Arohan

American Express Calls Investment Banks' Bluff

Your article is confusing

It is not impossible to have the following two things occuring at the same time:

1. Individual consumers are stretched and are having issues with their credit, including the super credit worthy ones. This is what is affecting Amex and,

2. Asset valuations at the banks for the mortgage assets (created in the past) have been marked down significantly and there is not much markdown left to take. Additionally, the investment banking activitiy may have picked up in pockets. The banks are also restructuring and disposing off assets, etc. Additionally, some consumers may be pulling their deposits out of Indymacs of the world and putting them at Bank of Americas of the world. Therefore it is quite plausible that some of the banks had a better quarter than what the street thought and the things may indeed be improving for some of the banks. In fact, as liquidity continues to come back in the market, you may find a lot of previously marked down assets written up as the market begins to be able to price them

You are comparing apples and oranges and jumping to conclusions

Why I'm Committed to the UltraShort Financials ETF

Hmmm Mr Lathrop, you talk about fundamentals of the sector but you do not care to discuss valuations. You may be right but only because you have short term outlook. Long term investors might wish to consider this as an excellent opportunity to buy

Will BofA Really Buy Countrywide?

The deal looks bad if you cannot think beyond the present time. It would be a stretch to imagine that the mortgage market will remain in dumps forever. People will start buying houses. Do you think BAC should wait until the market comes back up, Countrywide gains marketshare and profitability, and then buy Countrywide for $50 a share? Why would Mr Lewis make such a boneheaded decision?

Yes, there are risks in this acquisition, but nothing that Bank of American can't fix by supporting this in the short run with additional capital. Once the market stabilizes, this should be a huge score for BAC. One forgets that Countrywide was (or maybe still is) simply the best mortgage company in the country. You also forget that BAC has been a growth oriented company and is now hitting a limiting factor in its growth (deposit accounts cap) and buying Countrywide is probably the best way for them to continue growth. Sure they can acquire internationally and they will probably do that but as a shareholder I sure as hell hope that they do not let this golden opportunity to get Countrywide for a pittance go by

You did the right thing by buying BAC stock, but for the wrong reasons

BofA/Countrywide Merger Arbitrage Opportunity

As if you read my mind! This trade has been discussed quite a few times in several blogs (links below) and I have to say that this offers a very interesting case study

www.arohanvalue.com/20.../
www.arohanvalue.com/20.../

And also,
tradinggoddess.blogspo...
www.princeofwallstreet.../

Financials: Insiders Buying on Consistent Basis

Thanks Todd for a good summary of how many value/vulture investors think that the financials are very good buys right now. I have been advocating my readers to start buying financials for some time on my site (www.arohanvalue.com) as this may be an opportunity that one finds very rarely for some outsized gains

BofA/Countrywide Risk Arbitrage Opportunity

Agreed that CFC is trading at a discount to its deal closing value even after adjusting for tvm and this is a very good strategy for above market returns in a short time frame with very little risk.

However, as a long term investor who views BAC as a great company to own for a long time and who also views BAC to be severely undervalued at this time, buying into Countrywide today actually gives a way of acquiring BAC stock at a discount to even the depressed stock price today. I am inclined to just buy CFC, let the deal close and convert to BAC stock and just let it ride

Another thing to consider. CFC has a larger dividend yield than BAC today (10.9% to 6.9%). Also the deal does not seem to have a provision to adjust the exchange ratio of shares if CFC pays out dividends in the interim. If CFC does not cut its dividend, it would appear to me that buying CFC today, and reinvesting its dividend would actually get you more BAC stock for your CFC shares at the deal closing than what was announced. Of course, this difference in dividend yields also helps in the risk arbitrage strategy you discuss as you get a net payment for 2-3 quarters in dividends just to maintain your position and do nothing.

I am surprised as you are that this kind of mispricing exists, but in todays volatile markets anything is possible

www.arohanvalue.com

Consumer Spending is Up, But at What Cost?

This is quite scary. There was too much excess in the system and some sort of sanity reset is much needed. There is too much emphasis put on increasing same store sales, etc and people are encouraged to consume out of recession, but this may not be the best for the long term. You want consumption, but quality consumption and hopefully there is a happy medium that maximizes consumer value and producer value

arohanvalue.blogspot.c...

Bank Stocks: Dividend Yield Post Subprime Meltdown

The dividend cut (WM) was widely expected and is in now. It is still a respectable 3.5%. Once the market comes out of the doldrums and assuming WM survives, the dividend will be ratcheted up again. So if you are investing now, you may actually get a very good yield on the money invested.

However, the risk in WM is not something everyone is going to be comfortable with

arohanvalue.blogspot.c...

As Banks Opt Out, What is the Real Purpose of Paulson's Super-SIV Plan?

You maybe onto something here. Maybe ADIA could have gotten the equity for cheaper had they waited. Although, it is still a conjecture at this point to extend this theory to BAC and JPM. But as you said, who knows what exposure lurks unseen?

arohanvalue.blogspot.c...

It's Raining Petro Dollars - One Deal at the Time

It is just investment as you pointed out. US companies have been taking stakes overseas for a long time now and there is no reason why companies outside US cannot do it. We will see more of these kind of deals as other economies grow

arohanvalue.blogspot.c...

The Strategy of Capital Injection

Don't know if Ken Griffin has the appetite to run a company. Buying passive investment assets is different from running an actual company

arohanvalue.blogspot.c...

Large Banks: The Worst Is Yet To Come

Banks already present a nice opportunity for investment. I would argue that the entire financial sector now is what would qualify as special situations investing. arohanvalue.blogspot.c...

Bank Stocks: Dividend Yield Post Subprime Meltdown

Mouthwatering!!!

You forgot Washington Mutual (WM) at almost 11% yield

While the ripples of the sub-prime fiasco may take some time to subside, an opportunistic investor will do really well to pick up some of the quality names today at a bargain price. The financials will eventually recover, meanwhile it is nice to collect these dividends as an incentive to wait

Long BAC and WM

I have also written about the opportunity in financials at arohanvalue.blogspot.c...

- Arohan