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- Manlobbi
Halls of Shrewd'm / US Policy❤
No. of Recommendations: 6
In several notes to clients this month, Odeon Capital Group analyst Dick Bove has pointed out that Bank of America's big spending on stock buybacks over the past five years has been a waste for its shareholders, with the bank's stock price declining slightly during that period.
In a June 5 note, Bove wrote: 'Mr. Moynihan indicated twice [during a recent presentation] that the bank has excess cash that apparently could not be invested profitably. Possibly he is unaware that the cost of deposits at the bank in [the first quarter of] 2023 was 1.38% while the yield in the Fed Funds market can be as high as 5.25%.' In other words, the bank could earn a high spread at little risk with overnight deposits with the Federal Reserve.
That is a very simple example, but if Bank of America had grown its loan book more quickly over recent years while focusing less on buybacks, it might not face the prospect of a near-term capital raise, which would dilute current shareholders' stakes in the company and reduce earnings per share.
'buybacks haven't helped the largest banks outperform the broad stock market over the past five years. And now, banks face the prospect of regulators raising their capital requirements by 20%, according to a Wall Street Journal report.
https://www.marketwatch.com/story/bank-of-america-...
No. of Recommendations: 1
In a June 5 note, Bove wrote: 'Mr. Moynihan indicated twice [during a recent presentation] that the bank has excess cash that apparently could not be invested profitably. Possibly he is unaware that the cost of deposits at the bank in [the first quarter of] 2023 was 1.38% while the yield in the Fed Funds market can be as high as 5.25%.' In other words, the bank could earn a high spread at little risk with overnight deposits with the Federal Reserve.
That is a very simple example, but if Bank of America had grown its loan book more quickly over recent years while focusing less on buybacks, it might not face the prospect of a near-term capital raise, which would dilute current shareholders' stakes in the company and reduce earnings per share.
The justification by Moynihan would no doubt be, even with high mortgage and loan interest rates, the so-called cost of equity for BAC is higher.
He is a banker. He will always justify reducing equity and increasing leverage. He knows if BAC blows up, we the American taxpayers will bail him out. Meanwhile, guess who gets bigger bonuses if BAC does well.
Meanwhile, without buybacks, BAC price would be even lower (one presumes), as its existing assets are marked down to market while the liabilities like deposits and BAC bond/notes are costlier.
Really, "The Bankers' New Clothes" by Admati and Hellwig explains it all. Moynihan, Dimon, DJ Sol, all vampire squids.
No. of Recommendations: 0
Why would Berkshire own this stock with such mismanagement, WEB must have made management aware of his displeasure? Perhaps not!?
No. of Recommendations: 0
It is interesting that Warren still holds BAC while dumping the other banks. I think he has said since he ASKED to take a position he views it differently. Doesn't make any sense to me.
No. of Recommendations: 1
Still a $30 billion position. Material for certain.
No. of Recommendations: 1
Buybacks were not the problem. The big mistake was taking all the deposits earned during Covid and investing them in long term MBS at very low rates. Even Buffett encouraged the company to keep buying back shares over the last decade, while these were at or below reasonable value. BAC has been earning siginificant amounts of money, which they had not much to do with besides returning it to shareholders.
No. of Recommendations: 1
Yea, buybacks would have been a superb move if the other investing had been more rational.
No. of Recommendations: 0
Why would Berkshire own this stock with such mismanagement, ...
Where is the mismanagement? Moynihan is fulfilling the Milton Blasted Friedman doctrine of maximizing value for shareholders like Buffett.
Buffett is not above being a leach and sucking the American taxpayer dry as long as it drives up Berkshire share price. He and we benefited materially from Goldman Sachs bailout, for example.
