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  • Finding Bank Of America's True Value: Legacy Assets And Legal Risks Continue To Weigh Heavily On Its Market Price [View article]
    Hi rgalarno thank you for commenting and raising some interesting points. I manage a boutique risk management and stock analytics agency in Medellin Colombia as you will see from my profile. The reason I have undertaken an in depth analysis of BAC is because it is one of the stocks that my agency monitors and it was also a bank that I was considering investing in but decided against as you can see from my conclusion. Unfortunately it is not possible to 'have skin in the game' and own the stock of every company that I monitor as I certainly don't have an unlimited supply of funds, nor does every company meet the investment criteria that I apply. But it is possible to make informed investment decisions based on my analysis and I have made a decision to share that analysis with other investors through Seeking Alpha. I hope that addresses your concerns and if you have any further questions please let me know.
    Nov 12, 2012. 03:17 AM | Likes Like |Link to Comment
  • Seeking Contrarian Value In Brazil: Itau Unibanco Shows Potential Despite Rising Risk In Brazil [View article]
    Hi Piptief I am quite bearish in Brazil but I do believe that current circumstances are creating opportunities for investors. At this time I would be avoiding Vale for a range of reasons as set out in my article here http://seekingalpha.co.... I am also no particularly bullish on iron ore prices as explained here http://seekingalpha.co... . I could really comment on PBR at this time because it has been some time since i have analyzed the company but I am planning on publishing a new article on PBR shortly. Overall the company is still facing the same problems and its financial performance has continued to be poor.
    Nov 10, 2012. 04:02 PM | Likes Like |Link to Comment
  • An Argentine judge orders the seizure of all Chevron's (CVX) assets in the country, according to a lawyer representing Ecuadorean plaintiffs attempting to collect an $18B judgment won last year in a lawsuit over pollution in the Amazon rainforest. CVX says it is unaware of either a filing by the plaintiffs or a court order in Argentina. [View news story]
    There is no such body as the world court. Chevron had referred the matter to the Permanent Court for Arbitration in the Hague, which in principal has the right to arbittrate such matters but not in a manner that is enforcable at law. The Ecuadoran judgement has also been recognized in principal by the U.S courts and given Chevron's recent decision to invest in a partnership with YPF it now has assets in Argentina. These are exposed because of the Inter-American Convention on Execution of Preventative Measures which means that all signatories essentially recognize the court judgements of other South American sovereigns that are signatories. However, this is not automatic and obviously in the case of Argentina there is more than its relationship with Ecuador at stake.
    Nov 8, 2012. 04:09 AM | Likes Like |Link to Comment
  • Net profit at YPF (YPF -2.2%) fell 51% Y/Y during Q3 due to increased operating costs and poorer performance by companies in which YPF has a stake, as well as a deferred tax payment. Argentina sits on huge resources of shale natural gas and oil, but large amounts of capital would be needed to bring them into production; YPF rules out any foray into global credit markets "anytime in the short term." [View news story]
    I agree and believe that YPF is a very interesting play, but it will be some time before the investment in building reserves and lifting production will pay off for the company. I do believe that the stock is heavily undervalued and ran a valuation in the second part of my article in YPF available here http://seekingalpha.co....
    Nov 8, 2012. 01:01 AM | Likes Like |Link to Comment
  • Finding Bank Of America's True Value: Legacy Assets And Legal Risks Continue To Weigh Heavily On Its Market Price [View article]
    1234gel I think that is a very apt summary of BAC's current position.
    Nov 8, 2012. 12:42 AM | Likes Like |Link to Comment
  • Finding Bank Of America's True Value: Legacy Assets And Legal Risks Continue To Weigh Heavily On Its Market Price [View article]
    Bob my apologies it is a typo, thank you for bringing that up, I will have it corrected. For the sake of clarification the point that I was making is that BAC's book value per share represents a 109% upside to its current trading price. This means that its trading price computes to be a 54% discount on its book value per share.
    Nov 7, 2012. 10:13 PM | Likes Like |Link to Comment
  • An Argentine judge orders the seizure of all Chevron's (CVX) assets in the country, according to a lawyer representing Ecuadorean plaintiffs attempting to collect an $18B judgment won last year in a lawsuit over pollution in the Amazon rainforest. CVX says it is unaware of either a filing by the plaintiffs or a court order in Argentina. [View news story]
    There is no evidence of an Argentine court having made such a judgment and the claims of the plaintiffs lawyer is that an Argentine judge has ordered that 40% of Chevron's Argentine Bank accounts be placed in escrow. Whether Argentina will find in favor of the Lago Agrio plaintiffs and support the seizure of assets is highly contentious at this point.
    Nov 7, 2012. 09:08 PM | Likes Like |Link to Comment
  • Finding Bank Of America's True Value: Legacy Assets And Legal Risks Continue To Weigh Heavily On Its Market Price [View article]
    Garthilk thank you for the feedback. I agree there needs to be a deeper review of the legal risks, current law suits and also of the legacy assets. The reasons for this need to be looked at in greater detail along with the options that BAC has for managing these issues. Such an article would be at least 4,000 words to do it justice and space was at a premium here. I also agree that the legal issues are going to be ongoing for at least a decade and will continue to have a significant impact on the bank's reputation and profitability.
    Nov 7, 2012. 04:48 PM | Likes Like |Link to Comment
  • Finding Bank Of America's True Value: Legacy Assets And Legal Risks Continue To Weigh Heavily On Its Market Price [View article]
    Nate thank you for the feedback, I must admit I approached this topic with a little trepidation as I am primarily a Latam analyst first and a bank analyst second. So far the feedback has been very positive.

