Bank of America Buyback Announcement: Who Cares?

The Financial sector, and Bank of America (BAC) more specifically, are getting a bit of a pop on news that BAC is going to buyback 75 million shares. 

However, before we start dancing in the streets thinking BAC is now flush with cash, we would point out that the announcement replaces its previous buyback plan that was announced in January 2007, which authorized the repurchase of 200 mln shares.  This represents a 62% decrease in the number of shares the company is authorizing to buy back. 

Additionally, of the 200 mln shares that BAC originally intended to buy back since January 2007, the company actually only ended up buying 74.1 mln, most of which was purchased during Q1 07.  So as for actual buybacks getting done, don't hold your breath.

Comments

[icandoitdon:]

when a company buys back shares it is shrinking it's capital base and, assuming it has debt in it's capital structure, is leveraging itself up. just what we need in an overleveraged financial system.

2008 Jul 24 01:27 AM

[drmalaka:]

Wow this is almost as incredible a piece of good news as when LEH raised $4 billion that they did not need but managed to spend in a month. Buy, buy, buy. No more writedowns, the ninth inning is here. Until of course a month from now when news starts leaking again of potential write downs.

2008 Jul 24 01:50 AM

[CrossProfit:]

The reason this is good news is that the Board is sending a strong message to the markets that it is on top of things.

1) Outstanding buy-back authorization was reduced from 125M to 75M and the time frame extended.
2) Shows board is conserving capital yet expects to be out of the woods within the eighteen month period.
3) Shows Board sees authorization as an additional safety net regarding dividends. Board has signaled that it will cancel buyback authorization before even considering touching dividends. This gives investors a much needed 'early warning' system and Board has signaled that it is willing to 'play fair'.

The final result is that the Board has said to investors - stop listening to all the rumor mongers! We (the Board) can't predict the future but if there is a problem down the road you will be notified before it happens! As of now, we (the Board) reiterate that the sacred cow is safe.

Just a quick lesson on how to read press releases...

Bespoke,
You guys know better and the correct interpretation is not a foreign language to you. What happened? Were you out to lunch and the secretary wrote the above article? :)

CrossProfit
Disclosure: Associates long BAC.

2008 Jul 24 04:37 AM

[Dusty:]

I am a small investor. I bought BAC because my advisor said it was a good buy. $1K is a lot of money to me; I am trying to create an additional small income stream from dividends. I bought $1K of BAC a little more than a year ago and another 'unit' in October '07, both at about $52. Notice of the buyback arrived a few days ago and I checked with my broker. Special large commission (relative to my personal finances), $1.50 a share back to BAC special fee, repurchase only good for the next NYSE Business Day with BAC shares listing at about $15.00. I did, and do, feel insulted.

Before all of you start telling me how stupid I am or how everything I am doing is wrong, listen to my "strategy."

Chuck holes in the market come and go. Bear Markets come and go. "Unrealized P&L's" are mind games. All that matters is the cash of the dividends and at the moment I have a little more income than needed to pay the bills. For now the dividends get reinvested. I am trying to prepare for eventual problems.

If BAC and some others survive this mess then all is well. That is even if some dividends are reduced or even stopped for a while and then resumed. I do the best I can with the information available to me (necessarily mostly what I can find for free). FWIW, my dividend stream is currently averaging 8.20% of my initial investment. If any of the positions ends in a bankruptcy or compete shutdown kind of failure, I have a tax write-off.

My bottom line is that I feel insulted by the offer BAC made.

2008 Jul 24 05:32 AM

[CrossProfit:]

Dusty,
What are you talking about?
"Notice of the buyback arrived a few days ago and I checked with my broker. Special large commission (relative to my personal finances), $1.50 a share back to BAC special fee, repurchase only good for the next NYSE Business Day with BAC shares listing at about $15.00."

This sounds like a scam. Send a copy of the letter by fax to the SEC with a cover letter asking "Is this a scam?"
See:
www.sec.gov/complaint....

Don't wait, just do it. You have nothing to lose and everything to gain by checking it out.
CrossProfit

2008 Jul 24 06:09 AM

[cocomurph:]

What do YOU do when the facts/business environment changes? BAC sent a confidence building message to the market in what are the most troubled financial sector times I've seen. To judge them using an old buy-back yardstick is nonsense! The market looks forward, not backward, as you guys so often do.

Bespoke continues to underwhelm me with their veneer-thin "analysis". Having read many of your articles, let's just call what you do the printing of sound-bite "facts" and statistics....which are rarely really thought through and lead to a conclusion of "....and therefore, an investor should do X "

2008 Jul 24 09:08 AM

[cocomurph:]

Oh! And to answer your question of "who cares"...well, the market obviously does, since BAC has almost doubled from it's lows in less than 10 days.

2008 Jul 24 09:10 AM

[notsosmart:]

its all a scam.its turned into vegas only slower & nobody brings you a drink. dont believe anybody about anything. all have an agenda thats primarily self serving.think for yourself.

2008 Jul 24 09:34 AM

[icandoitdon:]

it's a leap of faith to believe that CEOs or boards of directors will give you straight information. they are spin machines...nothing more. the financial graveyards are full of companies that went down denying there was ever a problem. we've seen countless denials of this type of denial from financial institutions just this year.

as for the "messages" they sent through their PR drivel, get real. wachovia sent a message in august 07 that things were dandy by raising it's dividend from $.56 to .64 pershare. a year later it's $.05 per share.

banks have notoriously bad management and they have the record to prove it. no industry has been bailed out more. don't expect them to tell you when they're in trouble.

2008 Jul 24 10:13 AM

[jackooo:]

Credibility... The analyst downgrades the stock after it reports losing one billion dollars & the stock dops 20 points in one day.. Duhhh.
I needed that info the day before otherwise I could be an anyalst..

2008 Jul 24 12:13 PM

[bill d:]

Dusty -
Why are you even thinking about talking or listening to a broker ?
If you are on this site you have free access to more than enough resources to be able to handle your finances at LEAST as well as any broker. I bought some BAC a short time ago - I sold some $35 puts for about $3. Got the stock put to me at $35 (of course) so my net cost is $32/share. Now showing a profit and if their stated dividend gets paid I'll have a return of about 8% and then maybe sell some covered calls. I remember when brokers screwed me to the wall - but now there is absolutely NO excuse to deal with them unless you got more money than brains.

2008 Jul 24 05:20 PM

[nyka:]

Does icandoton really mean to write IT IS capital base, or IT IS capital structure? At this point, he had best learn that IT with an apostrophe is pronounced IT IS. So, he'd be well advised to learn this basic rule of punctuation in order to make what he writes credible.

2008 Jul 26 06:51 PM