First the number is huge. Staggering even. As the street tells it, BOA isn't out of the financial woods completely as of yet so to think in a year or so that they came up with bank profits to that tune of course made me and others suspicious. Wouldn't the 45 billion be better served as cash on hand for the purposes of banking as we thought we knew it? More on that later.
First 18.8 billion will come from selling shares of stock. Last I looked BOA was trading at about $15.60 so they are going to dump a billion shares into the market? Even on a conversion to common stock basis that is a shoe waiting to drop on the little guy who owns but doesn't know to get out of the way of this or how to anyway. Do I hear the call of dilution anwhere? Wait wait, it gets better. Most of the remaining 26 billion comes from profits...but not from banking...rather from their trading areas formerly part of Merrill Lynch. Here is what the street said about BOA in general:
Bank of America (BAC Quote) upgraded at FBR to Outperform. $20 price target. TARP repayment will boost equity levels and remove a major overhang on the stock. Estimates also boosted.
The Times went on to write:
"Bank of America executives have insisted for months that the bank’s underlying businesses were far stronger than those of some other banks and that the Merrill merger would pay off quickly. Indeed, Merrill’s businesses have improved this year as Wall Street’s traditional business of trading and deal making picked up. At the same time, Bank of America’s core consumer lending units suffered greater losses as the economy weakened". hmmmmmm.
Also nested in this is the desire to be outside of regulators or free from them. Remind me if being outside of scrutiny isn't what landed them in this mess to begin with? Then there is the issue of compensation. How can BOA land a top notch CEO with some federal regulator screaming about the salary. The answer is easy. Just put up 45 billion dollars and you can pay every and anyone whatever you please.
Probably this is just good business and I'm sure the government (us) is happy to get it's money back and probably BOA can get a hotshot in as CEO and pay him/her a 100 million dollar package to run the ship. But when the peasants come to headquarters someday as a mob with pitchforks and hoes, spend a little on extra guards at the door because eventually they will come - perhaps second after Goldman - but they will show up.