DannyBoy153

Conflict of Interest?

Interesting article Jim. Seems like the House has more than the taxpayer's interest at heart when attacking the financial industry.

How TARP Paybacks Expose Weakest Banks

Jasper,
1) Not years of inventory, try "only" 9 months worth of inventory at currents rates at the end of April 2009. 10.1 months of supply if seasonally adjusted. In January 2009, it peaked at 14.3 months of supply, 12.4 seasonally adjusted. Highest level since 1973-1974. If construction continues to slow, this rate will continue to get lower. The law of supply and demand was in effect when prices fell and it will be in effect when prices rise.

2) Again wrong. The issue in court right not is not over if the Merrill deal was a good purchase, if losses where fake or real, or what's on Merrill's books... The issue is did the government over stepped its boundaries, why didn't Ken use the MAC clause since he had a fiduciary responsibility to do so, etc.

You gotta pick up an accounting book...or google the term "purchase account". I'm not going to assume this or that, I trust our accounting system. If you see something fraudulent that's back by facts and no "he say she say", then maybe I'm missing something.

I'll give you the last comment and I think we can just agree to disagree.

The Case for Allowing TARP Repayments

Wonder if anyone caught the Merrill Lynch report this morning? They trimmed the earning estimates of many bank holding companies and brokerage firms like JPM and GS due to their TARP repayment. I'm glad I'm not the only one who thought TARP was cheap capital.

Revisiting the Merrill Acquisition

Great comment Carolina. I agree.

Revisiting the Merrill Acquisition

We can not assume anything when it comes to issues as big as this.

Let me ask everyone what would you do if you where in Ken's shoes.

On the one hand, the financial system was on the verge of collapse. Lehman was smaller than Merrill and look what happened when it collapsed. Can the system survive another BIGGER hit? How many more US citizens would loose their job, their home and are unable to feed their families? What would unemployment rate be at now? How much more tax payer's dollars would the government need to spend to bailout other institutions due to their counter party risk with Merrill? How much worse would our government debt be? What will future inflation be like? Would other countries continue to buy our Treasuries? Etc, etc, etc...

On the other hand, you have your shareholder's interest at heart. You know that Merrill would eventually contribute to your future earnings (and it did) but the current losses were so painful. You know that if losses were worst, it might take you down with it, but the government was willing to back stop such losses. You know that even if you use the MAC clause, it wasn't 100% assured because you would need to go through the process of proving it was so. If you failed to prove the MAC clause was actually there, you would still have to go through with the deal but your board, management, and BAC would be view as weak.

So what would you do? Me? I'd do exactly what Ken did and take one for the team. Painful, shit yeah, but I'm not the only person in this world am I?

DIY Stress Test 2: Final Spreadsheet

"Beware of geeks bearing formulas" - Warren Buffett

How TARP Paybacks Expose Weakest Banks

Jasper,
1) Time will tell if the real estate prices will get back to what it is on the books and I'm betting it will. Over time, demand for real estate will only increase.

2) MER was taken over 1/1/09. Before that it was not on BAC's balance sheet. Purchase account requires that MER be written down to market when acquired so to say Q1 profits are phony and the company is still sitting on losses is...shall I say wrong?

So back to mark to market: When companies mark their assets up to market, their profits are fake. When companies mark their assets down to market, their losses are real. Seems to me that your argument for mark to market is a little bias.

Certain Banks Are Still Broke

Any bank? Please clarify some more. C didn't make any money for it's common shareholders. And how about all the failed banks? In this environment of steep yield curve, how can a bank make money if it's not in business? It takes a lot more than a steep yield curve to make money.

Mer added $3billion in the first quarter to BAC's bottom line and they'll add more earnings in the future.

How TARP Paybacks Expose Weakest Banks

Jasper,
I won't comment any more on market efficiency, but I would like to point out that saying "aggregate real estate prices would Never get back to where they were" is kind of over stating it. Never is a long time and with inflation at...say 4%...and no thought to appreciation, current prices will double in 19 years, triple in 29, quadruple in 37, quintuple in 42, sextuple in 47, septuple in 51, octuple in 54...need I go on?

Merrill contributed more than $3 Billion to net income in the first quarter and it will contribute more in the future. I guess what's trash to you is gold to me...and $3 billion buys a lot of gold.

Certain Banks Are Still Broke

Like I say, WFC and BAC made BILLIONS last year and in the first quarter. These two bank's earning power has grown. Their stock will follow.

Brk.a is trading at the same level as 2006. No where near it's 10 year low. I'm serious, do people check facts before they write anything?

Certain Banks Are Still Broke

WFC, BAC, and C will survive. C will be smaller with major dilution to current shareholders. WFC and BAC made BILLIONS last year and in the first quarter. These two bank's earning power has grown (along with JPM but JPM seems to be getting by with little press).

Ten Banks Escape from TARP: Reason to Celebrate?

C and WFC didn't apply for TARP repayment, no word on BAC as why they didn't repay. C needs the fund because part of the TARP will be converted to common. WFC needs the money because it's making money on the the cheap capital (by my crude estimate, a potential $2 billion+ per year by using $25 billion of TARP equity at 5%).

The Case for Allowing TARP Repayments

It seems to me that banks that are in a rush to pay back cheap capital isn't so smart after all.

The Case for Allowing TARP Repayments

Guys, lets not forget that TARP was also intended to increase bank's lending power. I read in the Wall Street Journal this morning that WFC did not apply to have it's TARP funds repaid.

"Wells Fargo spokeswoman Julia Tunis Bernard said the bank wants to pay back TARP 'at the earliest practical date,' but hasn't applied to do so because the capital is being used for loans to 'creditworthy customers.'" -WSJ

How TARP Paybacks Expose Weakest Banks

Jasper, thanks for your thoughts. In response;
1) Mark to Market is a good concept, but only when markets are efficient. Market efficiency is a widely debated topic so I will simply state my position: Markets are efficient BUT not all the time. Buffett and Munger are believers in this as well. When the market misprices an asset you believe is worth more, you buy it. When Buffett bought the Washington Post, he believed the true value was somewhere in the neighborhood of $400 million, but in the market, it was selling for $100 million; one of his best stock pick. Munger has said he got rich by having money laying around at low interest rates and buying when he sees opportunity; in other words, when assets got mispriced.

So the question is, was the market efficient enough to price the assets on the bank’s books. In my opinion it was not. Fear was high, trade volume on those assets were low to nil, there was a huge gap between the price of a willing buyer and a willing seller, etc.

Buffett is a believer in Mark to Market because he believes people might put false figures on the balance sheet. He would rather have the balance sheet at Mark to Market and have management explain what they think those assets are worth. But guess what, many don’t read management’s discussion filed in their 10k’s so Mark to Market, when markets are inefficient, has problems of its own that can possibly lead to more distress. In my opinion, what banks have on their books is more reliable than what the market is currently pricing it at.

2) Merrill was a good acquisition. Good in that it added to earnings in the first quarter and will add more in the future. Not GREAT because it was bought expensively and used common stock.

Good short call on BAC. But I would argue that you were right on the market being fearful and inefficient rather than right on BAC being a bad bank.