Once the stress tests are over, the FED is going to have to give the green light to the banks to increase dividend payouts for 2012. I saw one estimate for WFC going to $.80 for next year which would put them back on track for a 3.2% dividend. Tough to say what the FED will do with BAC and C, but their earnings power is getting back towards normalized levels as they finish selling assets and raising capital this year. But, they should both be in a much better position during 2012 as most of their credit losses from the last bubble have been run off by now.
BAC had a presentation at GS today. They estimated their new capital ratio for Tier 1 Common would be up to 8.65% from the sale of China Bank position, buying back preferreds, and selling Canadian credit card portfolio. They should have close to $4.0 billion in pre tax gains this quarter just from those sales, and investment banking results are looking better with the market coming off the lows from last quarter. Trading results should be much better this quarter.
If BAC can squeeze out a good trading quarter to increase capital ratios by another 25 bp's, they could be very close to 9% by the end of the year. In terms of capital, they have the highest levels of capital, liquidity, and funding in their history. Expenses are dropping, net charge offs are improving, and new lawsuits are probably behind them at this point. They had a rough stretch from Q3 2010 to Q2 2011, but the worst of their problems are behind them or reserved.
I thought it was comical that Cramer was calling for MER to take over BAC mgmt. For all intents and purposes, the sum of the parts of MER, MBNA, CFC, and BAC is worth far more than the current market cap. MER is probably worth as much as GS which has a $50 billion market cap, and MBNA is worth more than COF which has a $20 billion market cap. That leaves BAC with a negative value in today's market.
If WFC has a $140 billion market cap with half the assets as BAC, it's impossible to figure out where the market is coming up with a $60 billion market cap for BAC. CFC may have been the dumbest acquisition in history, but MER was the best acquisition in history. After the liquidation of MER assets, BAC probably paid close to zero for MER. With $380 billion in liquidity, it seems like an undervalued franchise! |
