pelican

Bank of America: Common Equivalent Units Mean Forward Equity

"...why the common is rallying given the coming dilution is beyond me. Sure, it throws off the yoke of the government (to a degree) but dilution is dilution."

Its not just dilution, its the amount of dilution vs. the benefits from paying back TARP now. First, they don't have to pay the annual $3b+ in preferred dividends. Second, presumably the pool of qualified CEO candidates grows, it enhances the chances that the new CEO will add value. In addition, BAC will be able to retain top talent. Third, BAC can deal with the government in a more strengthened position. Finally, a stronger balance sheet could command a higher p/e/ multiple offsetting any EPS dilution effect. That said, I noticed that several analysts actually raised their EPS projections after the announcement.

Earlier this year BAC sold equity at $11/share and the shares continued to rise. I would argue that based on p/bv, p/tbv, p/peak earnings, etc., that prior to the announcment BAC was very cheap on an absolute basis and relative to its peers, but it was being pressured by uncertainty over TARP, the new CEO, and the economy in general. Despite the 13% dilution, if things continue to improve I think it still is.

Bank of America's TARP Repayment Bodes Well

You're right Mark, but I suspect you will get naysayers appearing shortly to bash the move (or BAC in general), perhaps focusing on the dilution which, in my view, isn't that egregious given the company's earnings power. BAC is now better capitalized than JPM, and the hunt for a new CEO may be quicker and smoother going forward. Actually, I wonder if they've nearly decided the next CEO but had to wait to clear the TARP hurdle.

The current landscape is still not great for BAC but its been improving. One year ago those bullish on the company looked too much at BAC's successful past and underestimated the seriousness of events that were occurring. Perhaps the bears are doing the same thing now; that is, looking too much in the rear view mirror.

The Economy, And Why It's Taking So Long to Fix It

This was a good article. And it didn't pretend to have all the answers. No one knows what to do, and if they say they do, they really don't know how their solutions will play out. That said, momentum will change once the economy recovers and asset prices stop falling. We're in a cycle and, unfortunately, the worst part of it. But storms past and damage gets repaired bit by bit. It took three years (August 1929 - July 1932) for the stock market to bottom during the Great Depression. Since things are at least not that bad, I think the stock market will bottom some time during the second half of this year (two years after it peaked). The 2000-2002 bear market was long because stocks were vastly overpriced (at least growth equities). Not the case these days. As the author noted, if your time horizon is a bit longer, things look better.

Slow Down Mr. Roubini

I enjoy your articles including this one. The difference is, in large part I can't agree with you.

But first, is it correct that Roubini has been a bear for over a decade? I ask because it is the first time I've heard that.


>>>In fact, it looks like he's already wrong--the White House has publicly announced it will not nationalize banks and has taken action to prop up Citigroup.

***As far as I know, the White House has used to language to indicate they would prefer to follow this or that course and not nationalize. But I haven't yet heard them say they will absolutely not consider nationalization. Have you? Just a reminder, we heard a lot of talk about FNM and FRE before they came under government control. That wasn't a full nationalization but I don't expect one to occur with C or BAC either. I expect something akin to AIG. C is looking for the government to take a 40% stake. That could increase over time. Who knows?

Maybe there is a degree of hysteria going here. On other hand, maybe some are not coming to terms with how deep this crisis is because it is so unfamiliar. Hard to imagine C or BAC being nationalized but economic history is full of shocking occurences. I'm still a little stunned about AIG. Anyway, I see your point about the rapidly rising level of pessimism.

Bank of America Continues to Stand Strong

Well, I know how to get a lot of thumbs up on this topic. Just be pro-BAC and lean left politically. Wow.

I was the first to post but I forgot to mention I actually own BAC (worth so little now). Yet, I still think many longs are not looking at this objectively enough (here come the "thumbs down"). I can understand holding the common at this point because its so beaten down you might as well let it ride (I am). But I still think the chances of some form of nationalization are in the cards (see the first post above). It appears Citibank took another step toward an AIG like quasi-nationalization and BAC may be the next one up. Good luck.

Bank of America Continues to Stand Strong

Two of the three reasons you give for BAC being down seem insignificant to me. No one knows how much impact the subpeona had but I think most people understand what that means, and in my view it had little to do with Friday's price action. In addition, while the DJIA was down 6% for the week, BAC closed down over 30% (more than 50% at one point). So this isn't really about a down market. BAC has been tumbling because of nationalization fears. That's largely the reason.

Many of your arguments that BAC will not be nationalized are the same ones we've heard before from other CEOs except in those cases the struggling company was either bought out at penny stock prices, succumbed to a form of nationalization, or they went bankrupt. And I doubt anyone thinks Ken Lewis is a paragon of honesty. I stopped taking what he says seriously a while back. As for the government, what did you think the White House would say? Remember what they said about FNM and FRE? Have you noticed they have yet to completely rule out nationalization? Ask yourself why.

No one - including myself - knows what will happen to BAC. My sense is the Obama Adminstration will do various things to buy time and only as a last resort will they opt for some form of nationalization. Even the government can do only so much and if the recession gets deeper they may have to cut bait.

You may eventually be right but the arguments you use to support your opinion seem weak and given where you work perhaps lack objectivity.

Alternative Buyers for Lehman (and Not Just the Usual Suspects)

Drivel.

Mother of All Short Squeezes?

Great article, Matt. Lots of interesting responses from people too.

10 Top Dividend Stocks of the S&P 500

Are those dividends safe?