Here is the back story. Last year in July or August, Bank of America (BAC, Financial) was asked to present contingency plans “should economic conditions significantly deteriorate”. Essentially, should the US at that time go back into recession and BAC saw a significant decline in revenues and additional losses on mortgage/credit portfolio’s, what would they do? Remember at the time US growth had slowed, the nation’s debt was downgraded and the market was suffering large declines. Being that BAC was the largest and most integrated bank into the US economy, it is only reasonable after 2008 that the Fed want to know if there was an plan. Right?
Because of that, out point of reference for ANY news that floats out regarding that request must be applied to both the condition of the bank and the general economy in the mid summer of 2011… NOT today.
The plan included (but is not limited to since not public):
1- A tracking stock for Merrill
2- Selling some branches (regions)
Now, neither one of these are earth shattering and in all reality, if we saw another Lehman event, would be perfectly acceptable scenarios. It is also worth noting here that everything that has been said about this is from “sources”. The Fed and BAC haven’t actually commented on anything.
Since then BAC got a $5B investment from Warren Buffett, sold a $7.3B stake in CIC, sold >$9B in credit card businesses and announced $5B in annual savings through cost reductions (bloated payroll). Across the board the bank has seen significant increases in Capital Ratio’s, is well ahead of Basel III implementation and has seen significant improvement in all credit/loan portfolios.
As for the overall economy, employment has improved, retail sales continue to grow, GDP is growing etc, etc, etc…
Essentially pick an economic indicator today and it is better today than it was in the summer ’11.
Despite this, whenever any tidbit of that request and BAC’s response is leaked, it is treated by the media as though it is happening today rather than 6 months ago.
Yesterday is was disclosed/leaked/proposed/guessed that one of the plans BAC had was to exit some less profitable areas of the country. Now, remember this was proposed 6 months ago. Yet the headlines would have you believe they are considering it now.
Bank of America Ponders Retreat
Executives at the Charlotte, N.C., financial giant put the potential move on a list of emergency scenarios submitted to the Federal Reserve last year, these people said. While people close to Bank of America insist that no retreat is imminent, even the possibility of selling branches and losing customers it spent huge sums to lure underscores the depth of its problem
Really, it does? The Fed asked BAC to submit an “emergency scenarios” plan last year. Doesn’t common sense dictate “emergency scenarios” mean everything is on the table? How does that correlate to “depth of its problems” now? I got news for you, if i was killed and the wife lost her job/business and got sick herself, one of the “emergency scenarios” would be to sell the summer house or move there and sell this one… does that underscore the “depth of our problems”? Of course not, the assumption it does is simply ludicrous.
Now, I will say that the article does go on to address some of my points here but in every instance, a positive point for BAC is followed by a “but” and then a point that attempts to negate the previous positive statement. For instance:
Dave Weidner over at Marketwatch simply ignores the reality of it for the expediency of an errant point.
The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.
Because of that, out point of reference for ANY news that floats out regarding that request must be applied to both the condition of the bank and the general economy in the mid summer of 2011… NOT today.
The plan included (but is not limited to since not public):
1- A tracking stock for Merrill
2- Selling some branches (regions)
Now, neither one of these are earth shattering and in all reality, if we saw another Lehman event, would be perfectly acceptable scenarios. It is also worth noting here that everything that has been said about this is from “sources”. The Fed and BAC haven’t actually commented on anything.
Since then BAC got a $5B investment from Warren Buffett, sold a $7.3B stake in CIC, sold >$9B in credit card businesses and announced $5B in annual savings through cost reductions (bloated payroll). Across the board the bank has seen significant increases in Capital Ratio’s, is well ahead of Basel III implementation and has seen significant improvement in all credit/loan portfolios.
As for the overall economy, employment has improved, retail sales continue to grow, GDP is growing etc, etc, etc…
Essentially pick an economic indicator today and it is better today than it was in the summer ’11.
Despite this, whenever any tidbit of that request and BAC’s response is leaked, it is treated by the media as though it is happening today rather than 6 months ago.
Yesterday is was disclosed/leaked/proposed/guessed that one of the plans BAC had was to exit some less profitable areas of the country. Now, remember this was proposed 6 months ago. Yet the headlines would have you believe they are considering it now.
Bank of America Ponders Retreat
Executives at the Charlotte, N.C., financial giant put the potential move on a list of emergency scenarios submitted to the Federal Reserve last year, these people said. While people close to Bank of America insist that no retreat is imminent, even the possibility of selling branches and losing customers it spent huge sums to lure underscores the depth of its problem
Really, it does? The Fed asked BAC to submit an “emergency scenarios” plan last year. Doesn’t common sense dictate “emergency scenarios” mean everything is on the table? How does that correlate to “depth of its problems” now? I got news for you, if i was killed and the wife lost her job/business and got sick herself, one of the “emergency scenarios” would be to sell the summer house or move there and sell this one… does that underscore the “depth of our problems”? Of course not, the assumption it does is simply ludicrous.
Now, I will say that the article does go on to address some of my points here but in every instance, a positive point for BAC is followed by a “but” and then a point that attempts to negate the previous positive statement. For instance:
The drastic moves would be seriously considered only if Bank of America needs to raise more capital to cushion itself from mortgage woes and other turmoil. The exercise wasn’t intended to force immediate action but rather to prepare Bank of America if its situation worsened, according to a person familiar with the Fed’s approach. But Mr. Moynihan, other top executives and directors of the sprawling bank are grappling with scenarios that were unthinkable even during the worst moments of the financial crisis.Sort of like saying to the wife, “Yes, that is a beautiful dress but it makes you look like a Tijuana prostitute”. Try it and let me know how it works out for you. You’ll get my point...
Dave Weidner over at Marketwatch simply ignores the reality of it for the expediency of an errant point.
The results are sure to put a damper on what had been a modest bank-sector rally so far in 2012. Earnings from Citigroup Inc. (C, Financial) and Wells Fargo & Co. (WFC, Financial) will arrive next week as will results from blue chip Bank of America Corp. BAC — a company whose business is so bad, it’s reportedly contemplating an exit from some parts of the U.S. market. See story on Bank of America plan to exit U.S. regions.One has to wonder if Weidner even read the WSJ article or is aware of any of the above….at all. I hope he didn’t because being lazy here is better than being dishonest which, if he read the story one has to wonder how he came to the conclusion he did without a preconceived agenda, facts be damned. His claim simply bears absolutely no resemblance to what actually is happening….none at all.
The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.
