Author Topic: BAC-WT - Bank of America Warrants  (Read 2058087 times)

RRJ

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Re: BAC-WT - Bank of America Warrants
« Reply #10 on: October 22, 2010, 12:56:39 PM »
Uccmal,

Thanks.  This was almost exactly my own analysis.  The only other thing I'd add is that I figure with the BAC warrants (which I don't own yet, as I like WFC as a bank and culture much more), they are likely to raise the dividend back up, and anything above $.01 per quarter is subtracted from the strike price.  If, in 2012, they go to a 2% dividend yield on today's price (of around $12.00 per share), then raise the dividend 5% per year, you get dividends of roughly $.24, $.25, .26, .27, .28 and .30 and .31 in 2018.  Strike price is reduced each year by total annual dividend minus $.04.  That's a cumulative reduction in the strike price of $1.62, give or take on these assumptions, which I think are conservative.

This gives an adjusted strike price of $11.68, or just above where BAC trades at today ($11.43 as of 3:50 pm).  So your warrant cost of $6.00 buys you essentially all the upside in B of A's common from today's price through 2018.  From this low valuation point, I like those odds, but I do see far more risk in B of A than in Wells, largely the risks you list.  All in all, I see more risk than Wells due to lack of discipline, inferior management (which is amplified in banking just as in insurance), and not as good a possible upside.  I'll probably pass, but it's likely to work out okay.     



biaggio

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Re: BAC-WT - Bank of America Warrants
« Reply #11 on: October 22, 2010, 02:51:51 PM »
" I estimate that the returns on the warrants should be 15% per year or greater"

Warrants seem like a better deal than the common.

Would 15% ( it may be more) per year be enough return for perceived risk you may be taking?

ValueBuff

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Re: BAC-WT - Bank of America Warrants
« Reply #12 on: October 23, 2010, 07:25:25 AM »
the only risk is B of A not being above the strike+warrant cost.  IT will be around, I think the US gov. has proven that.

To me, what makes these things attractive, especially the B of A, is the dividends come off the strike.   In B of A's case, it is the only one with the 0.01$ limit.  I think the WFC warrants are around 0.32-0.34$, than strike price drops.

SmallCap

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Re: BAC-WT - Bank of America Warrants
« Reply #13 on: October 23, 2010, 08:59:15 AM »
Does anyone know where I can find the dividend policy for each of the tarp warrants? I know what it is for BAC and WFC but can't find it for the others.

Also does anyone know what happens to these warrants in change of control or dilution of equity situations?

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Uccmal

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Re: BAC-WT - Bank of America Warrants
« Reply #14 on: October 23, 2010, 01:27:43 PM »
Does anyone know where I can find the dividend policy for each of the tarp warrants? I know what it is for BAC and WFC but can't find it for the others.

Also does anyone know what happens to these warrants in change of control or dilution of equity situations?


i) no
ii) The Warrants are adjusted accordingly to keep up with changes.  I would think a change of control for BAC or WFC is unlikely, and I cant speak to the others.

Valuebuff, I would think the dividend increase with WFC is just as likely, if not more so.  I guess a case could be made that the dividend for BAC has some catch-up potential.   
GARP tending toward value

ERICOPOLY

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Re: BAC-WT - Bank of America Warrants
« Reply #15 on: October 23, 2010, 02:18:10 PM »
Uccmal - not saying either way, but I believe BAC trades 2013 leaps.  Has anyone here analyzed the near the money leap calls as a better % gainer play?

-Dan

This thread got me interested and I bought some BAC warrants on Thursday and Friday.

 I thought about those 2013 leaps.  Decided to go with the warrants given it's the only place I can get long term leverage with no financing risk for 8.25 years.  Someplace else in my portfolio I'll buy some 2013 calls on another name.

This gives me diversification of maturities.

ValueBuff

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Re: BAC-WT - Bank of America Warrants
« Reply #16 on: October 24, 2010, 01:16:27 PM »
Does anyone know where I can find the dividend policy for each of the tarp warrants? I know what it is for BAC and WFC but can't find it for the others.

Also does anyone know what happens to these warrants in change of control or dilution of equity situations?


i) no
ii) The Warrants are adjusted accordingly to keep up with changes.  I would think a change of control for BAC or WFC is unlikely, and I cant speak to the others.

Valuebuff, I would think the dividend increase with WFC is just as likely, if not more so.  I guess a case could be made that the dividend for BAC has some catch-up potential.   



I do agree with you that WFC has a better potential to increase the dividend over BAC.  However, will WFC raise it by more than 0.32$ in order to get the drop in strike price? That i do not know.


