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Bank Of America Prices 1,286 Billion Wierd Ass Securities At $15/Weird Ass Security For $19.3 Billion In Total Proceeds

Tyler Durden's picture




 

First dumb taxpayers, now even dumber investors: your money is much appreciated. In other news: use of proceeds - meet black hole. Black hole - meet use of proceeds.

 

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Thu, 12/03/2009 - 18:52 | 151557 bugs_
bugs_'s picture

The Munder Weird Ass Securities Fund.

Thu, 12/03/2009 - 19:02 | 151573 Gilgamesh
Gilgamesh's picture

Can you hook me up with a WAS P?

Thu, 12/03/2009 - 19:04 | 151579 Stevm30
Stevm30's picture

Guesses on final price?

Thu, 12/03/2009 - 19:45 | 151601 phaesed
phaesed's picture

Wait, here's more http://www.sec.gov/Archives/edgar/data/70858/000095012309067809/g21258b5e424b5.htm

Bank of America Corporation is offering $18,800,000,000 of Common Equivalent Securities, consisting of depositary shares representing interests in shares of our Common Equivalent Junior Preferred Stock, Series S (the “Common Equivalent Stock”), and warrants (the “Contingent Warrants”) to purchase an aggregate of 60,000,000 shares of our common stock. Upon issuance of the Common Equivalent Securities, the depositary shares and the Contingent Warrants will not be separable or transferable separately and the Contingent Warrants will not be exercisable. Each Common Equivalent Security consists of one depositary share, representing a 1/1,000th interest in a share of Common Equivalent Stock, and a Contingent Warrant to purchase        of a share of our common stock for a purchase price of $0.01 per share. Each depositary share entitles the holder, through the depository, to a proportional fractional interest in all rights and preferences of the Common Equivalent Stock represented thereby, including conversion, dividend, liquidation and voting rights.   We have agreed to use our reasonable best efforts to hold a special meeting of our stockholders as soon as practicable, but not later than 105 days following completion of this offering, at which we will seek to obtain the requisite stockholder approval of an amendment to our amended and restated certificate of incorporation to increase the number of authorized shares of our common stock from 10,000,000,000 to a number at least sufficient to permit the full conversion of the Common Equivalent Stock into common stock. At issuance, an aggregate of approximately        shares of our common stock will be issuable upon the conversion of the Common Equivalent Stock. If we obtain stockholder approval of the amendment at the meeting, the Contingent Warrants will expire without becoming exercisable, and the Common Equivalent Stock automatically will convert in full into shares of our common stock at a rate of 1,000 shares of common stock for each share of Common Equivalent Stock (or one share of common stock for each depositary share), subject to certain adjustments. If we fail to obtain stockholder approval of the amendment within the required time, the Contingent Warrants and the depositary shares will separate and begin to trade separately and the Common Equivalent Stock automatically will partially convert into our common stock, to be effected by our issuance of 200,000,000 shares of common stock (subject to certain anti-dilution adjustments) to the holders of the Common Equivalent Stock. Upon this partial conversion, if it occurs, the conversion rate for the Common Equivalent Stock will be reduced proportionately as described herein and, thereafter, the Common Equivalent Stock automatically will convert in full at the reduced conversion rate upon subsequent approval of the amendment. If our stockholders reject the amendment at the meeting, in addition to the consequences that will occur if we do not hold the meeting within the required time, the Contingent Warrants will become exercisable for a 30-day period, at the end of which they will expire. This is the only event that will cause the Contingent Warrants to become exercisable. The Common Equivalent Securities will cease to exist at such time as the depositary shares and the Contingent Warrants separate. We have agreed that if our stockholders reject the amendment at the meeting, we will continue to seek to obtain the requisite approval at least as frequently as every six months thereafter.   Our board of directors may not declare and pay or make any cash dividend or other cash distribution on our common stock, including regular quarterly dividends, unless it declares and pays a dividend or makes a distribution on the Common Equivalent Stock at the same time, on the same terms and in the same amounts, based on the number of shares of common stock into which the Common Equivalent Stock is then convertible. In addition, if our stockholders reject the increase in our authorized common stock or if we fail to obtain stockholder approval of the amendment within 105 days following the completion of this offering, non-cumulative quarterly cash dividends will be payable on the Common Equivalent Stock, when, as, and if declared by our board of directors, at an initial annual rate of 10% of the equivalent public offering price of the Common Equivalent Stock (based on the public offering price of the Common Equivalent Securities set forth below), as reduced in the same proportion as is the conversion rate in the event of a partial conversion. For each quarter subsequent to the first quarter for which such additional dividends are payable, this initial annual rate will increase by 2% to a maximum annual rate of 16%.   The Common Equivalent Stock is not redeemable. As described herein, in the event of our liquidation, from our legally available assets, holders of the Common Equivalent Stock will be entitled to certain liquidating distributions prior to any distributions to the holders of our common stock and to participate with the holders of our common stock with respect to certain additional liquidating distributions to which holders of the Common Equivalent Stock are entitled (if any). Also as described herein, holders of the Common Equivalent Stock will be entitled to vote on an as-converted basis together with holders of our common stock on all matters upon which the holders of common stock are entitled to vote, except on the amendment to increase our authorized common stock, and will have certain additional voting rights in the case of certain dividend arrearages.   We will use the net proceeds of this offering, together with existing funds, to repurchase the preferred stock that we issued to the U.S. Department of the Treasury as part of the Troubled Asset Relief Program.   Currently no public market exists for the Common Equivalent Securities, the depositary shares, or the Contingent Warrants. After pricing of the offering, we expect that the Common Equivalent Securities will trade on the New York Stock Exchange under the symbol “BAC PrS.” If the Contingent Warrants separate from the depositary shares, we plan to apply to list each of these securities separately on the New York Stock Exchange. We cannot guarantee that any such applications will be approved. --------------------------

