Jump to content
House Price Crash Forum
1929crash

Bank Of America On The Brink

Recommended Posts

It was only last April that Bank of America Corp. was making fools out of the doomsayers who had called for its nationalization a year earlier. Taxpayers had gotten their bailout cash back. Investors who bought its shares at the bottom were making a killing. Government leaders lauded the company’s rescues, both of them, as a great success.

Now the bank may be on the verge of trouble again. Its stock has fallen 41 percent since April 15. Mortgage-bond investors are demanding untold billions of dollars in refunds. The foreclosure fiasco is metastasizing. A member of the Troubled Asset Relief Program’s oversight panel, AFL-CIO attorney Damon Silvers, openly worried at a hearing last week about the risk that Bank of America might need another bailout.

A few more months like the last one, and we may be wishing Bank of America had never returned its $45 billion of TARP money.

You wouldn’t know there’s anything wrong with Bank of America by an initial look at its balance sheet. The company showed common shareholder equity, or book value, of $212.4 billion as of Sept. 30. And its regulatory capital ratios have risen steadily throughout the year.

Tipping Point

Judging by its shrinking stock price, though, investors are acting as if Bank of America is near a tipping point. Its market capitalization stands at $115.6 billion, or 54 percent of book value. That’s the second-lowest price-to-book ratio among the 24 companies in the KBW Bank Index, and well below the 76 percent ratio the company was at in October 2008 when it landed its first round of TARP dough. Put another way, the market is saying there’s a $96.8 billion hole in Bank of America’s balance sheet.

Another Lehman event approaching . . . . ?

http://www.bloomberg.com/news/2010-11-04/bank-of-america-edges-closer-to-tipping-point-commentary-by-jonathan-weil.html

Share this post


Link to post
Share on other sites

The recovery is helping the balance sheet....

Just think of the embarrassment if another bank goes tits up. BoA to get cash from the FED to stay afloat?

But is BoA the only big bank in trouble? Think of all the fraudclosures.

Share this post


Link to post
Share on other sites

All the more reason to go after Bernanke and Pauson. Didn't they put a gun to BofA's head to take on Merril and Countrywide? BofA was in pretty decent shape up to then, from what I recall...

Share this post


Link to post
Share on other sites

The question. Is it too big to fail?

Without doubt BoA is too flashy to fail

250px-OBP_-_Ext_-_42nd_East.jpg

City centre center <_< bed sits for the ex-upwardlies anyone?

Share this post


Link to post
Share on other sites

Still if the FED can print unlimited money all will be well.

its not going to go down well at the G20

http://www.guardian.co.uk/business/2010/nov/07/g20-quantitative-easing-showdown

President Barack Obama can expect a rough ride at the G20 summit in South Korea this week after China and Germany denounced plans by the Federal Reserve to flood the US economy with cheap money.

Ben Bernanke, the Federal Reserve chairman, was this weekend forced to defend the decision to pump an extra $600bn (£372bn) into the ailing US economy over the next eight months in an attempt to accelerate growth. "We're not in the business of trying to create inflation," said Bernanke, to counter criticism that the flood of money will fuel price rises.

As the G20 prepared to meet, campaigners for the Robin Hood tax on financial transactions stepped up their lobbying effort, urging leaders to support the tax, which would help to plug deficits and reduce the need for cuts to public spending.

Bernanke said: "Our purpose is to provide additional stimulus to help the economy recover and to avoid potentially additional disinflation, which I think we all agree would be a worse outcome. I have rejected any notion that we are going to raise inflation to a super-normal level in order to have effects on the economy.

"We've had a very significant disinflation since the beginning of the crisis. We should not be satisfied with a situation where we have both a large amount of slack on the employment side and inflation which is below our generally agreed upon level and seems to be declining over time."

German chancellor Angela Merkel, whose government last week said the Fed's quantitative easing programme would "create extra problems for the world", is one of several figures expected to line up against the US at the summit in South Korea.

China and Brazil, like Germany, have accumulated large trade surpluses this year, and are concerned investors will turn away from the US and pour money into their own economies in search of higher returns. To invest in a country means buying its currency, which raises raises its value. Brazil's currency has already rocketed while China, which has pegged the yuan to the dollar, will need to spend more of its trade surplus on artificial measures to keep its currency and the declining dollar aligned.

