creature. I know you have experience playing in dirtier holes, but you do have a choice.IFnoreply@blogger.comtag:blogger.com,1999:blog-4815867514277794362.post-72881299735444339742011-08-26T02:58:06.951+10:002011-08-26T02:58:06.951+10:00John, thank you for another very insightful post. ...John, thank you for another very insightful post. Do you mind sharing why you think that BAC is the right investment out of all its competitors? Is it because the market is the most pessimistic about BAC in contrast to its value thereby most likely to gain the most? All its peers has seen their stock drop and they don't have as much baggage as BAC seem to have.<br /><br />A thankful Student.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-4815867514277794362.post-1550568023971134872011-08-26T02:54:31.127+10:002011-08-26T02:54:31.127+10:00Assuming the BNY settlement is allowed to stand (w...Assuming the BNY settlement is allowed to stand (which it should, this was an agreement between two private parties at arms length and there's no need for government involvement), BAC has said there will be only up to about ~$5B of remaining non GSE R&W exposure that has not already been accrued for. And on the GSE side, they have already settled with Fannie on the most egregious R&W claims. There are only $120B of GSE defaulted + delinquent principal balances remaining, and only a fraction of those will become R&W claims, some of those claims will be rejected, and the ones that aren't will probably still see some recovery rate. (Some of the delinquents will be cured, but I'll just assume others will become delinquent to replace them for simplicity)<br /><br />So you've got maybe $10B of R&W left? Nowhere near the $100B just being casually thrown out by people that don't know what they are talking about.<br /><br />This whole crisis is fictitious, it's bloggers and fear mongerers at ZH and BI and NC trying to scare others. They want to see BAC fail because they have general disdain for large money center banks. But in reality, most of our economic transactions flow through these banks, and these banks hold most of the country's loans/mortgages/deposits. I can assure you that people like Henry and Ives don't REALLY want to see what happens by sparking a liquidity crisis at BAC, JPM, C, etc.Tnoreply@blogger.comtag:blogger.com,1999:blog-4815867514277794362.post-42795688960759545292011-08-26T02:53:08.188+10:002011-08-26T02:53:08.188+10:00The only reason B of A is still in business is bec...The only reason B of A is still in business is because FASB and Congress changed the accounting standards in early 2009 by which B of A is allowed to "fudge" their true liability. Instead of Mark to Market, we now have Mark to Model... and according to you this is a good thing?! The Mark to Model doesn't even come close to the Historical Cost basis measurment methodology of inventory write-downs (can you say Foreclosure Inventory), never mind the white-washing treatment it gives to all the worthless sub-prime, ALT A, & Ninja CDO paper held by B of A (I meant to say that you and your client's capital) hold(s). And this doesn't even touch the trillions (yes that's "...illions" with a Tr) in potential CDS exposure BofA (sorry, I meant you and your client's capital) hold(s), nor does it account for the substantial second-mortgage liability that B of A (did it again, I meant to say you and your client's capital hold(s).<br /><br />And yes, I'm putting my money where my mouth is and betting against any further Treasury/Fed bailout of TBTF institution's funding issues and CDS contract failures ( ala GS etc. and AIG). It doesn't take too much of an imagination to think of what would happen to our civilization if the US gov't was to announce that they were again going to "bailout" all TBTF bank counter-party risk at 100% - see google and the "Arab Spring". I hope the PR guy/gal has a good head-start and a clear method of extracation from the imperial podium that that announcement is made from. And any "stimulus" that such an announcement will make on the market for BofA and other TBTF banks will be quickly and swiftly discounted by the market once the realization that the "heroin" that the Treasury/Fed have injected into the patient isn't any better than the last batch... the patient is still terminal.<br /><br />While I don't think you've properly framed all the outstanding risks of the TBTF system in general, and BofA specifically, for your clients and their capital, I applaud your use of other peoples money by investing in BofA...I need somebody dumber than me on the other end of my shorts. Thank you Sir!<br /><br />PS - Christopher Whalen of Institutional Risk Analytics should be included on that list your keeping. As everyone knows, he is a "political shill" (tongue firmly planted in cheek) for the left & right and, as I understand it, has stated repeatedly - that he believes BofA is "toast" (my word, not his).<br /><br />CheersHiflyerhttps://www.blogger.com/profile/06353445841956346237noreply@blogger.comtag:blogger.com,1999:blog-4815867514277794362.post-75567724591327518202011-08-26T02:25:45.424+10:002011-08-26T02:25:45.424+10:00John,