Effect of Failure to Obtain Stockholder Approval Within 105 Days   If we have not obtained the requisite stockholder approval of the common stock amendment on or before the 105th day following the completion of this offering, then at 9:30 a.m., New York City time, on the first business day following such 105th day:           •  the Contingent Warrants and the depositary shares will separate and begin to trade separately and the Common Equivalent Securities will cease to exist (but the Contingent Warrants will not be exercisable unless and until a negative stockholder vote occurs and, if stockholder approval is received without a

 

    prior negative stockholder vote occurring, then the Contingent Warrants will expire without becoming exercisable); and           •  the Common Equivalent Stock automatically will partially convert into our common stock, to be effected by our issuance of 200,000,000 shares of common stock (subject to certain anti-dilution adjustments) to the holders of the Common Equivalent Stock, upon which the then conversion rate for the Common Equivalent Stock will be reduced, as described more fully under “— Common Equivalent Stock — Adjustments on Partial Conversion” below, by multiplying such rate by a percentage calculated as the difference between (a) one and (b) a fraction, the numerator of which is 200,000,000 and the denominator of which is the aggregate number of shares of common stock into which the Common Equivalent Stock was convertible as of the date of the completion of this offering, with the result that fewer shares of common stock would be issuable on subsequent conversion; and     •  the liquidation preference amount of the Common Equivalent Stock will be proportionately reduced as described below under “— Common Stock Equivalent Stock — Liquidation Rights.”   Thereafter, the Common Equivalent Stock will remain outstanding and automatically convertible in full, based on the reduced conversion rate described above (subject to certain anti-dilution adjustments), upon subsequent stockholder approval of the common stock amendment.


