Wednesday, December 1, 2010

Corrected--Dick Bove Sees Bank America Worth $15 IN BANKRUPTCY (BAC)

Big Oops:
I had $21 in the headline which violated one of our few rules:
You can spell like a 5-year-old, you can make jokes at anyone's expense, you can post pretty much anything but you have to GET THE NUMBERS RIGHT.
The fact that ZeroHedge had it wrong is no excuse.
Original post:
The stock is trading up 13 cents at $11.07. We prefer Citigroup.
From ZeroHedge:

Following Wikileaks Revelations, The Tricky Dick Rushes To The Rescue, Sees Bank of America Worth $21 In Bankruptcy
This is certifiably one of those days when the insanity refuses to end. The latest laugh out loud episode come from the lunatic who has outstayed his "analytic" welcome by about 2 years following his Buy recommendation on a soon to be bankrupt Lehman Brothers (sorry Dick, nobody will ever let it go): The Rochdale analyst, continues to reprise the role of the evil grandpa-in-law who just. refuses. to. leave. even though it is about 12 hours past his credibility-time, now sees Bank of America as worth $21 in bankruptcy. You really can't make this shit up. To wit: from a very funny Dick: "In death, this company would be worth 91% more than it is worth in life." You may laugh now.

From Tricky Dick Bove: Bank of America (BAC) - Let’s Get Real
  • It has been reported that Wikileaks has obtained the hard drive of a Bank of America executive. This hard drive is believed to have 5 gigabytes of data on it. Consequently, it may take until the beginning of next year for Wikileaks to sort out the information and select what it wants to reveal. The organization is striving to make the biggest impact by touching upon data that is relevant in today’s marketplace.
  • It is further believed that this may narrow the data down to either the Merrill Lynch acquisition or Countrywide’s lending policies. It may be that the executive indicated that Bank of America was fully aware of all the write-offs and bonuses at Merrill well before this information was made available to shareholders.
  • Or, the data may deal with Countrywide’s underwriting policies and some type of collusion between the bank and Countrywide related to the issuance of securities. Possibly, the “friends of Angelo” may be revealed including Senator Dodd’s relationship with the company.
  • Wikileaks may not even know at this moment what it is going to reveal. The only issue one can be sure of is that whatever the data it will be sensational.
  • However, will it be relevant? Bank of America has already paid fines related to the events surrounding its acquisition of Merrill Lynch and no further government action is contemplated.
  • The Countrywide underwriting policies and Bank of America’s collusion or non-collusion is now in the courts and there are multiple lawsuits still being prepared relative to this issue. These court battles still come down to a mortgage by mortgage review to determine if fraud was involved.
Thus, it is hard to conceive that the information will be new or that it is not been dealt with by the system already. Yet, the price of Bank of America’s stock continues to fall.

So, let’s surmise what would happen if Bank of America failed. First, all of the lawsuits against the company would go away. Second, the liabilities would be paid off from existing assets over a long period of time leaving the company’s net worth for shareholders.

This net worth is now $212 billion. Looking at the bank’s stated assets it has $150 billion in cash and $322 billion in securities that are mainly government guaranteed. Thus, the cash per share that would be available to shareholders on declaring bankruptcy would be approximately $15 per share. The stock currently sells at $11 per share.

Returning to the securities portfolio, there is $53 billion in Treasuries held outright and $200 billion in government backed agencies or agency backed securities. There is another net $32 billion in government backed securities in the trading portfolio.

While there is a great deal of argument as to the value of the bank’s assets it should be noted that at the moment the company’s free cash flow annualized is $40 billion. The fact that the company is in a cash throw-off position indicates that its assets are not being overstated and that in bankruptcy there would be no pressured sales of loans or securities....MORE
Chartology: Bank of America (BAC)   
UPDATED: Betting on a Bank of America Bounce (BAC; XLF)
"Bank of America a Good Two-Month Bet, Morgan Stanley Says" (BAC; XLF)  
"Seven reasons to buy bank stocks now" (BAC; C; JPM; PNC; WFC; XLF) 
"A Secret Route to Banking's Potential Riches" (BAC; HIG; JPM; WFC) 
"Bove Cuts His Price Target for Bank of America Stock" (BAC)
"Citigroup, Bank of America Up Six Times by 2015 Says Dick Bove" (BAC; C)