Bank Of America: Large Gains Likely From Increasing Margins [View article]

Josh, Why don't you write about the "disallowed" deferred tax asset (DTA)? As it becomes monetized, it can be paid out to shareholders as a dividend -- after all, it doesn't count toward their capital. It's a hidden asset.

It stands at $13.939 billion per the Q3 10-Q, page 73.

The asset gets monetized as the bank earns taxable income. It represents $13.939 billion of taxes that they will be holding onto instead of sending them to the US Treasury. They will pay it out to shareholders instead.

They will be generating $2 of capital next year from earnings if you assume a 30% tax rate and $1.40 per share net income in FY2014 (Bernstein's estimate). That's 60 cents boost from the DTA monetization.

Then in FY2015, Bernstein estimates $1.60 in earnings, which is $2.28 per share that can be returned to shareholders (using more of the DTA).

There would still be some DTA left over to use up in 2016, a year in which analyst consensus is for $1.80 per share in earnings.

You get the picture right? The company will be generating $2 in 2014, then $2.20 in 2015, then $1.80 in 2016...

That's $2 average per year and the stock right now trades at only 8x that.

Bank Of America: Fully Valued At $15 Per Share [View article]

Or you can just put a 12x P/E on the 2016 $1.80 consensus earnings figure and adjust for the relatively lighter 2014 earnings of $1.40 and 2015 earnings of $1.60.

So you wind up with $21.60 less 60 cents (40 cent discount for 2014 and 20 cent discount for 2015).

So a $21 stock. Then just assume the DTA gets used up on legal expenses.

Bank Of America: Fully Valued At $15 Per Share [View article]

Bernstein estimates $1.40 2014 after-tax earnings -- this is really $2 per share due to DTA usage. Bernstein estimates $1.60 after-tax for 2015 earnings -- this is really $2.28 utilizing the DTA again.

Bank Of America: Earnings Were Not As Good As You Thought [View article]

Take the 30 analysts' estimate for $1.34 EPS in 2014.

Divide it by 0.70 and arrive at $1.91 per share.

That is the amount the 30 analysts estimate that BAC will earn in 2014 on a pre-tax basis.

Due to the deferred tax asset, BAC shareholders will be keeping the estimated $1.91.

Plus, 30% is a light tax rate for BAC -- so the pre-tax earnings estimate is actually a bit higher than $1.91.

Therefore, the stock trades at roughly a 12.6% earnings yield this morning. Or roughly 7.9x earnings.

The same holds true for 2015, except the pre-tax earnings go higher. They will still be chewing through that DTA in 2015. By the time 2016 rolls around, they should be through the DTA but the earnings per share should be up to the $2 per share after-tax range after having repurchased shares, retired preferred, rolled off LT debt, reduced LAS expenses, and completed newBAC cuts.

So you've got the grounds for $28 per share in 3 years... you get the first $24 from 12x the $2 EPS estimate for 2016, and then you add in the $2 average per year earned in 2014 and 2015.

So there you have it. 86% upside from here in 24 months.

Bank Of America: Substantial Upside From Earnings Leverage [View article]

You mentioned deposit growth, but didn't point out that the deposit mix has improved. Greater reliance on non-interest-bearing deposits and less reliance on expensive certificates of deposit.

This has led to declining cost of deposits, and will be most noticeable in a rising rate environment. Competitors who rely on relatively short-term certificates of deposit for funding will pay a much higher price when they are renewed at higher rates.

Bank Of America: Why The 'Dead Money' Thesis Is Short Sighted [View article]

Here's what is missing from the last few articles.

Let's say in 5 years' time the Fed base rate is back to 2%.

First, take a look at the size of their non-interest-bearing deposit base. Now realize that the cost of these deposits do not rise with rising interest rates -- so you invest/lend the deposits at higher rates, but you do not pay more to the depositors.

This is what Bruce Thompson is talking about when he says every 100bps parallel shift in interest rates will benefit net interest income by $3.7 billion.

That's $7.4b billion (roughly) increase to NII when rates are back at 2%.

About 45 cents (after tax) per fully diluted share. Or, about $5 of share price appreciation at 11x earnings multiple.

I'm surprised this isn't discussed in the recent BAC articles.

Bank Of America: Dead Money At Best [View article]

Regarded Solutions,

Have you estimated how much net interest income will rise when, in 5 years let's say, the Fed base rate is back to 2%?

A huge chunk of their deposit base is non-interest-bearing. They invest it in a short-term securities portfolio (less than 2 years duration), among other things. Right now the spread on that is tiny -- it is not going to get smaller. So you have only upside risk to that spread.

## Bank Of America Should Trade Below Book [View article]

However, they are only expected to earn $1.34 in 2014 and $1.60 in 2016.

So subtract out 66 cents to account for the sjhortfall in 2014 and 2015.

That brings you to $20.94.

There is $13b worth of DTA as margin of safety.

## Can Bank Of America Double After Resolving Legal Issues? [View article]

## Bank Of America: Large Gains Likely From Increasing Margins [View article]

Why don't you write about the "disallowed" deferred tax asset (DTA)? As it becomes monetized, it can be paid out to shareholders as a dividend -- after all, it doesn't count toward their capital. It's a hidden asset.