  Automatic Conversion of Common Equivalent Stock


  Full Conversion

  Each share of Common Equivalent Stock will automatically convert in full into shares of our common stock, with no action on our part or the part of the holder, at 9:30 a.m., New York City time, on the first business day following the later of approval of the common stock amendment at the special stockholders’ meeting held on or before the 105th day following the completion of this offering or the effectiveness of the common stock amendment. The initial rate of such conversion is 1,000 shares of common stock for each share of Common Equivalent Stock (or one (1) share of common stock for each depositary share), so that, in the aggregate, based on this initial rate,   shares of our common stock will be issuable upon conversion of the Common Equivalent Stock. The conversion rate is subject to adjustment as described below under “— Common Equivalent Stock — Anti-Dilution Adjustments” and “— Adjustments on Partial Conversion.” Cash will be paid in lieu of any fractional shares of common stock that would be issued on conversion as described below under “— Common Equivalent Stock — Fractional Shares.”


  Partial Conversion; Subsequent Conversion of Common Equivalent Stock

  In the event of a negative stockholder vote occurring on or before the 105th day following the completion of this offering, or if we have not obtained the requisite stockholder approval of the common stock amendment on or before the 105th day following the completion of this offering, the Common Equivalent Stock automatically will partially convert into our common stock, to be effected by our issuance of 200,000,000 shares of common stock (subject to certain anti-dilution adjustments) to the holders of the Common Equivalent Stock, at 9:30 a.m., New York City time, on the first business day following such negative stockholder vote or 105th day. Upon such partial conversion, the then conversion rate for the Common Equivalent Stock will be reduced as described below under “— Common Equivalent Stock — Adjustments on Partial Conversion” and the liquidation preference amount of the Common Equivalent Stock will be reduced in the same proportion as is the conversion rate as described below under “— Common Equivalent Stock — Liquidation Rights.” After such partial conversion, the Common Equivalent Stock will remain outstanding and convertible in full at the reduced conversion rate (subject to certain anti-dilution adjustments) upon subsequent stockholder approval of the common stock amendment.

 

Thu, 12/03/2009 - 19:50 | 151622 phaesed
phaesed's picture

More to note:

Liquidation Rights   In the event of our voluntary or involuntary liquidation, dissolution, or winding up before the Common Equivalent Stock converts fully into common stock, the holders of the Common Equivalent Stock will be entitled to receive, out of our assets legally available for distribution to stockholders, before any distribution of assets is made to holders of our common stock or any of our other stock that ranks junior to the Common Equivalent Stock as to such distributions, a liquidating distribution per share of Common Equivalent Stock in an initial amount equal to the product of (1) the public offering price of a Common Equivalent Security set forth on the front cover of this prospectus supplement and (2) 1,000 (the “liquidation preference amount”), together with declared and unpaid dividends. In the event of a partial conversion of the Common Equivalent Stock, the per share liquidation preference amount will be adjusted by multiplying this amount by a percentage calculated as the difference between (a) one and (b) a fraction, the numerator of which is 200,000,000 and the denominator of which is the aggregate number of shares of common stock into which the Common Equivalent Stock was convertible as of the completion of this offering).   Adjustments on Partial Conversion   Initially, each share of Common Equivalent Stock will convert into common stock at a rate of 1,000 shares of common stock for each share of Common Equivalent Stock (or one share of common stock for each depositary share), subject to adjustment as described below under “— Anti-Dilution Adjustments.” In the event of a negative stockholder vote occurring on or before the 105th day following the completion of this offering, or if we have not obtained the requisite stockholder approval of the common stock amendment on or before the 105th day following the completion of this offering, then at 9:30 a.m., New York City time, on the first business day following such negative stockholder vote or 105th day, the Common Equivalent Stock automatically will partially convert into our common stock, to be effected by our issuance of 200,000,000 shares of common stock (subject to certain anti-dilution adjustments), as described above under “— Automatic Conversion of Common Equivalent Stock — Partial Conversion; Subsequent Conversion of Common Equivalent Stock.” In connection with a partial conversion of the Common Equivalent Stock, the then conversion rate for the Common Equivalent Stock will adjust by multiplying such rate by a percentage calculated as the difference between (a) one and (b) a fraction, the numerator of which is 200,000,000 and the denominator of which is the aggregate number of shares of common stock into which the Common Equivalent Stock was convertible as of the date of the completion of this offering, with the result that (subject to adjustment as described below under “— Anti-Dilution Adjustments”) fewer shares of common stock would be issuable on subsequent conversion.   Subsequent to a partial conversion of the Common Equivalent Stock, upon stockholder approval of the common stock amendment, the Common Equivalent Stock will automatically convert in full into common stock at the reduced conversion rate.   In addition, the conversion rate of the Common Equivalent Stock into shares of common stock (whether the initial rate or as reduced following a partial conversion) will adjust upon the occurrence of certain events as described below under “— Anti-Dilution Adjustments,” and, as described above under “— Liquidation Rights,” the liquidation preference amount will also be reduced upon a partial conversion in the same proportion as is the conversion rate.