    As mentioned in some other comments I have taken quite a conservative view on the fair value calculation and I should have really valued the bank across a number of different scenarios, which gives it a valuation range of $11 - $19 and then allowed readers to take a view on what is most likely. I am very interested to see where the housing market and economy take the bank.

    I do however, have quite a lot of concern regarding the bank's legal issues and legacy assets because these are having a significant impact on costs and until the bank can significantly reduce this impact it is unlikely that its profitability will improve.
    Nov 7, 2012. 04:36 PM | Likes Like |Link to Comment
  • Finding Bank Of America's True Value: Legacy Assets And Legal Risks Continue To Weigh Heavily On Its Market Price [View article]
    jstrat thank you for the feedback. While I disagree with your view on the price and the impact earnings will have on the price of BAC's shares, I do agree that all indicators show that it is putting many of its problems behind it. Overall the programs that have been put in place are building a strong foundation for the bank, but the legal and regulatory risks combined with the legacy asset issues are just having too bigger impact and will continue to do so for sometime. I will say that when analyzing the asset quality, capital adequacy, liquidity and funding mix I was pleasantly surprised.
    Nov 7, 2012. 04:29 PM | Likes Like |Link to Comment
  • Finding Bank Of America's True Value: Legacy Assets And Legal Risks Continue To Weigh Heavily On Its Market Price [View article]
    Well I hope your right, it would be good to see economic activity and in particular the housing sector pick-up! Spain unfortunately at the moment is a complete basket case. From what I understand the majority of the real estate buyers are foreign investors seeking out bargain basement deals in distressed real estate. I doubt there will be a significant uptick in Spanish economic activity for some time. The U.S on the other hand is showing some very positive signs.
    Nov 7, 2012. 08:52 AM | Likes Like |Link to Comment
  • Finding Bank Of America's True Value: Legacy Assets And Legal Risks Continue To Weigh Heavily On Its Market Price [View article]
    Business Economic Analyst if you see heterocedastico's comment below he has raised the same issue around the conservative nature of the ROE. As I explained in my response I have done this because the bank's legacy issues along with its legal issues are going to take a considerable amount of time to resolve before it can start to grow its profitability.

    There are also other longer term issues with regard to capturing new business and revenue generation from reputational damage, along with a diminishing NIM that will also take considerable time to repair. The calculation also includes a terminal value calculation for the retained earnings beyond the initial ten years which has been included in the fair value calculation and presented in the table.

    But I do agree that my estimations have been somewhat conservative based on my overall view of the bank and accounting for the issues raised above along with less tangible issues such as reputational and cultural issues. I would think that a better approach would have been to present indicative values based on a worst case scenario, a mixed scenario and a best case scenario. From conducting some very quick calcs using my retained earnings model this gives indicative fair values of $15 and $19 per share respectively.
    Nov 7, 2012. 08:41 AM | Likes Like |Link to Comment
  • Finding Bank Of America's True Value: Legacy Assets And Legal Risks Continue To Weigh Heavily On Its Market Price [View article]
    Hugo thank you for the feedback and some very compelling and interesting points.

    I agree that I took a particularly conservative view on the banks profitability and hence discounted the ROE heavily, though as you point out it still gives investors an upside of 15%. I did this because BofA has a history of understating many of its problems and under provisioning along. It will also in all likelihood take over a decade for it to effectively wind down its legacy assets to a level where they will have a minor impact on costs and profitability as well as reducing the financial impact of the conditions imposed as part of the federal bailout package.

    Perhaps what I should have done is valued the bank across a minimum of three scenarios, the worst case as presented, a best case with the ROE gradually improving to around 11% for the terminal value and a mixed scenario with a terminal ROE of 8%. In which case I could have presented a range for investors and after performing some quick calculations in the best case scenario an indicative fair value of almost $19 per share and in the mixed scenario an indicative value of $15 per share. I will definitely keep your comments in mind for the review I am currently conducting on Citigroup.

    kind regards,

    CV
    Nov 7, 2012. 08:27 AM | Likes Like |Link to Comment
  • Finding Bank Of America's True Value: Legacy Assets And Legal Risks Continue To Weigh Heavily On Its Market Price [View article]
    CostaBrava thank you for the feedback and the alternate view on the fair value based on an up tick in housing demand. I think that at this time it is too early to call $12.50. But I will point out that when working on the valuation, if I tweaked the assumptions on ROE and GDP growth to make them more optimistic, $12.50 does fall into the valuation range. However, the reason for my conservative assumptions is that even with a considerable improvement in the housing sector the legacy assets and outstanding legal issues will continue to considerably affect the bank's profitability.
    Nov 7, 2012. 06:06 AM | Likes Like |Link to Comment
  • Finding Bank Of America's True Value: Legacy Assets And Legal Risks Continue To Weigh Heavily On Its Market Price [View article]
    aaavoid I am not sure how this article indicates that I am a skeptic, the numbers speak for themselves and it is going to take a considerable amount of time for BofA to recover. The key issues slowing this recovery are the ongoing legal and regulatory issues and the costs of maintaining its legacy assets and meeting the conditions of the federal bailout package. I would be interested in your take on BofA and what believe its fair value to be?
    Nov 7, 2012. 03:00 AM | Likes Like |Link to Comment
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