Rebel Traders – Analysis Without The Hype

Watch out! Bank of America is soon to be let loose once the TARP chains are cut. Announced this evening is that Bank of America will repay $45 Billion in TARP funds by using $26.2 Billion from its excess reserves, and essentially the remainder comes from throwing existing shareholders under the bus.

Bank of America Corp Confirms plans to repay entire $45B TARP funds (about 33% of market cap)

Under terms of the authorization from the U.S. Treasury and banking regulators to repay the $45 billion investment made under TARP, Bank of America will repurchase all 600,000 shares of the company’’s Fixed Rate Cumulative Perpetual Preferred Stock, Series N; all 400,000 shares of the company’’s Fixed Rate Cumulative Perpetual Preferred Stock, Series Q; and all 800,000 shares of the company’’s Fixed Rate Cumulative Perpetual Preferred Stock, Series R. The shares were issued to the U.S. Treasury as part of TARP. Bank of America is not exercising its right to repurchase the related warrants at this time.

Bank of America plans to repay the $45 billion in TARP funds using $26.2 billion in excess liquidity and $18.8 billion in proceeds from the sale of “common equivalent securities.

The $18.8 billion issuance of “common equivalent securities” would be treated as Tier 1 Common capital.  Shareholders would be asked at a special meeting to be held within 105 days of issuance to approve an increase in the authorized shares outstanding in order to allow the “common equivalent securities” to be converted into common stock.

The “common equivalent securities” carry warrants to buy a total of 60 million shares of common stock at $0.01 per share and other benefits if shareholders do not approve an increase in authorized common shares. In addition, Bank of America agreed to increase equity by $4 billion through asset sales to be approved by the Board of Governors of the Federal Reserve and contracted for by June 30, 2010. To the extent those asset sales are not completed by the end of 2010, the company agreed it would raise a commensurate amount of common equity.

Bank of America also agreed to raise up to approximately $1.7 billion through the issuance of restricted stock in lieu of a portion of incentive cash compensation to certain Bank of America associates as part of their normal year-end incentive payments.  After the TARP repayment and these initiatives, the company’’s Tier 1 Capital ratio would be 11.0 percent, pro forma based on the September 30, 2009 ratio of 12.5 percent. The Tier 1 Common capital ratio would be 8.5 percent, pro forma based on the September 30, 2009 ratio of 7.3 percent. The company will continue to have strong liquidity.

Repurchase of TARP preferred stock is expected to reduce income available to common shareholders in the fourth quarter by $4.1 billion, as the book value of the preferred is less than the amount paid.

Bank of America seems to be going to rather extraordinary measures to repay the TARP as quickly as possible. When banks still need to build up loss reserves here is BAC tapping into their piggy bank to pay off the Government. The timing of this announcement sure is interesting to say the least as it comes the night before Fed Chairman Ben Bernanke’s confirmation hearings.

Oh, in other Bank of America news:

NEW YORK, Dec 2 (Reuters) – Bank of America Corp <BAC.N> on Wednesday announced cash awards that could reach seven figures for three senior executives, including two whose salaries were cut after a review by White House pay czar Kenneth Feinberg.

On November 30, Thomas Montag, head of global markets and banking, was awarded stock units valued at $4.57 million, based on the bank’s Wednesday closing price of $15.65.

On the same day, Chief Financial Officer Joe Price received an award valued on the same basis at $2.58 million, while home loans and insurance chief Barbara Desoer got an award valued at $1.94 million. [...]

Do you hold a mortgage with Bank of America? Were you hoping to get a loan workout approved? With the TARP chain being cut you better watch out for they will have no obligations any longer to play nice. Watch out, Bank of America will be free to whore around like Tiger Woods all over again.

… and Bernie Madoff was a caring and honest man.

The Dow Industrial average reached 10,000 with CNBC staff wearing caps that read ‘DOW 10,000‘ and will run a “special” DOW 10,000 TV show this evening.

STOP THE INSANITY

The economy has not been saved, only disguised… akin to putting lipstick on ENRON years ago and calling it a great investment.

Banks and other financial institutions have only been able to report revenues because they no longer have to record ‘actual‘ losses, as long as they don’t sell it they can put whatever value on it they want. We have Congress and the FASB for that brilliant move.

Is Jamie Dimon (JP Morgan CEO) on ‘your‘ side?

Wednesday, October 14, 2009 9:38:07 AM

JPMorgan Chase and Co CEO Dimon: Consumer Protection Agency will be “damaging”; will cost customers.

Wednesday, October 14, 2009 9:38:07 AM

JPMorgan Chase and Co CEO Dimon:   Corporate lending continues to trend around all time lows, extended credit lines continue to be drawn at very light levels.

I guess CNBC ‘forgot’ to mention the bad parts

Don’t worry, President Obama has everything under control and will quickly move to solve this problem:

Wednesday, October 14, 2009 3:49:13 PM

White House: Pres Obama supports a $250 payment to seniors, veterans, and the disabled; program could cost up to $13B

- payment may include approx 57M individuals

Ken Lewis

I feel that Mr. Ken Lewis must immediately resign his position as CEO of Bank of America. Moreover he must repay billions of dollars to the American tax payers.

The story of Merrill Lynch (MER) having given out billions of dollars in bonuses just prior to selling itself to Bank of America (BAC) gets deeper and more outrageous.

The Financial Times broke the story tonight:

Bank of America played a role in Merrill Lynch’s controversial decision to pay $4bn in bonuses in December just as mounting losses were threatening to derail BofA’s takeover of the Wall Street firm, according to people close to the situation.

BofA has said that the payment of $4bn in compensation in a fourth quarter in which Merrill racked up $15bn in losses was sanctioned by John Thain, Merrill’s chief executive.

