Author Topic: BAC-WT - Bank of America Warrants  (Read 2073933 times)

Spekulatius

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Re: BAC-WT - Bank of America Warrants
« Reply #7270 on: June 22, 2018, 09:58:02 AM »
Hello, thanks for the data. I guess I didn’t compare the right spread data and thought that the spreads during the GFC were much higher. I know I bought some investment grade bonds for ~15% yield, but that may have been an outlier.

I do understand that the extremely adverse scenario is designed to mimic the GFC, so It can!t be a walk in the park. I still think that no model can account for the reflexivity or reverse lollapaloza effects of a real crisis.
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LC

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Re: BAC-WT - Bank of America Warrants
« Reply #7271 on: June 23, 2018, 10:07:46 PM »
Quote
I do understand that the extremely adverse scenario is designed to mimic the GFC, so It can!t be a walk in the park. I still think that no model can account for the reflexivity or reverse lollapaloza effects of a real crisis.

Let's also realize the LF models built for CCAR are designed to minimize NCL, in addition to the backwards-looking limitation you describe above.
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Viking

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Re: BAC-WT - Bank of America Warrants
« Reply #7272 on: June 27, 2018, 09:58:26 AM »
As discussed previously, weak European competitors is another reason to like the big 4 US banks. Surprising to me that DB seems to keep getting weaker; with the German and US economies firing on all cylinders I would have expected this bank over the past couple of years to be turning the corner. Looks like it is in a holding pattern (in a bad place). What is DB going to do when the next recession hits?

https://finance.yahoo.com/news/deutsche-bank-woes-positive-major-161026205.html

John Hjorth

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Re: BAC-WT - Bank of America Warrants
« Reply #7273 on: June 27, 2018, 12:09:10 PM »
It's actually an interesting question of yours, Viking,

To me, DB is just a bad European bank, that never really got fixed during the business cycle after the GFC. I think the reasons for that are several. So please don't take me condecending here [ : - ) ], but I actually think that DB will wake up when the next recession hits and just ask: "What?"

Perhaps we could continue to discuss this in the DB topic. It's actually a sad story, a real calamity, of enormous dimensions. [Similar, and yet different to the story of C.]

- - - o 0 o - - -

Somehow, it's a privilege to only have the "problem" right now to should wait for the US CCAR Announcements for further 24 hours and 22 minutes. [ : - ) ]
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Viking

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Re: BAC-WT - Bank of America Warrants
« Reply #7274 on: June 27, 2018, 04:29:42 PM »
John, yes, I am also looking forward to the CCAR announcement tomorrow.

For BAC it will be interesting to see how much they are approved to return in total. RBC is estimating $26 billion, which is about 12 month earnings. Moynihan has said repeatedly that BAC has about $16 billion in excess capital. I would love it if BAC pulled a C (return more than 100% of earnings) and was approved to return $30 billion over the next 12 months.

The other thing I am watching closely is the dividend. It is currently $0.12/quarter. RBC is estimating this increasing to $0.22/quarter. I will be pleasantly surprised if this amount happens as it will move the dividend yield to 3.1%.
« Last Edit: June 27, 2018, 04:33:28 PM by Viking »

John Hjorth

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Re: BAC-WT - Bank of America Warrants
« Reply #7275 on: June 28, 2018, 01:37:26 PM »
FED CCAR 2018 Announcement is now up.

The url to the pdf-file does not work yet.
”In the race of excellence … there is no finish line.”
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Viking

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Re: BAC-WT - Bank of America Warrants
« Reply #7276 on: June 28, 2018, 02:08:20 PM »
BAC CCAR numbers are out. They came in at expectations of $26 billion total. The dividend is increasing by 25% which I think is light; $0.15 dividend = 2.1% yield (with shares at $29). I think he is going heavy on the buyback for one more year to offset the dilution from the warrants that is coming later this year and early in 2019. Moynihan continues to manage BAC in a very conservative way; slow and steady :-)

“Bank of America today announced that the Federal Reserve did not object to the company’s capital plan, which is estimated to return approximately $26 billion to common stockholders over the next four quarters through a quarterly common stock dividend increase and common stock repurchases. That estimate is based upon the company’s current number of outstanding shares and share price.

As part of the capital plan, the company’s Board of Directors plans to increase its quarterly common stock dividend by 25 percent to $0.15 per share, beginning in the third quarter of 2018.

Also, the company has been authorized to repurchase approximately $20.6 billion in common stock from July 1, 2018 through June 30, 2019, which includes approximately $0.6 billion in repurchases to offset shares awarded under equity-based compensation plans during the same period.”
« Last Edit: June 28, 2018, 02:15:02 PM by Viking »

Valuehalla

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Re: BAC-WT - Bank of America Warrants
« Reply #7277 on: June 29, 2018, 10:15:37 AM »
Viking, thx for comments,.. you expect 26B are 12 month earnings of BAC.

Do you have an estimation for 12 months earnings of WFC ?
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racemize

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Re: BAC-WT - Bank of America Warrants
« Reply #7278 on: June 29, 2018, 10:46:01 AM »
Viking, thx for comments,.. you expect 26B are 12 month earnings of BAC.

Do you have an estimation for 12 months earnings of WFC ?

I'm not Viking, but I have them around $22 billion.

Viking

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Re: BAC-WT - Bank of America Warrants
« Reply #7279 on: June 29, 2018, 11:32:44 AM »
I use RBC for my estimates. They estimate WFC will earn $21.7 billion in 2018 and $23.5 in 2019. Total capital return for WFC will be about $32 billion. Wow! EPS estimates will be going up for WFC as share buyback amount is much larger than estimates. WFC clearly leaned out with their ask and award and the stock is popping today.

I am surprised with the BAC award in two ways:
1.) dividend increase of 25% to $0.15 is a surprise. Moynihan repeatedly said he supported a 30% dividend payout ratio. BAC will earn $2.55 in 2018 so I think it reasonable to assume 30% of $2.55 = $0.76/ share per year = $0.19/share/quarter. They will likely earn close to $3 in 2019 so when you look at the 4 CCAR quarters (Q3 2018 to Q2 2019) they will earn about $2.75/share so $0.60 dividend = 22% payout ratio. RBC was estimating $0.22 so clearly there was some mis communication with the analyst community going on.
2.) total payout of $26 billion was slightly below what most analaysts were expecting. Again, Moynihan was very vocal in stating that BAC has about $15 billion in excess capital that will need to be returned to shareholders (as BAC would not need it to fund growth). RBC estimated BAC will earn about $25 billion in 2018 and $27.5 billion in 2019. With a $26 billion total award BAC will not be returning and excess capital over the next CCAR year (unless they get a top up award similar to last year). With their large award, WFC showed what was possible for BAC.

Bottom line, small dividend increase of 25% and ok total award of $26 billion has underwhelmed shareholders. I hope Moynihan explains why the dividend increase did not take the payout ratio closer to 30% and why they did not ask for a larger award to get some excess capital to shareholders.
« Last Edit: June 29, 2018, 11:35:56 AM by Viking »