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M-P

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  • Thain's Undoing: Thinking He's Worth It [View article]
    Bottom line, smarts are not enough. There are plenty of high IQ people who make dumb decisions (at some point). In actuality, the higher your IQ - in general - the more likely you are to having a hardening of the attitudes - there is a relatively strong correlation with one's IQ and their willingness to incorporate contradictory opionions. What is means to be "smart" is another question. It's one thing to spend your own money on whatever you want - I don't really care - but when you spend taxpayer or shareholder money on excess, it calls attention. What makes you great can also be your downfall - many executives have hubris, ego and confidence. Like most things, some is good, but more is not necessarily better. Dose-response issue.
    Jan 26, 2009. 08:37 AM | Likes Like |Link to Comment
  • John Thain Called Out by the President [View article]
    Basically, Thain is emblematic of the rotten corpse. He at first asked for his $10m bonus - didn't see any issue with it - and then backed down given the public outcry. He then pays out bonuses early so he can get in under the BAC wire. I have no issue with paying for performance, but basically, ML, C, and others should, by all intents and purposes, be bankrupt. They gambled on some risky bets and lost. See long term capital management for another example. If you start perverting the risk-reward curve (more risk = potentially more return), then you might as well stop trying to predict, because the relationship breaks down.
    Jan 24, 2009. 11:37 AM | 1 Like Like |Link to Comment
  • Bank of America: Optimism Is Unwarranted [View article]
    I like this piece as I've been looking at BAC for months now ... the difference between this piece and others is that the author has some basis for his recommendation and opinion - and the basis can be verfied and is objective. Given the risk-adjusted value of their recent acquisitions, it appears that BAC paid too much for Countrywide and ML. The amount of Level 3 assets - mark to model assets - are troubling. When times are tough, most banks go down to their tangible book value. For BAC, that's around 10. However, given the Level 3 asset exposure, you could discount the book by 20 to 30%. They are probably a great buy - with a year or two time horizon - at 8 or so. In the long term, I think they will do well and go back to the 20's, 30's, and beyond. The up-sell and cross-sell potential is signficant - if they can figure how to have a single view of the customer, BAC will be dangerous. The biggest issues for them going forward - in the near term - are capping their exposures and learning to integrate and execute against the assets and entities they've acquired. I'd be watching customer retention, products per customer (wallet share), and exposures.
    Dec 23, 2008. 03:12 PM | 1 Like Like |Link to Comment
  • Ken Lewis on Bank Accounting: Sensible Talk from a Surprising Source [View article]
    Per other comments that Lewis has made, he often seems to be blaming things external to his firm and himself for BAC's issues. I'm not sure I find this comforting (cf. the language of Buffett in his annual reports). Bottom line, the mark to market is an issue because he bought highly risky assets that the firm didn't understand, with high levels of correlated risk. The reserve piece is not so atypical for a firm that is significantly impacted by the business cycle. The issue is to assume we will have "fat tails" and a black swan will happen. All reserves should have a contingency for those improbable events. Also, statements at one point in time are meaningless - let's look at the behavior and trail of statements to understand the real theme and message. A more holistic perspective and evidentiary base is needed.
    Dec 5, 2008. 11:09 AM | 1 Like Like |Link to Comment
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