Just consider for a moment that there is some merit to the CEO's assertion that the dividend is not necessarily a target right now. Assume the EPS estimates going forward are correct and they take another $20B or so in writedowns and CFC acquisition costs.
What if they don't cut the dividend?
Don't wait foe them to announce a good qtr. The stock will be up 10-20% that day and it's too late. You have to rick buying earlier. Maybe not now but surely not after things look better. Who know's if Buffet is buying now or not. If he is we wouldn't find out until after he owns it.
"I will say that the market usually isn't wrong"
I beg to differ. Markets are many times wrong. If that wasn't the case, nobody would ever make money in the stock market. Market sees the div as unsustainable, but as long as BAC keeps it, market can do whatever they want. I'm ok with all this red thing as I already have the funds to keep buying all the way to $20 or even lower. I think the lesson here is not to use all your bullets in the first battle.
NEW YORK (MarketWatch) -- Banc of America Securities on Monday predicted that Merrill Lynch & Co. Inc. will write down $3.5 billion in the second quarter and slashed quarterly earnings estimates for the bank to a loss of $1 a share from a previous estimate of a profit of 21 cents a share. Analysts led by Michael Hecht said they remained concerned about continuing marks on Merrill's mortgage-related exposures and collateralized debt obligations and predicted a quarterly loss for the investment banks. "Slowing economic growth and still large balance sheet exposure to residential and commercial mortgages and hung bridges suggest a lackluster, low visibility environment for the large I-banks through '08," wrote analysts.
Like all other crisis, this one will be over one day. Looking back people will say what a company BAC is, they never cut their dividend in the perfect storm but bought CFC and turned it around and now they are biggest mortgage lender too. Stock price will be north of $75 and it will be the stock of the retirees.
That day may be 2 years away. I think because they have money and ego, BAC will not cut divy and ride out a few tough quarters. Shorts answering your post are scared of the what if scenario you posted and hence you wont hear answers to your question. Big boys will get out just in time leaving these guys holding the bags. I think after their announcement to not cut divy, the stock will jump back to $35 and over the next few months will trade in $30-40 range until the next rumor/news. A savvy trader will take advantage of the swings.
The best answer to the question is what has happened over the last few months. They have not cut the dividend but the stock has dropped dramatically because of a lack of confidence. Probably further declines to go but that will be muted by the hopes that the dividend statements from mgmt are real. I think they will continue to bounce around the mid twenties until after the CFC deal is closed. Then if they do not cut the div and the Q2 #'s are ok then the price should quickly rocket back up into the $30's. I don't see it happening but that is what I would expect.
I am waiting to jump back into BAC but I would never short it. I think the "what if" question is a great one. The driver will not be the daily ups and downs of the stock price but the quality of the earnings release. they can't continue to make 2 cents and pay out 3.
Since it is earnings that will be the driver I would be suspect they could continue the div at this level. Q2 is shaping up to be a dud with all the banks starting to pre-release more bad news coming. BAC will have some credit card issues, commercial real estate, etc. even if the resi mortgage stuff is reaching bottom. Add to that the charges and confusion the CFC acquisition will cause and the quarter will be a bust. Just my opinion.
Then it will be a $5 stock that still pays a dividend until the day its broken up, taken over, or shut down.
There is no more ability to raise capital. Notice the consipicuous absence of soverign wealth funds in the LEH deal. Investors have realized the truth.
From now on, things will get interesting. There wont be trip after trip to the capital well, and any stock issuance to recapitalize will be significantly below market prices. Its almost time to see some panic set in.
As much as i agree with you, I sure hope you are wrong.
I'm long from Fleet almost 30 years ago.
Probably about 2.50 a share +/-
Hopefully they can hang on and the whole system won't collapse.