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How Bad Are Things at Bank of America?

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February 22, 2011 – Comments (9) | RELATED TICKERS: BAC

OK, by now everyone knows that BAC overpaid for the Merrill acquisition (Buffett: “He [BAC then-CEO Ken Lewis] could have bought them the next day for nothing because Merrill was going to go when Lehman went.”), and should never have obtained Countrywide financial.

But when it comes to their credit card business, it looks like things are a lot worse than they have let us to believe over the last 2 years. They are writing down over $20B here, almost twice a much as earlier announced. I would think this is a big deal, but the market seems to pooh-pooh it. (@9:50am less than 3% down on about average volume, with the market being down 1%) Any take on this?

9 Comments – Post Your Own

#1) On February 22, 2011 at 10:12 AM, russiangambit (28.89) wrote:

It seems to be ingored because it is non-GAAP and has no impact on future earnings (presumably).

It must be nice to be able to lose 20 bil and that has no impact on your earnings power ( because you always can get  more for free we know where).

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#2) On February 22, 2011 at 10:16 AM, FreeMarkets (38.11) wrote:

Part of me says stay away from BAC, but they're so big now, the gov't won't let them fail.  That may be what investors are thinking, that the economy will tank if BAC goes down, so there must be a bailout (possibly under the table).  For example, they can borrow $1 trillion at the FED window at 0%, put it into US Treasury Debt at 3%, and make $30 billion in a year.  Now the $20 billion hole is filled with a little left over that they can "give back" and the politicians can say "The banks have repaid their loans".

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#3) On February 22, 2011 at 11:30 AM, OneLegged (< 20) wrote:

I've seen estimates that BAC may have as much at 1-1.5 TRILLION a who-knows-what hidden off balance sheet.  That alone seems like a good enough reason to stay away.  How can you possibly put an accurate value on the company?  BUT as was said if the gov't won't let them fail.......  At least they won't let them fail until the market demands it.

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#4) On February 22, 2011 at 12:17 PM, checklist34 (99.05) wrote:

I tell you one thing, buying BAC in july of 2009 and early 2010 made me look really smart...

in april of 2010.

but not so much over a longer time frame.  

AFAIK, it was C and not BAC with the massive, trillionesque off balance sheet mojo.  

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#5) On February 22, 2011 at 12:20 PM, OneLegged (< 20) wrote:

Thanks for the correction.  I sometimes get ahead of myself.

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#6) On February 22, 2011 at 12:54 PM, Griffin416 (99.97) wrote:

BAC has lots and lots of problems, that is why it is the cheapest of all the big banks. Buying BAC when it gets close to tangible book value is a steal, somewhere around $12 (where my last buys where). Now it is just okay, at $16 it is a sell.

 IMHO I believe all of its problem are mitigated for the time being by the ultra steep yield curve. BAC is too big to fail. The yield curve makes geniuses out of dummy bankers.

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#7) On February 22, 2011 at 6:26 PM, leohaas (29.26) wrote:

Thanks for chiming in on this. By the way, I have no position in BAC. I am definitely not considering them.

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#8) On February 23, 2011 at 2:39 PM, caterpillar10 wrote:

I have not and do not believe anything ANY credit card issuer says regarding losses. Last year I was a contract worker at BOA/Countrywide - evaluating peoples revised financial statements for HAMP, AG & other loan modification programs. One of the 1st things up when counseling a delinquent borrower: STOP PAYING CREDIT CARDS - WHAT ARE YOU THINKING?!!

There are 1,000,000 of these accounts - and that's just BOA, including servicing contracts. Some people get it together and are quickly replaced w/ more people falling behind.

On top of that, banks are slow-walking the forclosure process for alot of reasons but the one that matters to stock holders is that most of the stuff won't move at auction anyway - it's just goes into 'inventory' where insurance, taxes, and frequent inspections are left to the bank.

Many people expect to be forclosed - are waiting&waiting&waiting to be forclosed - meanwhile since they no longer make the payment (20+ mos. behind was not an uncommon site) they can keep their credit cards up. When they eventually have to put up deposits and rent - quess what gets defaulted next. 

I want to be clear: Mostly these are not bad people - they don't have a choice! - it's this or skinny children. But if you're waiting for a bounce in banking get out now and in later cheaper w/oil profits:)

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#9) On February 23, 2011 at 2:46 PM, caterpillar10 wrote:

I have not and do not believe anything ANY credit card issuer says regarding losses. Last year I was a contract worker at BOA/Countrywide - evaluating peoples revised financial statements for HAMP, AG & other loan modification programs. One of the 1st things up when counseling a delinquent borrower: STOP PAYING CREDIT CARDS - WHAT ARE YOU THINKING?!!

There are 1,000,000 of these accounts - and that's just BOA, including servicing contracts. Some people get it together and are quickly replaced w/ more people falling behind.

On top of that, banks are slow-walking the forclosure process for alot of reasons but the one that matters to stock holders is that most of the stuff won't move at auction anyway - it's just goes into 'inventory' where insurance, taxes, and frequent inspections are left to the bank.

Many people expect to be forclosed - are waiting&waiting&waiting to be forclosed - meanwhile since they no longer make the payment (20+ mos. behind was not an uncommon site) they can keep their credit cards up. When they eventually have to put up deposits and rent - quess what gets defaulted next. 

I want to be clear: Mostly these are not bad people - they don't have a choice! - it's this or skinny children. But if you're waiting for a bounce in banking get out now and in later cheaper w/oil profits:)

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