The adorable woodland creature Dick Bové would likely to kindly shut up about “failure,” cause that’s never gonna happen. Bank of Amerillwide is a buy, for a variety of reasons, among them being the fact that Ken Lewis is “the best operating manager of any bank in the United States.”
Bank of America (BAC): Fighting for Credibility
• Bank of America’s stock is now selling at 0.28x expected 2009 revenues; 6.9x expected 2009 earnings; 0.19x stated book value; 0.50x tangible book value. Its market capitalization is 3.4% of its total deposits and 1.7% of its assets.
• These numbers are clear, investors believe that this bank is about to fail and be nationalized by the United States government. If they believed that it would continue as an operating entity it is unlikely that the bank would be selling at such a low value.
• One reason for this conviction, on the part of investors, is Bank of America’s acquisition of Merrill Lynch. It is felt that either the company did not do the appropriate due diligence before making this acquisition, or that the company lacked the ability to understand how bad Merrill’s problems were. In either case a lose/lose situation.
• Management is now fighting back. In an article in today’s Wall Street Journal it is reported that the United States coerced Bank of America into buying Merrill against management’s will. This article could only have come from an interview with Bank of America’s management. The point to investors is “we knew what was going on but we had no choice.”
• This, to some extent, alleviates the questions concerning management’s competence. It does not take away the belief on the part of investors that the company’s woes are so significant that it will fail.
• From my perspective these fears simply make no sense whatsoever. In the fourth quarter, Bank of America’s deposits rose by almost a net $9 billion. Its loan loss provision was $8.5 billion but 27% of this was a reserve build and the whole amount was a non-cash charge. It took close to $8 billion in losses related to securities. The portion that was non cash in nature may have been as high as 75%.
• The point is that this bank is cash flow positive. It is not in danger of failure. Plus, the United States is now committed to keep it in business.
• Plus, for the record, I have always believed and continue to believe that Ken Lewis may be the best operating manager of any bank in the United States. Moreover, I continue to think that this company has $5 per share in earnings power.
• In the current environment whereby investors are fixated on tangible common equity adjusted for potential losses, it is impossible to present an opposite view. However, I repeat tangible common equity has no meaning. It is cash flows and asset values that determine the value of a bank and despite some hefty loan losses; Bank of America is a
strong buy on this basis.
what a misinterpretation of the US govt-BAC negotiations! The message is that Ken Lewis will do whatever it takes to keep his job, even if that means sacraficing shareholder value by buying sinking MER despite apparent MAC.
And Citi was the buy of the century at $30 Dick, right? What a dick….
Guys like Bove sometimes make me embarassed to be an equity research analyst. His “analysis” made me cringe.
Good morning.
Why does the gov. go after these guys for their lifestyles? From the journal this morning: Later, speaking to House Democrats gathered at the Kingsmill Resort, Mr. Obama strayed from his text to express frustration with the barrage of criticism that has bogged down the plan. The plan’s opponents say, “‘This is not a stimulus bill, this is a spending bill,’” Mr. Obama said. “What do think a stimulus is? That’s the whole point! No seriously, that’s the point! Now I’m getting carried away.” So they get to go to resorts? Foul.
Lewis may be the best operating manager, but that’s of a commercial bank. His institution has evolved significantly from that point. Contrast that with say WFC or PNC, which have generally stuck to what they know they can do best.
this is the sure sign of top. sell your shares or become a ward of the state…can’t wait to see what kenny boy has to say for himself today on cnbc. I need to find a tv that has volume. seriously, he was negotiating with a guy who only had a few days left in his position. it doesn’t take a savvy deal guy to know that if you drag your feet a while, the veiled threats would go the way of the old administration…
evil Santa?
Dick what about that buy of a generation call on the banks a year ago?
Dick has been wrong for so long how does he keep his job?
@6 – speaking of negotiating… The best negotiating group? UAW. Their only loss was the job bank. They waited out Bushie and the Congress and will most likely do well again once negotiations pick up for Auto Bailout II. Not bad for a rag-tag group of Michigan inbreds.
9 What else did they have to give up? Generous pension and medical plans? That’s easy for the employer to cave on -its not a current expense.
@3 being an equity research analyst should make you embarassed to be en equity research analyst.
@3 being an equity research analyst should make you embarassed to be an equity research analyst.