It stands at $13.939 billion per the Q3 10-Q, page 73.

The asset gets monetized as the bank earns taxable income. It represents $13.939 billion of taxes that they will be holding onto instead of sending them to the US Treasury. They will pay it out to shareholders instead.

They will be generating $2 of capital next year from earnings if you assume a 30% tax rate and $1.40 per share net income in FY2014 (Bernstein's estimate). That's 60 cents boost from the DTA monetization.

Then in FY2015, Bernstein estimates $1.60 in earnings, which is $2.28 per share that can be returned to shareholders (using more of the DTA).

There would still be some DTA left over to use up in 2016, a year in which analyst consensus is for $1.80 per share in earnings.

You get the picture right? The company will be generating $2 in 2014, then $2.20 in 2015, then $1.80 in 2016...

That's $2 average per year and the stock right now trades at only 8x that.

## Bank Of America: Fully Valued At $15 Per Share [View article]

You can't base the valuation of the company on 2014 earnings, when the earnings are depressed by short-term problems. Everybody else knows that..

## Bank Of America: Fully Valued At $15 Per Share [View article]

So you wind up with $21.60 less 60 cents (40 cent discount for 2014 and 20 cent discount for 2015).

So a $21 stock. Then just assume the DTA gets used up on legal expenses.

## Bank Of America: Fully Valued At $15 Per Share [View article]

1) put 12x multiple on it, and you've got a $21.60 stock price

Then ask if it should be discounted for the "lighter" 2014 and 2015 earnings.

Well, because they don't need to pay any taxes (using up the DTA), the capital generation in 2014 is roughly $2 per share and roughly $2.20 in 2015.

So no discount necessary. You can justify a $21.60 price today on a modest 12x P/E.

## Bank Of America: Fully Valued At $15 Per Share [View article]

You have to remember that they can write off past losses against future earnings. BAC has a lot of past losses to use up in this capacity.

Bernstein's estimates that BAC will earn $2 in 2014 (before taxes). BAC won't be paying taxes, therefore they will be earning $2.

## Bank Of America: Fully Valued At $15 Per Share [View article]

So if they're earning $2 in 2014, $2.28 in 2015, and more than $1.60 in 2016, then really this is at least a $20 stock.

## Bank Of America: Fully Valued At $15 Per Share [View article]

## Bank Of America: Earnings Were Not As Good As You Thought [View article]

Divide it by 0.70 and arrive at $1.91 per share.

That is the amount the 30 analysts estimate that BAC will earn in 2014 on a pre-tax basis.

Due to the deferred tax asset, BAC shareholders will be keeping the estimated $1.91.

Plus, 30% is a light tax rate for BAC -- so the pre-tax earnings estimate is actually a bit higher than $1.91.

Therefore, the stock trades at roughly a 12.6% earnings yield this morning. Or roughly 7.9x earnings.

The same holds true for 2015, except the pre-tax earnings go higher. They will still be chewing through that DTA in 2015. By the time 2016 rolls around, they should be through the DTA but the earnings per share should be up to the $2 per share after-tax range after having repurchased shares, retired preferred, rolled off LT debt, reduced LAS expenses, and completed newBAC cuts.

So you've got the grounds for $28 per share in 3 years... you get the first $24 from 12x the $2 EPS estimate for 2016, and then you add in the $2 average per year earned in 2014 and 2015.

So there you have it. 86% upside from here in 24 months.

## Bank Of America CEO Under Pressure [View article]

Oh ye of little patience... You won't be saying that four months from today when it's up 350% on a five year timeframe.

## Bank Of America: Substantial Upside From Earnings Leverage [View article]

This has led to declining cost of deposits, and will be most noticeable in a rising rate environment. Competitors who rely on relatively short-term certificates of deposit for funding will pay a much higher price when they are renewed at higher rates.

## Bank Of America: Why The 'Dead Money' Thesis Is Short Sighted [View article]

Left unstated in my post is that I assume the tax assets will be all used up by the time there is a 200 bps parallel shift.

## Bank Of America: Why The 'Dead Money' Thesis Is Short Sighted [View article]

Let's say in 5 years' time the Fed base rate is back to 2%.

First, take a look at the size of their non-interest-bearing deposit base. Now realize that the cost of these deposits do not rise with rising interest rates -- so you invest/lend the deposits at higher rates, but you do not pay more to the depositors.

This is what Bruce Thompson is talking about when he says every 100bps parallel shift in interest rates will benefit net interest income by $3.7 billion.

That's $7.4b billion (roughly) increase to NII when rates are back at 2%.

About 45 cents (after tax) per fully diluted share. Or, about $5 of share price appreciation at 11x earnings multiple.

I'm surprised this isn't discussed in the recent BAC articles.

## Bank Of America: Dead Money At Best [View article]

Have you estimated how much net interest income will rise when, in 5 years let's say, the Fed base rate is back to 2%?

A huge chunk of their deposit base is non-interest-bearing. They invest it in a short-term securities portfolio (less than 2 years duration), among other things. Right now the spread on that is tiny -- it is not going to get smaller. So you have only upside risk to that spread.