July 1, 2008 – 10:17 am
The more I think about this transaction, the more it stinks. I am trying my best to give BAC’s management the benefit of the doubt since banking is their profession, after all. Then again, my profession is ferreting out profitable opportunities, and methinks a shorting is in the air if they close on this deal. Most know how bad off Countrywide is, but let’s waltz through and overview of Bank of America…
|
1Q-2008 |
4Q-2007 |
3Q-2007 |
2Q-2007 |
1Q-2007 |
| Total Allowances at EOP |
14,891 |
11,588 |
9,535 |
9,060 |
8,732 |
|
|
|
|
|
|
| Gross Charge off’s as % of Loans |
|
|
|
|
|
| Residential mortgage |
0.03% |
0.01% |
0.01% |
0.01% |
0.01% |
| Credit card - domestic |
1.57% |
1.25% |
1.36% |
1.56% |
1.65% |
| Credit card - foreign |
0.87% |
0.86% |
0.89% |
0.88% |
0.89% |
| Home equity |
0.49% |
0.16% |
0.05% |
0.03% |
0.02% |
| Direct/Indirect consumer |
0.89% |
0.96% |
0.62% |
0.54% |
0.57% |
| Other consumer |
2.75% |
-0.96% |
1.84% |
1.50% |
1.45% |
| Total consumer |
0.47% |
0.34% |
0.30% |
0.30% |
0.31% |
| Commercial - domestic |
0.05% |
0.05% |
0.02% |
0.03% |
0.13% |
| Commercial real estate |
0.17% |
0.03% |
0.07% |
0.01% |
0.01% |
| Commercial lease financing |
0.09% |
0.09% |
0.07% |
0.05% |
0.05% |
| Commercial - foreign |
0.02% |
0.02% |
0.03% |
0.03% |
0.04% |
| Small business commercial - domestic |
1.83% |
1.46% |
1.51% |
1.35% |
NA |
| Total commercial |
0.18% |
0.13% |
0.12% |
0.11% |
0.10% |
| Total Gross Charge offs as % of Loans |
0.36% |
0.26% |
0.24% |
0.24% |
0.24% |
|
|
|
|
|
|
| Provision as % of Loans |
0.69% |
0.38% |
0.25% |
0.24% |
0.17% |
| Provision as % of NPA’s |
77% |
56% |
60% |
76% |
60% |
|
|
|
|
|
|
| Gross Charge off to Loans |
0.36% |
0.26% |
0.24% |
0.24% |
0.24% |
| Gross Charge off to NPA’s |
41% |
38% |
56% |
75% |
85% |
|
|
|
|
|
|
| Allowances as % of Loans |
1.70% |
1.32% |
1.20% |
1.19% |
1.21% |
| Allowances as % of NPA’s |
190% |
195% |
283% |
379% |
424% |
|
|
|
|
|
|
| NPA’s to Loans |
0.90% |
0.68% |
0.42% |
0.32% |
0.28% |
|
|
|
|
|
|
| Shareholder’s equity |
156,309 |
156,309 |
138,510 |
135,751 |
134,856 |
| Goodwill |
77,872 |
77,530 |
67,433 |
65,845 |
65,696 |
| Intangible assets |
9,821 |
10,296 |
9,635 |
8,720 |
9,217 |
| Adjusted Equity |
68,616 |
68,483 |
61,442 |
61,186 |
59,943 |
|
|
|
|
|
|
| Diluted shares outstanding |
4,461 |
4,497 |
4,476 |
4,477 |
4,497 |
|
|
|
|
|
|
| BVPS |
35.0 |
34.8 |
30.9 |
30.3 |
30.0 |
| Adj BVPS |
15.4 |
15.2 |
13.7 |
13.7 |
13.3 |
|
|
|
|
|
|
| NPAs as a % of shareholders’ equity |
5.0% |
3.8% |
2.4% |
1.8% |
1.5% |
| NPAs as a % of adjusted shareholders’ equity |
11.4% |
8.7% |
5.5% |
3.9% |
3.4% |
| More than 11% of shareholder’s value is in non performing assets, and this is before buying the worst bankn in the country!!! |
|
| Texas Ratio |
14.4% |
12.1% |
8.9% |
7.4% |
7.2% |
| The Texase (insolvency) ratio has doubled in the last year |
| Eyles Test |
22,181.8 |
19,324.2 |
15,120.4 |
14,017.9 |
13,570.1 |
| Shortfall from current reserve for loan loss |
7,290.8 |
7,736.2 |
5,585.4 |
4,957.9 |
4,838.1 |
| Shortfall as % of tangible shareholders’ equity |
10.6% |
11.3% |
9.1% |
8.1% |
8.1% |
The Eyles Test shows that reserves are sparse
|
|
| NIM |
2.73% |
2.61% |
2.61% |
2.59% |
2.61% |
| Leverage is increasing even as margins will freeze or reverse as the US Banks |
| Tier 1 leverage ratio |
5.61 |
5.04 |
6.20 |
6.33 |
6.25 |
This what the portfolio looks like. They are heaviest in the things that are hurting the industry the most!