I think you might be referring to my 12:05 ...John,<br /><br />I think you might be referring to my 12:05 comment re: your competence. I just want to be clear I love reading your work, I just worry that here you are a tad similar to that Fido mortgage insurance co. analyst from your post of a few months ago...Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-4815867514277794362.post-72139745458858137622011-08-26T02:24:48.145+10:002011-08-26T02:24:48.145+10:00I'm not clear on why you own BAC when Citigrou...I'm not clear on why you own BAC when Citigroup is similarly priced on valuation matrics and their systems have always been top notch.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-4815867514277794362.post-56094582826046048452011-08-26T02:05:05.863+10:002011-08-26T02:05:05.863+10:00Based on your own comments - this looks like a goo...Based on your own comments - this looks like a good opportunity to cut your losses.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-4815867514277794362.post-12607489762822060832011-08-26T01:52:56.264+10:002011-08-26T01:52:56.264+10:00My first try at a comment didn't seem to make ...My first try at a comment didn't seem to make it through, so I will try again. Like Finster, I am a little puzzled as to the opportunity cost involved in increasing your investment in BAC. When you decided to top up, did you consider investing in another financial instead? As you say, it wasn't a very big additional investment, but I would love to hear more about the process if you in fact considered and rejected other financials. Were there any that you seriously considered but ultimately rejected as having an inferior risk / reward to BAC? thanks in advance for any response.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-4815867514277794362.post-88223672117373800492011-08-26T01:48:03.425+10:002011-08-26T01:48:03.425+10:00John,
Thanks for this post and for the transparenc...John,<br />Thanks for this post and for the transparency in stating your position in BofA. <br /><br />I share with you the concerns about the systems integration. It was extremely difficult for Wells and Norwest, and Wells was known as a leader in technology. Perhaps BofA can make it work, as Norwest/Wells eventually did. <br /><br />I personally experienced a protracted series of communications about a dormant brokerage account from BofA and then from ML. The left hand didn't know what the right was doing, and the level of customer service was abysmal, to be kind.<br /><br />The cultural fit between a bank and a brokerage firm, especially Merrill, seems a big issue to me.<br /><br />Finally, if you say Buy, what do you think they can earn a few years out to support your required return? Also, if BofA is a buy, wouldn't similar arguments apply to Citicorp?Eapen Chackohttps://www.blogger.com/profile/16989320987808898240noreply@blogger.comtag:blogger.com,1999:blog-4815867514277794362.post-40798013044200323952011-08-26T00:30:47.245+10:002011-08-26T00:30:47.245+10:00Here's what I think -- there is a ton of noise...Here's what I think -- there is a ton of noise in financial blog commentary that must be filtered out and ignored. Zero Hedge and Blodget are #1 and #2 in people who don't know what they are talking about. Yves does know what she's talking about, but to be fair Yves has never said BAC is about to crater. She's done some analysis in BAC's financial statements and said she's seen holes that suggest more capital is needed.<br /><br />But that's obvious to anyone who follows BAC. More capital is definitely needed, and it seems like, to me at least, Moynihan is trying to get that capital. And it looks like he got presented an opportunity with Buffett that he jumped on. Dilution or not, Buffett investing in the company is likely to calm down Mr. Market at least for a while and let Moynihan get back to business and not focus so much on the cratering stock price. That's a good thing in my opinion.