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Daniel Sinclair
Daniel Sinclair

Jacob Wolinsky: Where John Paulson May Be Getting His Numbers For Bank Of America

October 27, 2010 | About:
In his 24 October 2010, Jacob asked "John Paulson: Where Are You Getting Your Numbers For Bank of America?". Great question as further details on Paulson's thinking would be helpful for those looking for more granularity on his call in order to make their own assessment of the same.

In particular, he noted that "Late last year John Paulson made a very bold call on Bank of America. According to Teri Buhl at he predicted Bank of America would have earnings of $3 per share by the end 2012. Using a 10X multiple the stock would be worth $30 a share...John Paulson recently came out and admitted he made a mistake. According to Teri Buhl of Forbes ((link here) Paulson now estimates EPS of $2.66 in 2012. However, John Paulson says he is still long BAC, and owns 167 million shares currently. ".

So, with the approximate estimate and PE multiple, give or take, Paulson is suggesting that there is now a target value for Bank of America of approximately $3.33 less than he estimated.

Thinking about the mortgage putback issue and all that, estimates are that banks and mortgage lenders in the US might be liable for about $100 B. CNBC's Kate Kelly today reported that "liabilities have been hard to pin down, with one J.P. Morgan survey pegging the total industry losses at between $55 billion and $120 billion.".

Given Bank of America's share of mortgages in the US, and to err on being a bit conservative, say BAC's share of the liability might be 1/3 of the total estimated $100 B. That would amount to $33 B for BAC. With apparently about 10 B shares outstanding, that would be an approximate $3.33 haircut on the value of the shares of Bank of America - which, according to banking analyst Richard (Dick) Bove, is currently valued at less than the cash on its balance sheet . Take $3.33 from $30, Paulsen's original estimate for BAC in 2012, and you get his new estimate of about $26.67.

Who knows what might pop up next. Perhaps one can say that about many things these days, if not always. But, directionally, this might be part of the calculation that was being made by John Paulson.

I own some U.S. banks which may include BAC.

Rating: 4.5/5 (11 votes)


Yswolinsky - 5 years ago
Thanks for the write up.

I have a question for you though.

It sounds like you are saying Paulson's EPS estimates went up above 3 and then went down below 3 after the recent news about foreclosure-gate.

So did Paulson raise his estimate above 27.2 billion which I cited in the previous article and then lower it? Otherwise I still am missing something.



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