| Loan Portfolio (March, 2008) |
|
|
|
|
|
|
|
|
|
Loan Portfolio |
% of Total |
NPA |
% of Total NPA |
NPA/ Loans |
Charge-offs |
% of NPA |
% of Loans |
| Consumer |
|
|
|
|
|
|
|
|
| Residential mortgage |
266,145 |
30.6% |
2,576 |
35.1% |
0.97% |
85 |
3% |
0.03% |
| Credit card – domestic |
60,393 |
7.0% |
NA |
NA |
NA |
950 |
NA |
|
| Credit card – foreign |
15,518 |
1.8% |
NA |
NA |
NA |
135 |
NA |
|
| Home equity |
118,381 |
13.6% |
1,786 |
24.4% |
1.51% |
582 |
33% |
0.49% |
| Direct/Indirect consumer |
80,446 |
9.3% |
6 |
0.1% |
0.01% |
719 |
11983% |
0.89% |
| Other consumer |
3,746 |
0.4% |
91 |
1.2% |
2.43% |
103 |
113% |
2.75% |
| Total consumer |
544,629 |
62.7% |
4,459 |
60.8% |
0.82% |
2,574 |
58% |
0.47% |
| Commercial – domestic |
188,089 |
21.6% |
996 |
13.6% |
0.53% |
102 |
10% |
|
| Commercial real estate |
62,739 |
7.2% |
1,627 |
22.2% |
2.59% |
108 |
7% |
0.17% |
| Commercial lease financing |
22,132 |
2.5% |
44 |
0.6% |
0.20% |
21 |
48% |
0.09% |
| Commercial – foreign |
31,101 |
3.6% |
54 |
0.7% |
0.17% |
7 |
13% |
0.02% |
| Small business commercial – domestic |
20,123 |
2.3% |
153 |
2.1% |
0.76% |
368 |
241% |
1.83% |
| Total commercial at historical cost |
324,184 |
37.3% |
2,874 |
39.2% |
0.89% |
606 |
21% |
0.19% |
|
|
|
|
|
|
|
|
|
| Total Loans |
868,813 |
100% |
7,333 |
100% |
0.84% |
3,180 |
43% |
0.37% |
Level 3 Assets are present in a decent amount
|
Level 1 |
Level 2 |
Level 3 |
Nettings |
Assets/Liabilities at Fair Value |
| Federal funds sold and securities purchased under agreements to resell |
0 |
2,661 |
0 |
0 |
2,661 |
| Trading account assets |
54,062 |
106,109 |
5,522 |
0 |
165,693 |
| Derivative assets |
1,082 |
782,438 |
10,834 |
(743,429) |
50,925 |
| Available-for-sale debt securities |
2,221 |
209,981 |
9,658 |
0 |
221,860 |
| Loans and leases(2) |
0 |
0 |
5,057 |
0 |
5,057 |
| Mortgage servicing rights |
0 |
0 |
3,163 |
0 |
3,163 |
| Other assets(3) |
19,019 |
12,411 |
5,496 |
0 |
36,926 |
| Total |
76,384 |
1,113,600 |
39,730 |
(743,429) |
486,285 |
Check out Geographic Concentrations amongst troubled lending products!
