BAC - Turkey or undervalued?

[Storm]

Some financial analyst was on Bloomberg this morning saying that at 6.50 a share BAC's market cap is less than half of the value of their legitimate assets - I assume he was saying that this valuation doesn't count all of their delinquent mortgage debt.

If this is true, wouldn't BAC be a great buy right now?  Apparently even if they went into bankruptcy at a firesale they could still get twice their stock value...

Either the systemic risk is really going to kill BAC or it's a great buying opportunity.  I don't know enough about financials to invest or not, but I would appreciate it if someone else had some insight about this stock.

[MediumTex]

BAC is a piece of garbage.  I wouldn't touch any of those financials with a ten foot pole.

When a bank can value its assets however it wants to on its balance sheet (as opposed to marking them to market), who knows what any of those companies are really worth?

When real estate prices weren't falling, I'm not sure if mark to market accounting mattered that much, but in this environment, I want to know what a bank's assets are ACTUALLY worth.  I don't want to know what they were worth several years ago before the market fell apart.

I think that basically all of the big financial institutions are insolvent on a liquidation basis right now.  The hope among the elite seems to be that over time the economy can rescue these institutions by gradually allowing them to grow out of all these bad debts and bad collateral.

It's going to take a LONG time.  It would have been so much better for the federal government to have taken over all of these big banks in 2008, wiped out the bond and equity holders, fired the management (sending the criminally responsible ones to jail), sorted out the good assets from the bad, and set up these banks to do business on a sound footing at the end of the process.  This is what the FDIC does every day.

Rather than do what I outline above, however, we now have a textbook case of "zombie banks" stumbling around, sucking up capital, trying to cover up their dead-ness and dragging down the rest of the economy.

I would say that the too-big-to-fail banks are like a hole in the economy into which we are all throwing the productive fruits of the real economy, like some kind of man-made black hole sucking in capital in perpetuity, leaving no trace other than a series of scrambled mental patterns in the brains of people like Tim Geithner and Ben Bernanke.

[mandynshane]

I don't like bac either but kinda like MGM they are making a lot of money in macau now.. very beat down now

[Storm]

Rather than do what I outline above, however, we now have a textbook case of "zombie banks" stumbling around, sucking up capital, trying to cover up their dead-ness and dragging down the rest of the economy.

Great post MT, and you pretty much mirror my thoughts.  It's amazing how the mark to market rules were lifted in March of 2009, and look at what the market did right then...  I thought it was a very strange coincidence in any case.

The cynic in me thinks it might be fun to buy some BAC at the money call options for dirt cheap and wait for the inevitable next round of bank bailouts...  

[Jan Van]

... The hope among the elite seems to be that over time the economy can rescue these institutions by gradually allowing them to grow out of all these bad debts and bad collateral.

Not just their hope. They're still actively pursuing it...

Corrupt Obama Administration Pressuring New York Attorney General to Support Mortgage Whitewash

[dualstow]

BAC is a turkey and I'm embarrassed to say I bought it in the early-to-mid 2000s.
(That's a date not a share price.  ;) )
Vanguard's stock screener indicated that I didn't own enough financials at the time. Ugh.

[Verto]

"Bank of America (BAC) shares rocket higher after announcing a $5B investment from Berkshire Hathaway (BRK.A). BAC will sell 50,000 shares of cumulative perpetual preferred stock with a liquidation value of $100,000/share to Berkshire in a private offering. The preferred stock will carry a 6% dividend. BAC +20.6% premarket"

Bailout? Maybeeeeeee

[Storm]

Buffett seems to have mastered the crucial investing skill of answering the phone when his inside men at the Fed and Treasury call to tip him off about the latest bailout target.  In most widely accepted securities law this is considered insider trading, but I guess the Buff-meister is above such common laws and regulations. 

Never mind me, I'm just bitter that I didn't buy it at $6.50... 

[smurff]

BAC - Turkey or undervalued?

Turkey.  Easily. (Though this was not always true.)

[MediumTex]

Buffett seems to have mastered the crucial investing skill of answering the phone when his inside men at the Fed and Treasury call to tip him off about the latest bailout target.  In most widely accepted securities law this is considered insider trading, but I guess the Buff-meister is above such common laws and regulations.   ::)

Never mind me, I'm just bitter that I didn't buy it at $6.50...    ;D

If you are still interested in BAC at $6.50, you can pick some up today.

[Storm]

Buffett seems to have mastered the crucial investing skill of answering the phone when his inside men at the Fed and Treasury call to tip him off about the latest bailout target.  In most widely accepted securities law this is considered insider trading, but I guess the Buff-meister is above such common laws and regulations.   ::)

Never mind me, I'm just bitter that I didn't buy it at $6.50...    ;D

If you are still interested in BAC at $6.50, you can pick some up today.

Haha, no thanks!  Just downgraded by Moody's.  Looks like even the Buffett can't front run everything, although I reserve the right to change my opinion as soon as they get the inevitable bailout by the Bernank...

[Storm]

So BAC is around $6 now and Buffett looks like "the biggest loser."  We all know it's a turkey, but at what price do you think it would be a bargain?  $2 a share?  $1 a share?

It might be good to buy a chunk at fire sale prices on the speculation that even if the bank is totally insolvent, the Fed wouldn't let the largest bank in the US fail.  $1 a share BAC sounds like you could make a killing after the inevitable bailout.

You gotta love crony capitalism - privatized earnings and public losses. 

[moda0306]

Storm,

Didn't you get the memo?  Diversification is for us idiots who can't stock pick... it's unnecessary if you can spot value.

