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  • Bank of America (BAC +0.8%) will sell its Irish consumer credit card unit to Apollo Global (APO), the latest business unit sale by a shrinking BofA. The bank still plans to work with corporate clients on credit cards around the globe, but doesn’t think the international business, which was acquired when it bought credit card giant MBNA, is worth continuing.  [View news story]
    BAC has devolved into another dead-weight Government Sponsored Entity a/k/a GSE-zombie bank. This essentially insolvent "systemically important financial institution" is in the process of "orderly liquidation" - not so much on behalf of common stockholders as it is on behalf of the regulators - as a regulatory liquidation would most likely be disruptive to the market and would result in a greater loss to the Deposit Insurance Fund.

    BAC's "passing" the stress test merely gives regulators the cover they need to avoid a regulator-directed BAC liquidation.

    The Fed's qualified acceptance of BAC's capital plan, submitted pursuant to the most recent so-called "stress test", is contingent upon BAC meeting asset liquidation benchmarks and raising capital as set forth in its capital plan. Otherwise, BAC's capital plan would not have been accepted because it could not have "projected" the minimum regulatory capital requirements.

    The high level of subjectivity and "regulatory discretion" involved in TBTF bank accounting cannot be overstated.

    Excessive and unmanageable risks notwithstanding, those so disposed may continue to load up on BAC common stock.
    Mar 21 11:38 AM | Likes Like |Link to Comment
  • Why You Shouldn't Be Buying Stocks [View article]
    Time.
    Feb 26 09:45 AM | 1 Like Like |Link to Comment
  • Chesapeake Energy: A Speculative Investment [View article]
    AAA rated article on a below investment grade company. Thanks.
    Feb 15 10:28 AM | Likes Like |Link to Comment
  • The Greek De Facto Default [View article]
    I essentially agree; but, rather than corporatism, what you and Avery Goodman are describing is "capitolism", a politically corrupted form of capitalism.
    Feb 14 11:10 AM | 4 Likes Like |Link to Comment
  • Fairholme Funds' Bruce Berkowitz reaffirms his confidence in Bank of America (BAC +3.3%), saying "it doesn’t get any better when it comes to value investing" in noting tangible book value of $12-$13/share and earnings power of $4/share. On ongoing BofA litigation, he says the bank already has reserved for most of any settlement money. (earlier)  [View news story]
    1. “Analysts aren't professional investors.”

    I was responding to your original comment stating “The whole of the professional investment community…”.

    So, you don’t consider the professional bank securities analysts I referenced, who are quoted in the WSJ and other major financial media, are part of “the professional investment community”. I believe they are – no problem – we just disagree on that.

    2. "The stock price is going up. When a company is going bankrupt the stock price tends to reflect that by going down."

    BAC has declined by a far greater amount than it has recently risen. My position is that, the fact that the BAC stock price has recently increased is primarily due to a phenomenon which is referred to as “the greater fool theory”. http://bit.ly/yzkaeA

    It is also due to BAC buyers who logically think that if professional investors (such as Berkowitz) thought BAC was a good buy at say, $15/share, it MUST be a heck-of-a buy at $5.50. Just like the greater fool theory, sometimes it works, sometimes it does not. I prefer to invest or trade based on what I can reasonably confirm to be the best fundamental analysis available.

    3. Sheila Bair and Tim Geithner???

    Re: Geithner. I agree with him only to the extent that I quoted him - that HOPE is not a business strategy. You apparently think that HOPE is a business strategy. No problem – we just disagree on that point.

    Re: Bair. Sheila Bair knows far more about the earnings power potential and financial viability of BAC than does the “whole of the professional investment community” (including Buffett & Berkowitz); and, she considers BAC to be a zombie bank. To that extent, I agree with her – and the day will come when you do, too.

    “Seriously??” Seriously
    Feb 9 01:02 PM | 1 Like Like |Link to Comment
  • Fairholme Funds' Bruce Berkowitz reaffirms his confidence in Bank of America (BAC +3.3%), saying "it doesn’t get any better when it comes to value investing" in noting tangible book value of $12-$13/share and earnings power of $4/share. On ongoing BofA litigation, he says the bank already has reserved for most of any settlement money. (earlier)  [View news story]
    DeepValueLover - “The whole of the professional investing community seems to strongly disagree with your analysis.”

    Response: Mike Mayo, the well-known bank analyst at CLSA (a division of Credit Agricole), accuses banks of papering over the deteriorating performance of their businesses:

    The [reserve] releases are "masking some horrible operating performance," said Mayo. "The bottom line is your earnings power is decreasing." Bank of America Corp.'s $906 million after-tax reserve release was 46% of its $2 billion fourth-quarter profit.

