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Teacherman1 (61.72)

Bank of America - Triple Jeapordy

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September 03, 2011 – Comments (8) | RELATED TICKERS: BAC

It's interesting to note, that of the 17 "Big Banks" being sued by FHFA, three of them are BAC.

They are suing them as BAC, as Merrill Lynch, and as Country Wide.

These three suits total $57.5B, out of the $196B that is supposedly the total amount of the 17 suits.

I am not trying to be a defender of BAC, but it is also interesting to note, that of the "Bundles" sold to Freddie and Fannie, BAC sold $6B, Merrill Lynch sold $24.8B, and Country Wide sold them $26.6B.

It appears the bigest "wrong" that BAC committed was to buy ML and CW. Without those two entities, they would have one of the smallest portions in the "Bad Banks Pool", that took advantage of poor unsophisticated Fannie and Freddie.

That is almost as much of a joke as AIG suing them because "big bad BAC" took advantage of them.

While I think that this is as much about the "Govt", in it's various forms, trying to give the apperance of "looking out for the taxpayers", as in trying to settle legitimate claims, there will still be a price to pay for all of the "Banks" involved.

I do not believe the FHFA will prevail to the extent that the various "scare postings" in the press are "hyping" at the moment, but I do believe that BAC, (as well as the other 14/16 Banks) will end up having to settle to some extent.

All of the other "Banks", at least those that have commented, have stated that they intend to defend themselves "vigorously", so this is not just about BAC.

These suits (both those of the FHFA, as well as the other "interested parties"), as well as the "problems" that BAC has with at least some of the ones they didn't sell, will require a significant amount of "capital" to be raised in one form or another.

At some point, they will have to "bite the bullet" and get these things behind them if they are ever going to go forward and become, once again, a profitable and stable financial institution.

I estimate they will end up needing to "raise" somewhere between $25B and $40B to achieve this.

They have been pursuing selling some of their available assets, and have had at least moderate success in this area, but they will at some point have to either do something "bold", like selling off, in one form or another, their largest available asset, which is Merrill Lynch; or they will have to issue "massive" amounts of new shares and do a reverse split like CITI did.

I'm sure they would like to sell Country Wide instead, but that is not a viable option.

They will also likely have to issue additional shares, but maybe not to the extent it appears at first glance.

I feel sorry for their current CEO, who came from "Fleet", because he didn't cause these problems in the first place, but I'm not sure he will be able get through this "intact". There are just too many new "hot spots" springing up around this "financial wildfire" for him to deal with adequately.

Even though Ken Lewis has been "vilified" as the one who caused all of the problems, (and he was most defenitely instrumental in that area), I think he had some help from Treasury and the FED when it comes to Merrill Lynch. While they may not have "told" him he had to go through with the deal, anyone who is not a total "moon calf" knows there are ways of "telling" someone something without "telling" them in specific words.

Bottom line, I believe BAC stock will go down further, and it will take some time for it come back to a more reasonable "future earnings" value.

I also believe they will "survive" and once again return to the profitability level that will make them at least a $30 to $40 dollar stock, and one that will pay a good dividend.

I do not currently own BAC, but have it on my watch list with a trigger price of under $5, at which point I would be a buyer (in stages) for a long term hold.

All of the above is JMO and worth exactly what I am charging for it.

Any and all comments are welcomed, and feel free to correct any mistakes you feel I have made, or just take "pot shots" in general.

Have a great holiday weekend, and hopefully we will all get back into the "green" next week.

8 Comments – Post Your Own

#1) On September 03, 2011 at 6:28 PM, Tagit (62.46) wrote:

Nice post 

Sounds normal…We bail them out and then turn around and file a suit against them; what a scandalizing mess. I wonder if Buffet knew this was coming before he flopped down 5 big ones on BAC.  There are two many other financial players that are much better buys (to me) right now even if BAC heads to $5. Although, my trigger finger would be itching a tad at $5 or below  =) 

The banking sector in general is getting hammered; some deservingly and for others not so deservingly. I guess it’s called follow the “leaders” which shouldn’t happen, but it’s the nature of the beast/market. With September historically being a swing month this new and more to come [I’m sure] should give way to some great buy opportunities. I’m a bullish believer in September (when I’m playing the market) and I will be on the hunt.

I’d say we may be headed back toward 10.500 “again” before the dust settles. 

You might consider a re-post Tuesday morning. Not many Fools blogging stocks this holiday weekend…good stuff. 

Fool on!!

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#2) On September 03, 2011 at 6:30 PM, Tagit (62.46) wrote:

being a swing month this new(s) and more to come

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#3) On September 03, 2011 at 6:47 PM, awallejr (84.43) wrote:

What bothers me about this lawsuit is that it is replete with hypocrisy.  FHA wrote the guidelines lenders were to use during the whole subprime mess.  They permitted an 80% first mortgage with a 20% equity line and allowed a 6% closing cost rebate.  Hence THEY allowed 106% financing on mere "stated income."  Now they cry foul? 

Nothing stopped freddie and fannie from looking at the individual loan packages, which oftentimes they did before they even funded the loans.

Not only is this a frivolous lawsuit in my opinion since they were complicit, but all it is going to do is further spook the markets and hammer the financials down even further.

 

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#4) On September 03, 2011 at 7:39 PM, addikt06 (< 20) wrote:

The government dropped the ball. Bush was the creator of this mess but Obama is not much better. There is no justification for a) bailing out these crooks b) further suing them which makes even less sense because the tax payer will take the hit again.

In 2008 we should have completely socialized their losses to prevent bank runs and sued the pants off all these crooks that were selling AAA loans to the public. Instead Obama picked the same crooks who got us in this mess as his economics team so we had this whole "bail out" nonsense which let BAC and other off the hook. If we had just accepted these banks (and the gambling subprime borrowers that were complicit in this mess) deserved to bankrupt and lose their wealth, we'd be much better off.

I hope these lawsuits take a nasty turn and the government aggressively goes after all these banks. They were incompetent then and they are incompetent now, it's like having a drug addict, just replace the addict with the bank and drug with risk free money from Fed.

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#5) On September 04, 2011 at 2:48 AM, memoandstitch (< 20) wrote:

The smartest guy was Thain who sold Merrill Lynch, pocketed the bonus, decorated his office with ridiculously expensive carpet and got out of BAC with a pile of money.

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#6) On September 04, 2011 at 3:18 AM, awallejr (84.43) wrote:

There were a lot of others too memo, except they weren't even chased.  Going after these institutions now is like the dog biting off its tail.  This Country is never going to move forward until the financials have bottomed.  All this lawsuit does is try to crush them.

I swear the inmates are running the asylum in Washington.

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#7) On September 05, 2011 at 9:51 AM, lemoneater (79.30) wrote:

Happy Labor Day, Teacherman! Hope all is well with your family.

My grandpa was president of a labor union for a very short time, but his honesty interfered with that position which was too bad. I think he got the vote because he knew everybody and had a really corny sense of humor. I miss him very much.

I used to have stock in BAC, but I got it when it was $54 and was horrified to see it go down to $10. I decided that it didn't behave at all like a stodgy blue chip should so I looked for a less exciting stock for the stable and boring part of my portifolio. It sounds like the drama still continues with BAC.

 

 

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#8) On September 08, 2011 at 6:25 PM, Tagit (62.46) wrote:

Sorry Teacherman, I just read this again, my error.

There are two many other financial players:


I meant to say (two other)  I was probably thinking there were many others (than my two choices) while typing. Mind over fingers I guess and lack of proof reading anything. =)

BTW- flip a coin for tomorrows opening bell - we have speaker tonight.

 

 

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