(read more…)

Perhaps yesterdays revelation that Merrill Lynch, under the stewardship of John Thain, gave out Billions of dollars in bonuses just days before they were purchased by Bank of America. And then later announced they had huge losses and needed more Government (tax payer) money.

I think Ken Lewis (CEO) of Bank of America was genuinely pissed off about John Thain’s actions. But, at the same time I am confident that Mr. Lewis was ‘fully’ aware of the bonuses being handed out at Merrill. He is just ticked off that it made the press and everybody is criticizing them for it (and rightfully so). So Mr. Lewis is just playing the game of trying to make it all appear as if this is John Thain’s fault.

(read more…)

This is all the evidence needed that the CEO’s of the large banks and financial institutions are only looking out for themselves, even as they ask for money from the tax payers!

They claim they are being ‘good stewards’ of our tax payer money. This is a lie!

The Financial Times is running this story tonight… hot off the presses:

Merrill Lynch took the unusual step of accelerating bonus payments by a month last year, doling out billions of dollars to employees just three days before the closing of its sale to Bank of America.

The timing is notable because the money was paid as Merrill’s losses were mounting and Ken Lewis, BofA’s chief executive, was seeking additional funds from the government’s troubled asset recovery programme to help close the deal.[...]

(read more…)

Bank of America is suffering huge losses, taking tens of billions from the tax payers for a bail out, and is still

Bank of America - Stock Chart

falling apart at the seams. But the CEO Mr. Ken Lewis was selected as Banker of Year for 2008 by ‘American Banker’. While the award was issued just a few months ago the question has to be raised “just what the heck was American Banker looking at?” The largest banks, Bank of America included, have all contributed greatly to the economic mess the country now finds itself in. How Mr. Lewis could be selected as ‘banker of the year’ is simply repulsive.

From American Banker:

Kenneth D. Lewis, the chairman, president, and chief executive of Bank of America Corp., has been selected to receive American Banker’s 2008 Banker of the Year Award.[...]

[...]This year he has shown that it is possible to obtain the banking industry’s highest honor again. He became the first person to win the award twice by emerging as a crucial force of stability in the middle of tumultuous financial markets and an economy that many feel has entered what could be a prolonged recession.

He has expanded beyond B of A’s dominance in retail banking to grow in other areas as competitors have faltered. In January, it agreed to buy Countrywide Financial Corp., quickly becoming the nation’s largest mortgage lender and putting the Charlotte company at the forefront of the debate over how to address mounting issues in the housing market.

B of A vowed to eliminate Countrywide’s most controversial lending practices, and it is working to modify mortgages for about 400,000 of its borrowers.[...]

[...]Mr. Lewis has raised his public policy profile in recent years, advocating for more streamlined bank regulation and a loosening of the statutory cap on domestic deposits while taking a risky stance by extending credit to those who lacked Social Security numbers.[...]

Read that last sentence again… “…while taking a risky stance by extending credit to those who lacked Social Security numbers“. Mr. Lewis was an integral part in creating a banking system that was destined to implode. By relaxing lending standards it added to the already growing credit bubble that has now brought the nation to its knees. And he is the banker of the year?

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Citigroup (C) and Bank of America (BAC) are near collapse if we use the share price as a gauge. Both of these companies are in dire trouble and Wall Street knows it.

Over the past 24 hours we have learned that Citigroup is planning to announce a large restructuring in order to survive. And today Bank of America is pleading with Hank Pauslon for more money to keep them alive.

Citigroup and Bank of America are on the verge of failing if they don’t get Government money and/or sell major parts of their companies. The Government is going to keep bailing them out because they are too big to fail (sarcasm).

If these companies are really as bad as I think they are, then they should be left to their own devices. Let them die and the market vultures will pick over the carcass and take the good parts. The FDIC will take care of all the insured deposits. There will be some collateral damage of letting these companies go, but I strongly believe it will cost far less to do ‘clean up’ afterward as opposed to bailing them out again and again.

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Apparently the deal is done and all that is needed now is an official announcement.

From the New York Times…

The government is near a deal to give Bank of America a $20 billion capital injection and potentially absorb about $100 billion in losses, people involved in the transaction said Thursday.

Bank of America is bracing itself for write-offs of as much as $20 billion tied to toxic investments at Merrill Lynch, the giant brokerage firm it recently acquired, according to two people briefed on the situation. In addition, as the nation’s biggest bank, it stands to lose billions of dollars from its own soured credit card, mortgage, and commercial real estate loans.

(read more…)

Yep, it was just a buying frenzy this afternoon.  Or was it?  Bids rose quite fast on low volume, then some volume came in with uncommitted shorts covering.  OK, you don’t have to agree, but that is what I saw on the tape and the charts.  We told you we would test resistance levels and we are.  It is getting a little irksome that we are doing these “tests” in record fashion, but you play what you get!  Plenty of selling into this rally, so be careful.

Earnings reports have left NTGR (Netgear) down after hours, and NTAP (Network Appliance) and VCLK (Valueclick) have guided lower.  Most of the reports are unremarkable or inline with low expectations.  BIDU earnings are out and they are good enough: Q4 $.87 v $.72 expected, revenue $78.3M.  They guided Q1 lower to $73.1M-$75.1M versus the $77.1M expected.  So far after hours trading seems to favor the upside, but it’s touch and go.

Some major shareholders are upset about the Countrywide/Bank of America (CFC/BAC) deal.  They don’t think Bank of America is paying enough for CFC.  I think they’ve already paid too much and the deal isn’t anywhere close to being closed.  But, nobody asked me.

I’m really tired of hearing how the market will climb the “wall of worry”.  I’m sure there was plenty of worry from 1929 to 1932, so check out how well that climb went.  Maybe the market just didn’t have the best belayer!  It remains to be seen if we have one now.