<br /><br />But to engage in cheerleading (for or against) some company's stock price, as Zero Hedge and Blodget are doing, is just pointless. To make matters worse, anything that happens they take to confirm they were right. If you didn't listen to Zero Hedge and instead thought for yourself, and bought BAC at $6, you'd already have made a 33%+ return on your money. Worse yet is the people who bought BAC at $10 and then panic sold after listening too much to people pulling numbers out of their ass. <br /><br />Blodget is already saying he was right because Buffett investment confirms that BAC needs capital. Yes it does, but Blodget specifically said that BAC needs $200 billion in extra capital. Does anyone think Buffett would invest in BAC, even with special, preferred dividends, if BAC had a $200 billion hole in its balance sheet (that can't possibly be filled)? The much more realistic number is $25-$50 billion, which BAC can get to over time. This is why you can't pay attention to these people, they cost you money if you do and they stress you out with their off the wall predictions.toombziehttps://www.blogger.com/profile/12475531988605083450noreply@blogger.comtag:blogger.com,1999:blog-4815867514277794362.post-13406830543505928272011-08-26T00:19:37.196+10:002011-08-26T00:19:37.196+10:00John, for the education of the rest of us, would y...John, for the education of the rest of us, would you mind discussing another bank that you considered before adding to BAC, and the reasons why you didn't. I share Finster's question about opportunity cost. Obviously, there are plenty of financials that simple don't meet your investment objectives, but with all teh financials on sale, wasn't there at least one other you considered but passed on to buy more BAC. I would love to know the reasons why. Thanks in advance.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-4815867514277794362.post-20485514580970742922011-08-26T00:12:57.212+10:002011-08-26T00:12:57.212+10:00You wrote: "I genuinely do not know enough ab...You wrote: "I genuinely do not know enough about American litigation practices to offer an informed opinion [on likely speed of resolution]."<br /><br />Your American ex-litigator says: I do know enough to offer an opinion, and it is a true "known unknown." Your guess of 5 years sounds as good as any.Robert in Chicagonoreply@blogger.comtag:blogger.com,1999:blog-4815867514277794362.post-72400751532182498762011-08-26T00:10:00.516+10:002011-08-26T00:10:00.516+10:00To anon who worries about my circle of competence ...To anon who worries about my circle of competence and BofA - I give them this which I wrote in March 2007<br /><br />http://www.brontecapital.com/interesting_articles/2009/us-finance.pdf<br /><br />But I admit the impression of BofA management is not inaccurate - it is the same impression I got when I visited Charlotte in 2002 and met with them.<br /><br />And it is a bank which are by definition partly black-boxes... I can peer further into that black box than many - but the bottom is still dark. In the case of BofA very dark.<br /><br />JJohn Hemptonhttps://www.blogger.com/profile/03766274392122783128noreply@blogger.comtag:blogger.com,1999:blog-4815867514277794362.post-31981099212695432202011-08-26T00:05:16.807+10:002011-08-26T00:05:16.807+10:00John, how well do you know the management at BofA?...John, how well do you know the management at BofA? I've got a pretty good sense of the senior guys and the picture isn't good. Basically, they are as psycopathic as the New York bankers, but with little of the sense (being in Charlotte doesn't shapen the mind much!). These are real bumpkins and that is why absent even specific systems knowledge, I would be very afraid.<br /><br />Similarly, the legal muscle arrayed against them is much, much powerful than most understand. They are real sharks and they smell the blood in the water long before most. <br /><br />I think the best investment option is what the earlier poster said, "stay away"! I fear here John, you are making a vanity investment, something that proves your skills. But a lot of what will matter here is outside of that impressive skill set.<br /><br />And don't be so sure about the authorities going easy on BofA. This isn't 2008. Many people have been getting more sophisticated about this stuff in the past few years. Combine that with the people who are just plain angry and it makes much less sense to assume bedrock support.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-4815867514277794362.post-41241255246861198072011-08-26T00:00:28.326+10:002011-08-26T00:00:28.326+10:00How is this hugely dilutive rip-off deal with the ...How is this hugely dilutive rip-off deal with the Polyamorist good news for the long-term equity holder? <br /><br />At the bottom of the financial crisis, it made sense for GS to pay billions to get the Polyamorist's seal of approval. By how is it worth it to BAC now? It seems that the BAC management just pissed away a couple of billion of existing shareholders money in present value terms to feel better about themselves.<br /><br />ptuomovAnonymousnoreply@blogger.com