[Jan Van]

I like Storm's idea though. I might get me some BAC if it goes below $5 or so. Just a bit for fun.

[AdamA]

Can anyone see the upcoming $5/month debit card fee causing a run on Bank of America?

[Storm]

Can anyone see the upcoming $5/month debit card fee causing a run on Bank of America?

Personally, I find it criminal that they charge for a debit card when they are already charging the merchant a fee between 0.5% and 3% of the total transaction, plus a per transaction charge.

I told my previous bank that I flat out refuse to hold a checking account with them unless they pay me to use a debit card.  After all, they're getting 2.9% avg. for every transaction - they better give me at least 1%.  They said "we don't do that" so I took my money to another bank.

Right now, I make all of my purchases on a Fidelity Rewards AmEx - it pays 2% cash back on every purchase, no restrictions, minimums, or maximums, and no annual fee.  No foreign transaction fees either - I think it's the best card you can get personally.  For those businesses that don't accept Amex, I use a Fidelity Rewards Visa, which pays 1.5% cash back, again no fees.

What is criminal to me is that banks have inserted themselves in between merchants and customers and charge 3% for every transaction, for what is basically a very basic data service that should only cost a maximum of 10 cents per transaction.  Wouldn't it be nice if, rather than having to get some cash back from the credit card company, merchants could cut prices by 3% across the board?

[AdamA]

They (BAC) say they wouldn't be doing this if Congress hadn't capped the merchant fee they can charge.

Either way, I can see people closing their accounts over this and switching banks.

[slk23]

What is criminal to me is that banks have inserted themselves in between merchants and customers and charge 3% for every transaction, for what is basically a very basic data service that should only cost a maximum of 10 cents per transaction.  Wouldn't it be nice if, rather than having to get some cash back from the credit card company, merchants could cut prices by 3% across the board?

I completely agree -- the fee they charge merchants is outrageous.  I also find the $3 fee to use another bank's ATM ridiculous.

I remember closing my Wells Fargo account in the '80s because they were charging account holders an ATM fee similar to the new BofA fee.  It astounded me that I could walk into the bank, see a teller, and make a withdrawal without fee but the ATM outside cost $1.50 to use.  Idiotic policies like that sent me running to USAA where I've been relatively happy ever since.

[smurff]

Can anyone see the upcoming $5/month debit card fee causing a run on Bank of America?

Yeah, I'm running with my money to the competition.  And I'll preemptively threaten the new bank to take my $ elsewhere if they so much as visualize a similar debit card fee to B of A.  I'm tired of the "meet the new boss, same as the old boss"  shet. 

[MediumTex]

Can anyone see the upcoming $5/month debit card fee causing a run on Bank of America?

Yeah, I'm running with my money to the competition.  And I'll preemptively threaten the new bank to take my $ elsewhere if they so much as visualize a similar debit card fee to B of A.  I'm tired of the "meet the new boss, same as the old boss"  shet.  

If I had a BofA account I would love the close it right now and take my money elsewhere.

It was clear to me several years ago that BofA was a ship without a rudder and I closed all my accounts (checking + credit card) back then.

I also got tired of dealing with the morons in the branches who seemed incapable of understanding the concept of human discretion (though I understand that designing things that way is a policy matter based on the belief that if you make the people in the branches useless to customers, the customers will use the ATM more and not come into the branches as much).

[moda0306]

What do you mean by the last part regarding human discretion, MT?

[MediumTex]

What do you mean by the last part regarding human discretion, MT?

The banks have done the same thing with their branch personnel that a lot of companies have done with their 800 numbers.

The idea is to create a mental minefield that a customer must cross to get anything accomplished, with the hope that a significant percentage will just give up.  If you design a system in which the bank makes a lot of its profits from fees, and you make it so that reversing or negotiating better fees is very hard to do, then the idea is customers will naturally drift toward the payment of higher fees, just because most people are pretty lazy.

Of course, what can also happen is customers can get sick of the whole stupid and cycnical structure I am describing and go somewhere that provides better service.

What I have encountered time after time at the big bank branches is that I will have a problem and I will go to the branch to get assistance with it.  First, I must wait to talk to the right person.  Once I get in front of the right person I normally have to invest a lot of time and effort into explaining what happened.  After the bank person finally understands what the problem is (with me having to point out the subtle nuances of the bank's policy that are in play), they normally explain that they have almost no discretion to do anything other than apply the bank's policy, which is often deficient in the first place, which is what initially created the problem.

Overall, I just crave a level of customer service where I feel that I have access to a person who really understands how problems tend to arise in the systems he or she works with, and has enough discretion to promptly solve the problem without a lot of extra work on my part.

[Gumby]

What I have encountered time after time at the big bank branches is that I will have a problem and I will go to the branch to get assistance with it.  First, I must wait to talk to the right person.  Once I get in front of the right person I normally have to invest a lot of time and effort into explaining what happened.  After the bank person finally understands what the problem is (with me having to point out the subtle nuances of the bank's policy that are in play), they normally explain that they have almost no discretion to do anything other than apply the bank's policy, which is often deficient in the first place, which is what initially created the problem.

Sounds very familiar...

[align=center][/align]

http://www.southparkstudios.com/episodes/220760/

[lazyboy]

Great South Park episode, Gumby.

I bank at a credit union. I don't pay for checking or ATM transactions. I earn a small amount of interest on my checking and have a no fee 1% rebate Master Card with them which they automatically credit to my account once a year. (I also have a AAA Chase rebate card that gives me 5% for gas purchases and AAA membership.) I have no intention or need to use a commercial bank. I get all or most of the same services as a bank including federal insurance without any of the fees or aggravation.