BAC won't be nationalized. As indecisive as the Obama administration has been in the last two weeks regarding the banking assistance, it's just not that stupid. Nationalization of Citi and/or Bank of America means hundreds of billions of equity wiped out of US investment market. The wipe-out will spill over to JPM and WFC IMMEDIATELY after any one big bank is nationalized. This is hundreds of billions of dollars and it is real money. If nationalization of big banks were to occur at this juncture, the wipe-out of equities will continue BEYOND banks.
Obama won't be randomly wiping out common shareholder equities in this time of uncertainty, which does nothing other than creating maximum fear in the market.
The likely solution is a combination of loan guarantees, bank bank, and accounting rule change to market-to-market.
As much as I have disliked bank shares, I believe BAC shares represent a very good value at the current PPS. BAC is still more of JPM and WFC than Citi. Furthermore, real estate market is beginning to show some signs of stabilization, and once the economic assistance bill is passed, real estate will stabilize even more. That is where bank's turnaround starts.
BAC can easily triple in less than one year from current PPS.
urok_polo, you have some really good points. I too believe that if BAC is Nationalized or fails, the other big banks would immediately follow.
However, BAC already has it's deal with the Govt. to cover 90% of losses on $118B in outstandings. It seems to me to be better positioned than WFC and JPM, who do not already have deals, other than their original $25B in TARP funds.
No way of knowing if things will improve this quarter for BAC, at least as compared to the loss last quarter. However, BAC made $4B last year even with the 4th quarter loss. While down substantially from past performance, it at least was profitable. And cutting the dividend will save about $6B in expense and we still have the sharesin CCB. I believe there are restrictions on selling some of those shares but at a minimum we could raise Billions of dollars. And last but not least, we have some valuable parts and pieces in this company that can be sold off if needed.
From the AP:
"Firms that want to pay executives above the $500,000 threshold would have to use stock that could not be sold or liquidated until they pay back the government funds."
To me, if this applies to BAC, this implies that shareholders will not be wiped out. How else could the CEO's get liquid stock options of any determinable value that would create an incentive to turn things around?
Massive bear raid followed by huge rallies is the norm in this market. You are no doubt correct, but why hold three years when the same pattern repeats over and over.
The real question is how low does it go and when to buy or cover. Last time the bottom was 5.00 and I averaged at 5.50. Where is the bottom this time? I was wrong to average at 5.00 today.
A lesson in history, the very onset of the current financial crisis was set in motion with the nationalization of AIG, FRE, FNM, and the bankruptcy of LEH, all of which happened in last September. The chain reaction precipitated by the devaluation of these companies caused immense suffering among institutions holding their assets.
If Obama and his crew have learned anything from the errors of Paulson's approach, it's that you can't nurse financial institutions back to health by destroying shareholder's value.
That was a thoughtful post. I try to be logical and rational and I agree totally with what you said. The alternative is unthinkable and no doubt would be nothing but an out of control snowball to economic hell. Good post. Lets all be patient.