    Read more: http://bit.ly/wK8LzL

    Also, according to Paul Miller, an analyst at FBR Capital Markets Corp.,

    “The HARP 2 program is a much bigger deal than people thought, and Bank of America is dysfunctional to begin with. This is a result of getting out of the business at the exact time they should be getting into the business.” http://bloom.bg/zIdyGZ

    DeepValueLover - “If BAC was ever going to go out of business it would have been during the crisis.”

    Response: To the contrary – that’s why BAC was referred to as “too big to fail”. Of course, that was before Dodd-Frank, which now requires the “systemically important financial institutions”, such as BAC, to provide the regulators with a detailed process for liquidation when called upon to do so. It is my understanding that BAC dutifully submitted its “living will” to the FRB, the FDIC and the OCC last month.

    DeepValueLover - “Now with the crisis over there is NO CHANCE that BAC will go out of business any time soon.”

    Response: Again, to the contrary – the crisis has only been postponed by the introduction of trillions of dollars of liquidity into the financial system. BAC was one of several essentially insolvent banks that pawned unmarketable assets to the FRB in exchange for hundreds of billions of dollars with the HOPE that it would buy enough time for the banks to recapitalize or provide for their more orderly liquidation. BAC has thus far been unsuccessful in recapitalizing to the satisfaction of the regulators. As Treasury Secretary Geithner so astutely noted back in the fall of 2008, “HOPE is not a business strategy”.

    Those of the “professional investing community” who are seriously considering buying the common stock of large banks may want to read “Zombie Banks”, by Yalman Onaran and Sheila Bair (former FDIC Chairman) – especially if they intend to invest their own money.

    Nothing against hedge funds that rely heavily on the greater fool theory of “investing”; but, when it comes to banks, I’ll take Ms. Bair’s opinion over Mr. Berkowitz’s any day.
    Feb 8 10:42 PM | 1 Like Like |Link to Comment
  • Fairholme Funds' Bruce Berkowitz reaffirms his confidence in Bank of America (BAC +3.3%), saying "it doesn’t get any better when it comes to value investing" in noting tangible book value of $12-$13/share and earnings power of $4/share. On ongoing BofA litigation, he says the bank already has reserved for most of any settlement money. (earlier)  [View news story]
    If by “bankrupt”, you mean essentially insolvent – yes, they are “bankrupt” now – the market has just not yet recognized it yet (to paraphrase what Mr. Berkowitz said about his Sears investment in his Fairholme Funds interview today). The market will recognize BAC’s essentially insolvent condition by the 2nd or 3rd quarter.

    Also, Mr. Berkowitz’s claim that BAC has earnings power of $4/share is also incorrect – perhaps due to his normalcy bias, as was painfully evident in his interview today. http://bit.ly/z8ldr0

    An unbiased analyst would realize that BAC’s earning power is declining because BAC is shedding earning assets as soon as they can find compliant buyers precisely because they don’t have – and can’t raise - enough capital to support their balance sheet; the same reason they are prohibited from paying dividends on common stock.

    BAC can’t even operationally support home mortgage refinancing opportunities – a very high margin business, especially when done legally.

    According to Paul Miller, an analyst at FBR Capital Markets Corp.,

    “The HARP 2 program is a much bigger deal than people thought, and Bank of America is dysfunctional to begin with. This is a result of getting out of the business at the exact time they should be getting into the business.” http://bloom.bg/zIdyGZ
    Feb 8 04:41 PM | 1 Like Like |Link to Comment
  • A Critical Look At Bank Of America's Reporting [View article]
    Why hasn't/doesn't BAC execute a reverse stock split, as did C when its stock was trading in the $5 range?
    Dec 22 12:17 PM | Likes Like |Link to Comment
  • Bank Of America: Piercing Its 'Opaque' Balance Sheet - Part II [View article]
    Why hasn't/doesn't BAC execute a reverse stock split, as did C when its stock was in the $5 area?
    Dec 22 11:10 AM | Likes Like |Link to Comment
  • BofA (BAC) is close to settling a DoJ probe into whether Countrywide violated fair-lending practices, Bloomberg reports. The speculation comes as the White House increases scrutiny on banks to prevent redlining - excluding borrowers in low-income or minority neighborhoods - and pricing discrimination.  [View news story]
    Under current regulations, legitimate banks and mortgage companies simply cannot price subprime loans sufficiently high enough to compensate for the related risks. Accounting rules will, however, allow higher risk loans to appear profitable as the overall portfolio shows sufficient growth. When the high-risk portfolio ceases to grow, and there is no greater fool upon which to offload the portfolio, it is not cash flow sustainable and the losses will eventually become manifest.
    Dec 21 10:52 AM | 3 Likes Like |Link to Comment
  • How Japan Escaped A Depression [View article]
    Does Japan calculate its GDP in a comparable way to the US? Does public sector spending (borrowing) in Japan substantially contribute to Japan's GDP performance illustrated in your graphs?