I would rather own the WFC common and the BAC warrants

biaggio

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Re: BAC-WT - Bank of America Warrants
« Reply #17 on: October 24, 2010, 06:31:51 PM »
John Paulson: How Are You Calculating Intrinsic Value For Bank Of America?

http://www.gurufocus.com/news.php?id=110254

pilaniman

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Re: BAC-WT - Bank of America Warrants
« Reply #18 on: October 25, 2010, 10:27:27 PM »
I own BAC and have been acquiring it since April for a fund I manage and yes, I am down so far. I invest with 3+yr horizon so what I say next should be viewed with that time horizon in mind.
(i) I NEVER respected the prior CEO given all the acquisitions he had done over ten years and destroyed the franchise value. Among all the large banks, I got most positive on BAC with the arrival of new CEO as he comes from a strong pedigree - Bank of Boston had a solid track record and I give him credit for being part of that success story. If you read the WSJ story around the time he became the CEO, he was never the first choice. Therefore, he has something to prove and I like a 'hungry' CEO. It did not surprise me that he took all these write-off after all it's all the goodwill Ken built from the MBNA acquisition and other bone-headed deals. It is not uncommon for new guy to clean the balance sheet and take charges it seems almost a rite of passage in the corner suite. I also like the fact that the board is completely revamped and the new CFO has been through several turnarounds. Mr. Moynihan seems to be surrounding himself with a competent professional team. As Buffett has said before (and someone else mentioned it on this thread), in the financials - banks, insurance, etc. - one has to be very comfortable with the CEO. I also like his strategy of changing the rules around checking accounts etc. to drive customer loyalty rather than stuffing them with unnecessary surcharges if there balances run low. All in all, Mr. Moynihan gets A in my book so far.

(ii) ML franchise continues to hum along fine. I was looking at the Dimon's presentation recently and was surprised to see that ML rates among top five banks in all key IB rankings. It's also good to know we have an ex-GS guy running the joint.

(iii) Countrywide business line is an issue but I think the Branch Hill presentation is more noise than substance. I doubt if Fed will take down a core 'too big to fail' bank at this juncture in the economic cycle given what they have to do on the QE2 front and the general economic malaise they are dealing with. It is common knowledge that credit losses have peaked so the only risk is the put-backs that Fannie/Freddie or the private investors will execute and whether BAC has the balance sheet to absorb those losses from countrywide business.
(iv) It will be interesting to see if they start losing deposits or not and how the customers respond to the new strategy. I think majority of the regulatory headwinds are known and the only unknown is how the long-term profitability is impacted from CARD Act and other new regulations like Basel III, etc.
(iv) From a quantitative standpoint, they are trading below tangible BV - my favorite valuation metric for banks and the business is generating a low ROA - my favorite operating benchmark. Good banks have ROA of over 1% and currently BAC is at .25% or so. Clearly, there is lot of room to improve execution and my assessment is that the CEO is headed in the right direction. Good banks generally trade at north of 2.0x TBV (e.g. USB is at 2.5x TBV) and if BAC continue to grow its earnings, it will get a 2 handle in due course.
Overall, it seems to me there is more upside here than any other large bank in the US if one is patient and monitors how the new strategy unfolds. MOST IMPORTANTLY, the downside is very limited at the current price level.
  
« Last Edit: October 25, 2010, 10:30:33 PM by pilaniman »

biaggio

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Re: BAC-WT - Bank of America Warrants
« Reply #19 on: October 26, 2010, 07:47:53 AM »
http://www.forbes.com/2010/09/24/citi-goldman-sachs-bove-intelligent-investing-video.html

Interview with Dick Bove-overview of banking industry, bank reform, etc

-predicts a lot of takeovers in 2011
-talks about concentration of assets, mortgage origination amongst 3 players
-he's never seen banks so cheap. Cash on their balance sheets, like in the 1930's. Largest discount to BV.
-sounds like large banks have advantage over smaller ones, who will get taken out

I thought it was good info for someone like myself who has limited knowledge of banking industry.

Also,

http://www.gurufocus.com/StockBuy.php?symbol=BAC

A lot of insider buying in August + also impressive buys by various "guru's".

Biggest argument against buying BAC, WFC, etc is that one does not know what's on their balance sheet i.e. you really don t know what you re buying.

Is it wise to assume that their balance sheets have been thoroughly "washed out" of toxic assets by the actions of these insiders + big investors who have been buying in? Even WEB as a small position in BAC.