With Washington paralysed by political infighting and dependent on Bernanke to boost the economy, China, Germany, Brazil and Canada are expected to use the summit to restate the Toronto deficit reduction plans. Obama wants a ceiling on current account balances that will limit the extent of surpluses as the price he is willing to pay for signing up to smaller deficits. But countries with trade surpluses appear unwilling to budge. Recent data suggesting their economies are faltering will only make their resolve stronger.

Cui Tiankai, a deputy foreign minister and one of China's negotiators at the G20, has described the US plan for limiting current account surpluses and deficits to 4% of gross domestic product harked back "to the days of planned economies".

Analysts at Capital Economics said the battle over currencies would overshadow the summit. "In particular, the US will find it hard to put any substance on its proposals for indicative ceilings for current account balances," they said. "We do not think such targets, while a good idea in many respects, would amount to much in practice. But without tangible commitments from the major surplus countries, a lurch towards protectionism and a global trade war will be increasingly likely."

Stephen Lewis, chief economist at Monument Securities, argued the Fed's move to increase quantitative easing was misguided and created more tensions than it resolved."Clueless is apt when applied to a cadre of policymakers whose devotion to text-book solutions is leading, seemingly inexorably, to a rupture in global monetary relations," he said.

"The Fed's current policy is based on the same presumption as its policy in the decade prior to 2007, that the smart thing to do is to filch an advantage that has not been earned. But the G20 meeting next week is shaping up as a showdown that could shake the Bernanke Fed's complacency."

Share this post


Link to post
Share on other sites

Those hockey mums are good in the USA:

1/6/10

Lisa Carnoy, an executive at Bank of America, recently engineered a huge deal to sell 1.3 billion shares in the bank, enabling them to reap $19 billion and relieve themselves of their TARP albatross. How did she makes shares in a distinctly unstable company look attractive to potential investors? Well. The mother of four, who once negotiated a deal from inside her daughter's princess tent, used the same principle that drove sales of Jessica Seinfeld's popular children's cookbook, Deceptively Delicious:

It's “The thought was,” Ms. Carnoy said, “how do you make something that looks, smells, breaths and acts like common stock?”

Basically, she bundled a bunch of securities and warrants together to create a product that would eventually mature into actual stock. No word on whether she used a blender.

http://nymag.com/daily/intel/2010/01/lisa_conroy.html

Share this post


Link to post
Share on other sites

From the link in the link:

His colleagues had spent months preparing. Besides perfecting the right story to share with investors, they built a deal with true artfulness: Bank of America needed a shareholder vote to approve such a big stock offering, but there wouldn’t be time for one. “The thought was,” Ms. Carnoy said, “how do you make something that looks, smells, breaths and acts like common stock?”

The solutions were called common equivalent securities and contingent warrants, which essentially both morph into actual stock. Better yet, when the old stockholders’ vote finally rolls around, penalties built into the deal make it nearly impossible for a rejection.

Ahh. This sounds like the sort of deal where you have to have the aircraft carrier, or you have to pay £10 for a light bulb.

Contracts.

And if anybody thus screwed could afford a decent legal team: Voidable contracts.

Share this post


Link to post
Share on other sites
The solutions were called common equivalent securities and contingent warrants, which essentially both morph into actual stock. Better yet, when the old stockholders’ vote finally rolls around, penalties built into the deal make it nearly impossible for a rejection.

You've got to love this.

How much does this woman earn, surely this could be declared illegal?

Share this post


Link to post
Share on other sites
Lisa Carnoy, ...used the same principle that drove sales of Jessica Seinfeld's popular children's cookbook, Deceptively Delicious:

It's “The thought was,” Ms. Carnoy said, “how do you make something that looks, smells, breaths and acts like common stock?”

Basically, she bundled a bunch of securities and warrants together to create a product that would eventually mature into actual stock.

The solutions were called common equivalent securities and contingent warrants,

... the latter being known as contingent convertibles, or colloquially, cocos.

Essentially here's the real story of their issue:

1 ) BoA wanna be free of TARP, so she goes looking around for something to sell;

2 ) back at home kids ask why she never bakes w/ them, so she thinks of J Seinfeld and, like all sh!t cooks, grabs a box of rice crispies, melts some chocolate, and mixes the two together, making a mess that looks like either A ) shit, or B ) coco-pops. Her stupid kids nonetheless lap 'em up. She is minded to draw a comparisson between her stupid, trusting kids and investors in BoA;

3 ) back at work she asks the accountant to show her what the comapny has to hawk. After talking her through the balance sheet w/ no visible success, they, by way of explanation take her to a cubicle in the "john" and show her an unflushed, humungous floater. Reminded of her "cooking" ordeal, she blurts out "I'd rather have a bowl of coco pops."