    Thanks for another very thought-provoking article - looking forward to your next one.
    Dec 7 02:26 PM | 1 Like Like |Link to Comment
  • It's Time To Short The S&P 500 If You Think Economy Will Contract In 2012 [View article]
    SPX (close) 1280 - 1290 max thru Jan 15, 2013; anything higher is bulltrap! Caution: historical (lack of) performance is no guarantee of future results - hopefully...
    Dec 6 07:35 PM | 1 Like Like |Link to Comment
  • Bankers! To the Barricades! (Again) [View article]
    I respectively disagree that The GROCAP Solution is "far too complicated". To the contrary, A GROCAP loan would be less complicated for the borrower, the bank and the plan administrator than a typical SBA loan or even a CRA loan. It would be far less complicated than Treasury's recently failed Small Business Lending Fund program.

    Further, The GROCAP Solution could be implemented without Congressional approval (i.e. Congressional corruption) as was required for Treasury's SBLF and as also would be required for the myriad of fiscal reforms being currently posited by both parties.

    Consequently, The GROCAP Solution would be far LESS complicated and far MORE effective in supporting real economic growth than any monetary or fiscal policy implemented to date.

    I respectfully challenge anyone to submit a more actionable, fiscally responsible and effective monetary or fiscal policy plan than The GROCAP Solution. http://seekingalpha.co...
    Nov 24 01:32 PM | Likes Like |Link to Comment
  • Bankers! To the Barricades! (Again) [View article]
    Good takeaways from the FDIC’s Q3 2011 “Quarterly Banking Profile” released yesterday. As you know, the FDIC’s “Quarterly Banking Profile” is much more meaningful than a survey, because it’s an exhaustive compilation of the actual financial information taken from all FDIC insured institutions’ quarterly Call Reports.

    Collectively, the US commercial banking system is insolvent – it has simply not been recognized as such for obvious reasons.

    Your point that loan loss provisions at domestic banks have fallen over 74 percent reflects the absolute desperation on the part of the banks and their regulators to maintain the façade of solvency. The FDIC is itself insolvent and could not afford to close one regional bank without accessing it’s US Treasury credit card. But for the FDIC’s reduction in its bank loss provisions account, the Deposit Insurance Fund would have remained negative - not good for appearances. And if the FDIC can do it to appear solvent, why not the banks?

    The FDIC and other bank regulators have allowed the banks to reduce their loan loss provisions in order to buy time, hoping for an economic turnaround that would support a banking system recovery. As Tim Geithner has famously been credited with saying, “hope is not a business plan.”

    “Hope” will run out, along with the banks loan loss provisions, within the next couple of quarters – which brings me to the “stress tests”.

    The recently announced new round of “stress tests” is most likely, in part, the pretext for an orderly liquidation of BAC. BAC will be the first bank to execute the "living will" which was incorporated into Dodd-Frank; during which time, BAC will be sacrificed for the benefit of - and cannibalized by - C, JPM, WF, GS, and MS.

    On a more positive note, it is somewhat encouraging to hear that the FOMC is not attempting to manipulate nominal GDP and is refocusing towards a much stronger commitment to lower unemployment - finally. The most effective way to do this would be for the FOMC to implement monetary policy initiatives that accommodate small business access to credit for real investment in the real economy versus policies that simply add more and more and more … financial system liquidity. My plan, The GROCAP Solution, would provide the means for community and regional banks to prudentially extend such credit to small businesses without incurring any federal spending. http://seekingalpha.co...

    Thanks for allowing me to comment on your timely and substantive article.
    Nov 23 01:45 PM | Likes Like |Link to Comment
  • The Real Reason the 'Voluntary' Greek Haircut Is Hurting The Market [View article]
    Thanks for your article. I agree with you (perhaps for different reasons, as you are much better informed and more knowledgeable) and doubt that " the IIF deal will ever be completed". Your article confirms to me that, if in fact, Greece is the true sovereign with respect to the ultimate resolution of its existing bonds, it will default, exit the EU, reinstate its own currency, and issue new bonds at some point, supported in part - at least initially - by its gold reserves. What do you predict will be the ultimate resolution of the Greek bonds?
    Nov 22 01:27 PM | Likes Like |Link to Comment
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