BAC – Dilution Coming. Shareholders – Wooohooo!
Looks like Bank of America plans to repay $45b of bailout cash to Treasury. Funds they didn’t want or need, apparently. But which they plan to pay for, in part, with $18b of fresh securities (which may later turn into a common stock offering). And they will also sell $4b of unspecified assets. Clear as mud.
They will declare themselves free of government assistance. But they continue to enjoy TBTF status. And while I can’t find an recent number, as of Feb of 2009, they had raised $33b in government-guaranteed debt. Nonetheless, after they pay back the $45b, they are free and clear of any government control. Back to huge bonuses and reckless spending with other people’s money.
FASB battle
If the FASB succeeds in eliminating “mark to imagination” accounting, this will not look like a good move for BAC in retrospect. Or if banks are forced to bring all the toxic off-balance sheet crap back onto their books. That would be ugly.
Fortunately bank lobbyists are fighting hard against transparency. From CFO.com:
SEC commissioner Elisse Walter is fighting a proposal that would weaken the regulator’s authority over accounting standards-setters. In a hearing Tuesday before a House committee, Walter called the concept of allowing bank regulators to have a significant say in accounting rules “a grave mistake.”
While Walter’s prepared speech included the usual caveat that her words were not representative of the entire commission, she noted that Securities and Exchange Commission chairman Mary Schapiro “endorses this testimony.”
Currently, the SEC has budget approval over the Financial Accounting Standards Board, which it has designated as the main U.S. accounting standards-setting organization. The commission also frequently provides input to the board’s standards-setting activities. In addition, the SEC has the ability to nominate and interview trustees of the Financial Accounting Foundation, FASB’s parent, which nominates and approves the five FASB members.
All this year, lawmakers have toyed with the idea of making FASB subject to a new oversight body as they work to pass sweeping financial regulatory reforms. Soon, Rep. Ed Perlmutter (D-Colo.) is expected to introduce an amendment to the Financial Stability Improvement Act — a key piece of legislation in the markup phase in the House Financial Services Committee — that would establish a new board of regulators, including bank regulators, to oversee accounting standards-setting. Critics are concerned that the body would give the bank regulators too much say on accounting rules.
The concept has been embraced by advocates of financial institutions — many of which have blamed fair-value accounting rules for exacerbating the financial crisis. Conversely, investors, business advocates, and accounting firms oppose such a move, as they fear it would harm FASB’s independence.
Disclosure: No positions in companies mentioned
4 Comments
It is clear to me that the banks and other financial institutions are the real “empire of evil”. Their only purpose is to make the rich richer and poor poorer. They use the government to help them along the way. The law makers constantly create laws that are not good for the country, i.e. it’s majority of inhabitants, but are good for the businesses.
All that amounts to unpatriotic action by the government as well as by the businesses. Having accounting rules as a playground for greedy operators is plain wrong. As a home owner I cannot set the “value” as I please. I cannot declare a credit card debt to be only some percentage of what it really is. Why are businesses allowed to toy around with this?
As there is no level playing field especially the financial conglomerates can squeeze the little people to their liking. The government helps them to survive and does not protect the little people. Just great! Thank you so much, Congress!
“Having accounting rules as a playground for greedy operators is plain wrong.”
Well said.
Thank you, I’ve been watching b of a and there’s a few things I don’t understand.
The issuance of shares dilutes the existing one’s, so why such optimism?, because they won’t be paying interest like they do on the TARP funds? possibly. What I really think is that the stock buying public has such a fear of govt. regulation that they applaud and reward b of a for throwing off the yoke.
Why is the short % so low? Even Berkshire has more short positions on it than B of A. Are bears that fearful of the stock price going up? Makes me wanna buy puts just to be contrary. At least the one’s with a january strike date.
I think the author is correct that B of A is going to be more reckless now. I can smell it. I just hope they don’t get bailed out again if they do. Which means I put a tight stop loss on my shares. I bought when they were about 7.50. I sold calls for 16 over a month ago that expired worthless. wish they hadn’t. they still haven’t come back to the $16 price they were.
Rick386
If you sold 16 calls, and they ran out worthless, then just keep on selling them, adding to your profit. If you choose to get rid of the stock, just sell calls in the money, and you will probably lose the stock, which is what it sounds like. If you need some protection, buy some cheap puts. I don’t understand what your problem is. Its just another trade. Don’t fall in love with any stock. They won’t love you back. Atrader.