@ 11 Day trading in Ma’s basement? How’s that treating you?
sorry for the double post…i’m an idiot obviously
Ken Lewis is a piece of work — first he blames Thain, then he blames the US Government. Next he is going to blame God.
@10 – The UAW gave up the jobs bank, that’s it. For now, Everything else remains in place. The UAW is unlikely to budge on the two items you mentioned – in fact these items may be rolled over to the US gov’t. as part of the gov’t's attempt to gain control of the health care industry.
@13 not social enough to do anything but create useless excel models as a junior sell side analyst…Oooooo yea thats right
I am long Bovetime Growth Hormone.
Kenny Boi
1: Yea, every time the claim comes up that Lewis made such tragically bad decisions due to government “pressure” I wonder why his fiduciary duty to resist said pressure never came into play. If nothing else, he should have made it clear at the time that he was buying MER under duress, but of course he didn’t because that was not the case. Did they make him buy Countrywide too?
i agree with 12
I think I just was scooped by Gaspacino in the mens room. Is it supposed to sting like this?
“The last time an opportunity of this nature existed to buy bank stocks this cheap was in 1990,” the analyst wrote. “The next time will be in 20 years. This is a once in a generation opportunity.”
- Dick Bove, March 20, 2008.
Good Call… Dick.
@6 – it’s true that Paulson was on his way out but Bernanke and Geithner were sticking around and more than that, the Treasury and Fed staff have very, very, very long institutional memories and hold grudges.
Not to mention the government is now full of Goldman alumni. You cross one of them – you’ve crossed them all.
@8 he is self employed
The apple never falls far from the tree, the guy’s name is ‘DICK’ after all…
@1 totally agree only Dick could mis this point. Also, am I the only one that is stuck by the fact that lewis could put out a memo on feb 2 talking about jan performance but he was surprised at the 4 qtr losses in dec?????
Buy now or be priced out forever!
~Real Estate Mavens of America
@1 you are right. He apparently did not go to the fed till 17th. he knew about losses before the vote and BEFORE he went to the fed. At dec 5 losses too small to disclose. Dec 17 losses so big co will fail. What would you do if he came to you in the 11th hour with plan to f–k the whole system. of course they played hardball. this is best evidenced by the fact that he did not get sweatheart deal.
@23 – good point, but I hardly believe that helicopter ben holds much of anything. true, timmy boy was hanging around for a bigger title but even that looks shaky now (if kudlow gets his way). that said, look at the premise behind the threat: “any future requests for government assistance” the fed would deal with bofa using a “heavier hand”. if the hick really believed the bank was strong/viable, he could have forced the government’s hand. did it for the country, my a$$. how about fiduciary duty? looks like what was good for the country was bad for bofa shareholders. why couldn’t they split mer up and give the pieces to jpm/wfc/bac? as we know, hindsight is always 20/20, but this was a terrible deal and kenny’s penchant for deals above the fold has cost shareholders greatly.
@29 when you are a bank in a heavily regulated industry, you will always, eventually need the gentle hand of the Treasury/Fed/FDIC.
Whether it’s a $45B capital injection or approval of new branches, or managing a government program, or buying the good assets of a failed bank from the FDIC, you don’t want to be on the wrong side of them.
Have you heard Jamie Dimon say one bad thing about our federal officials? No way. And look at the largess bestowed upon him.
Banks that don’t play 9 innings of ball with the Feds, *cough* Bear *cough* Lehman *cough*, end up having their mugs, umbrellas and windbreakers auctioned on Ebay.
@17, Are you serious? Good luck.
Bartiromo is interviewing lewis on cnbc today… tune in and watch him dance dance dance.
Is this the same guy (Bove) who reveled when Fuld threw Gregory and Callan under the bus???
In hinsight, and I know I don’t work in the financial industry, LEH should never had failed.
True, Fuld had a “Pet Rock” Board of Directors.
True, it was overleveraged.
True, the firm most likely had many enemies on Wall Street.
But Jamie Dimon turned off the spigot to LEH that Friday prior to it declaring Chapter 11, and the Feds would not “backstop” BCS or BAC on the purchase of the firm.
FACE IT, this was an epic failure.
Had all this not happened, BAC would not have purchased MER.
And then went AIG…
And then went WaMu…
And then went WB…
And I do feel GS has wayyyy too much influence pertaining to monetary and political affairs.
Just my opinion, as a hippie shareholder activist Phish phan…
D. Bove’s mom is the best operating manager of any prosty business in the United States…