Paulson Smiling About BofA Paying Back TARP Earlier Than Expected

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For those of you shitting your pants when Gasparino breathlessly did 'a phoner' on CNBC last night because you thought John Paulson's 'BofA will triple by the end of 2011' prediction would be compromised - not to worry - not right now at least.


Bank of America actually has a lots of cash (now known as excess liquidity of $26.2 billion) enough to get the pay czar off their back and pay off $45bn in TARP. Heck with all the cash they are generating maybe even buy back shares in the future and reduce shares outstanding. A very good thing for anyone who has a huge ass long bet on of BofA.
One trader we spoke with calculated BofA's new secondary still keeps JP on pace to earn near his $3 earnings per share without diluting his huge ass position because it's really around only a 13% dilution ($18.8bn of common at the current stock price means BofA needs to issue about 1.2bn new shares which is about 13.8% of the current number of shares outstanding). On top of that, one bank analyst Dealbreaker talked to pointed out "the ongoing cost of the government preferred is more than the cost of the common because of a higher divined payout ratio - therefore not dilutive on an ongoing basis".
FBR Capital Markets bank analyst Paul Miller thinks raising common and exiting TARP kills two birds with one stone and upgraded the stock from $15 to $20. As Miller points out in a research note this morning "many investors expected BofA to be required to raise the full $45 billion in common" and had already priced that view into the stock.
John Paulson no doubt is smiling right now.

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