The rest, as they say, is history.

Edited by Sledgehead

Share this post


Link to post
Share on other sites

I'm sure if there are any potential bonus making profits in these things such as RBS will sniff them out. These deceptively delicious cookbooks will be Triple AAA rated so we won't have anything to worry about will we?

Share this post


Link to post
Share on other sites
Bank of America attorneys also dismissed the suggestion that its handling of loan modifications and other efforts to prevent foreclosure violated the terms of the mortgage-backed securities the investors hold.

That sounds like the Northern Rock trick, refuse to revalue your housing portfolio and those who default on payments are loaned money against it.

In order to be eligible for principal forgiveness:

* you must be at least 60 days late on your home loan payments

* the remaining principal balance on your home loan must be more than 120% of the current value of your home

The maximum amount of principal forgiveness is 30% of the remaining principal balance on your loan, so long as this does not reduce your loan-to-value (LTV) ratio to less than 100%. The reason: the amount you owe is now equal to the value of your home and, moving forward, you’re ready to build positive equity.

Depending on your situation, the principal will be forgiven in equal amounts over 3 or 5 years. In the 5-year option, the amount forgiven in years 4 and 5 is conditional, based on the value of your home at that time.

After being approved for principal forgiveness, it’s important to stay current on your new monthly payments, as falling behind could affect your eligibility.

Investors say the loans aren't performing so the riskiest tranche should lose out, BOA say everything is ok because the "value" of the house is so high that nobodies money is at risk. They can just foreclose

and get 100% back from eager buyers desperate to hand over cash.

Share this post


Link to post
Share on other sites

Its not just BOA, J P Morgan and HSBC are getting hammered right now due to their short positions in the gold and silver market.

Why would this be so? Can you explain?

As for BOA generally - buying Merril was one of the stupidest moves IMPO. If BOA goes under it will be a global crisis again that will set off a whole chain of events.

I suspect the US Fed will simply try to bail out BOA off-balance and hope no one finds out. Just print. Lose a few hundred billion dodgy CDOs behind the sofa.

Share this post


Link to post
Share on other sites

Why would this be so? Can you explain?

As for BOA generally - buying Merril was one of the stupidest moves IMPO. If BOA goes under it will be a global crisis again that will set off a whole chain of events.

I suspect the US Fed will simply try to bail out BOA off-balance and hope no one finds out. Just print. Lose a few hundred billion dodgy CDOs behind the sofa.

BofA was forced at the point of a gun to buy Merril and Countrywide. It was Paulson and Bernanke that put it to their head..

Share this post


Link to post
Share on other sites

Nice chaps aren't they.

Yea real nice.

J P Morgan buys Bear Sterns...after Paulson and Bernanke let them offload all the toxic assets on Maiden Lane.

J P Morgan tries to buy Washington Mutual for months. But the price is too high. Then everything collapses, and WaMu is pushed over to JPM for a song. The story goes that Dimon was on a plane from NY to Washington with the new logos/signs within hours of the purchase.

Goldman Sachs wasn't asked to buy anybody. The were just made 100% whole oh the AIG debt via the US taxpayer, $11 billion.

And what happened to BofA? They were garrotted and thrown to the wolves....

Share this post


Link to post
Share on other sites

BofA was forced at the point of a gun to buy Merril and Countrywide. It was Paulson and Bernanke that put it to their head..

Is there something to substantiate this please? Maybe they just thought it was a really good deal, just like Lloyds thought it was a smashing plan to go for HBOS?

Share this post


Link to post
Share on other sites

Join the conversation

You can post now and register later. If you have an account, sign in now to post with your account.

Guest
Reply to this topic...

×   Pasted as rich text.   Paste as plain text instead

  Only 75 emoji are allowed.

×   Your link has been automatically embedded.   Display as a link instead

×   Your previous content has been restored.   Clear editor

×   You cannot paste images directly. Upload or insert images from URL.

Loading...

  • Recently Browsing   0 members

    No registered users viewing this page.

  • 145 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%



×
×
  • Create New...

Important Information

We have placed cookies on your device to help make this website better. You can adjust your cookie settings, otherwise we'll assume you're okay to continue.