|
1Q-2008 |
4Q-2007 |
| Consumer Loan State Concentration – Managed Basis |
|
|
|
|
| Residential Mortgage |
|
|
| California |
87,815 |
88,703 |
| Florida |
16,588 |
16,497 |
| New York |
16,889 |
15,333 |
| Texas |
12,990 |
13,193 |
| New Jersey |
10,184 |
10,346 |
| Virginia |
11,355 |
11,535 |
| Other U.S./Foreign |
113,904 |
123,126 |
| Total |
269,725 |
278,733 |
|
|
|
| Credit Card |
|
|
| California |
22,645 |
22,231 |
| Florida |
12,639 |
12,503 |
| New York |
9,368 |
9,420 |
| Texas |
10,032 |
10,098 |
| New Jersey |
5,952 |
5,937 |
| Virginia |
4,605 |
4,669 |
| Other U.S./Foreign |
118,517 |
118,833 |
| Total |
183,758 |
183,691 |
|
|
|
| Home Equity |
|
|
| California |
31,646 |
29,891 |
| Florida |
16,035 |
15,442 |
| New York |
7,666 |
7,439 |
| Texas |
2,269 |
2,231 |
| New Jersey |
7,921 |
7,779 |
| Virginia |
4,007 |
3,861 |
| Other U.S./Foreign |
48,961 |
48,352 |
| Total |
118,505 |
114,995 |
|
|
|
| Direct/Indirect |
|
|
| California |
10,180 |
9,743 |
| Florida |
6,627 |
6,244 |
| New York |
4,483 |
3,275 |
| Texas |
6,334 |
6,050 |
| New Jersey |
2,116 |
1,911 |
| Virginia |
1,932 |
1,784 |
| Other U.S./Foreign |
50,014 |
49,571 |
| Total |
81,686 |
78,578 |
|
|
|
| Other |
|
|
| California |
115 |
121 |
| Florida |
195 |
203 |
| New York |
63 |
67 |
| Texas |
224 |
231 |
| New Jersey |
12 |
13 |
| Virginia |
51 |
54 |
| Other U.S./Foreign |
3,086 |
3,161 |
| Total |
3,746 |
3,850 |
|
|
|
| Commercial real estate loan concentration |
|
|
|
|
|
| California |
10,073 |
9,369 |
| Northeast |
9,113 |
8,951 |
| Midwest |
8,230 |
7,832 |
| Illinois |
6,830 |
6,731 |
| Southeast |
6,756 |
6,472 |
| Southwest |
5,798 |
5,400 |
| Florida |
4,828 |
4,870 |
| Midsouth |
3,014 |
2,843 |
| Northwest |
2,755 |
2,417 |
| Other |
1,932 |
3,370 |
| Geographically diversified |
2,357 |
2,282 |
| Non-U.S. |
1,293 |
1,065 |
| Total |
62,979 |
61,602 |
Now if I were to overlay a similar chart of Countrywide on top of this, it would stop your heart. Can I hold myself back from a long term bearish play on this company if they buy CFC without subsidies? Does BAC management know something that I don’t? I’d like to hear from readers who know more about this deal and the players than I do.
Posted in Commercial Banks |
3 Responses to “More on Bank of America and Countrywide”
Don’t tell me this took you all by suprise.
45% of all non conforming ( non fannie, freddie, fha, va ) loans are originated in California. Florida accounts for 17%.
Two states with 60% of the Alt A Loans. Duh.
According to the home affordability index in 2004 only 19% of the population ( median house hold ) could afford the median priced home in California. WHAT DID YOU ALL THINK WAS GOING TO HAPPEN.
By CRASH - MIDWEST on Jul 2, 2008
One as to wonder what liability shields BofA was able to put in place related to the onslaught of coming lawsuits. I believe countrywide was put into a holding company. That might help. Also, in some of these deals, there are incredible tax benefits that are conveyed to the acquirer. Not the BofA needs more write downs, but a huge tax benefit can not hurt. At the end of the day, countrywide cost them nothing. The questions is, how much less than nothing is countrywide worth?
Overall, bad move by bofa. Could cost Lewis his job and immortality.
By AAS1957 on Jul 6, 2008
I gotta give you credit Reggie - I agree with what you’re saying here, but even taking that into consideration, I highly regret not buying Bank of America stock when it fell to the high teens a few weeks ago. I don’t know why I didn’t pull the trigger to buy, I guess because it would have been on margin and I figured I had time to sell my other holding I wanted to dump and I could buy BAC with cash… well I was wrong. Do you think it will dip back down again?
By Michael - Credit Card Forum on Aug 11, 2008