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Strategies & Market Trends : Fundamental Value Investing -- Ignore unavailable to you. Want to Upgrade?

To: E_K_S who wrote (1614)	8/7/2011 5:34:15 PM
From: gcrispin	1 Recommendation Respond to of 4719

I agree with you EKS. BAC's housing mess is directly related to the progress, or lack there of, in the economy. The economy won't get better until housing improves. So it is a vicious circle. Below is a quote from Morningstar. For instance, the bank is estimating a 3% decline in home prices for 2011 and a 1% increase in 2012. For every percentage point it is off, the bank will need to take more than $550 million of pretax losses just on pre-existing problem loans and put-backs (and this figure does not include the greater severity of losses on mortgages that are still performing at this point but may go bad in the future). Additionally, we continue to wait for a foreclosure settlement with the state attorneys general that could cost Bank of America several billion dollars by our estimates. From Bloomberg on the most recent slide in share price. Bank of America Corp. (BAC), the largest U.S. lender, posted its worst two-day decline since 2009 after telling investors that claims from Fannie Mae and Freddie Mac may cost more than previously forecast. The bank fell 7.5 percent yesterday in New York Stock Exchange composite trading, the biggest drop in the Dow Jones Industrial Average, and extended its slide for the past two sessions to 15 percent. New demands for refunds on soured loans from the two U.S.-owned mortgage firms are coming “in numbers that were not expected based on historical experience,” the company said in its Aug. 4 quarterly report to regulators. The filing signals that the $30 billion of expenses booked by Brian T. Moynihan since he became chief executive officer still may not be enough to clean up the faulty mortgages inherited from former CEO Kenneth D. Lewis. The Charlotte, North Carolina-based firm told investors in June that actions taken during the second quarter probably would cover any further buybacks unless Fannie Mae and Freddie changed their stance. “Yet again, another line in the sand from Bank of America turns out to be fungible,” said Tony Plath, a professor of finance at the University of North Carolina in Charlotte. “I don’t think it’s anything nefarious, it’s just that they don’t know what the magnitude of losses in that portfolio will be -- and until they do, none of their numbers have credibility.

To: E_K_S who wrote (1614)	8/8/2011 9:36:52 AM
From: bruwin	Respond to of 4719

Well, E_K_S and gcrispin, it seems, from what you’ve put together, that there’s more to BofA’s state of affairs than what Shawn Tulley presented in his Fortune article of 25 July 2011. I thought I’d Copy & Paste your two replies and email it to him and see if he responds ! Maybe, in some degree of fairness to him, his article was entitled “Can This Man Fix America’s Biggest Bank?” Therefore it could be seen as a report more about Moynihan himself, rather than an in depth analysis of the bank’s current financials. But I suppose that’s open to conjecture. Banks and the Financial sector are not a favoured area of mine, so I don’t devote that much time to interrogating it. In this particular instance I remembered that there’d been quite a bit of discussion, recently, around the pro’s and con’s of BAC and this article seemed to highlight possible positive future outcomes for the bank. It appears, from the article, that in November 2009, Moynihan had promised the Board’s search committee that he would follow a rigid set of principles should he be appointed CEO .... 1) Sell virtually every asset unrelated to bedrock banking 2) Forget all acquisitions, now and forever 3) Don’t grow total loans, but do change the mix so BofA won’t be overexposed to risky consumer credit in a bad cycle 4) Never again (he swore) would BofA need to sell stock in a downturn to survive. In addition, Moynihan divides the future into two main periods .... a) Over the next 2 years BofA will retain virtually all its earnings to build the funds necessary to comply with the new Basel III International Standards of Capital Requirements for Financial Institutions, which are anticipated to be stringent. Moynihan adamantly insists that during this period, BofA’s earnings power makes the crunch scenario, that critics fear, virtually impossible. Instead of raising capital, he believes the bank will be able to generate all it needs from its earnings. b) When BofA has built up a sufficient Capital “cushion”, probably in 2 to 3 years from now, Moynihan plans to return all earnings to investors in dividends or share buy-backs (the sort of move that would make Warren smile !!). He believes the bank needs to get back most of the shares it issued in the crisis that, in turn, caused all the dilution. Apparently Moynihan’s goal is to expand Revenues just one percentage point faster than GDP. In addition, the total lending book will remain at around $1 trillion. He is also radically reducing exposure to risky areas such as credit cards where, in the “boom years” the bank gave cards to people who couldn’t afford them. Moynihan has already shrunk the card loan portfolio from $250bil. to $175bil. and it’s going lower. So, .... there we have it. Let’s see what the man achieves in the years ahead.