 From

Thu, 12/03/2009 - 19:57 | 151628 Reductio ad Absurdum
Reductio ad Absurdum's picture

There's an easy summary at http://www.cnbc.com/id/34264189

BAC sold 1.286 billion "common equivalent securities" at $15 a piece, totaling $19.29 billion.

These "common equivalent securities" will convert to common shares in 105 days if (current) shareholders approve.

-------

In the short term, this means there's a lot more shares of BAC out there while the company is making the same profits (so less profits per share). On the other hand, BAC now has more cash. BUT... they're just immediately giving the money to TARP so they can pay their management (un)godly bonuses.

Normally with an established company you would want to see newly raised money used to expand the business and thus expand profits (lowering P/E), not just pay off debt.

Thu, 12/03/2009 - 20:34 | 151679 longjohnshorts
longjohnshorts's picture

Hey, at least they're using the cash to pay off money they owe before the execs pocket big bonuses.

If they were private equity guys, they'd just raise the money and dividend it out directly.

 

 

Thu, 12/03/2009 - 20:45 | 151691 Bruce Krasting
Bruce Krasting's picture

Ok so the sold these share to pay back TARP. Does this mean that BAC is out of TARP? Or is BAC half way out of TARP?

Does Treasury also have more warrents and how many shares is that?

I am sorry for the questions, but you seem to have a handle on it. After this 1.3 b how many more shares have to be sold?

Thu, 12/03/2009 - 21:58 | 151774 deadhead
deadhead's picture

Does Treasury also have more warrents and how many shares is that?

The latest I read Bruce is that the Treasury does have warrants, BAC is not going to purchase them and that they will likely be auctioned.

I can't provide a link to where I read it so take this somewhat with a grain of salt, i.e. don't take this opinion to the bank.  if i see something soon, i'll post it

Fri, 12/04/2009 - 08:58 | 152142 AR
AR's picture

Bruce & DH  /  We're hearing that inside BAC, the executive team is absolutely exasperated with the Fed's constant daily intervention of operations. BAC badly wants to rid itself of the Fed who act with very narrow points of view. One of their folks told us that many Fed decsions upon the bank seem to be very short sighted and politically driven. More to come...

Thu, 12/03/2009 - 22:53 | 151837 vreporter
vreporter's picture

They are not out of TARP - yet.

The warrants haven't even been addressed - yet.

So the govies still have as much say as before. BAC is simply closer to the TARP exit door.

While their capital ratios will improve, they will actually reach the (expected) MINIMUM ratios in the revised world. So yes, Citi is in some real deep mud given the capital ratio pressures on all. JPM becomes interesting because their book either shrinks or they have to raise a ton.

Overall, profitability and sustainability of any profits gets very challenging for quite a long time. GS better be putting their haul away for rainy day bonuses in years to come because they become the most challenged given where their profits have been derived.

This is gettin' good! Buy the market and sell the financials if you're tired of fighting the market...

Fri, 12/04/2009 - 01:04 | 151980 jmc8888
jmc8888's picture

They're still broke as a joke

I'd say the 2008 Detroit Lions had a better chance

It's going to be rather funny to see all these guys who get out of tarp come back begging a 2nd time for more money. 

Hell they might even come back a 3rd time if the 2nd pop ocurrs before the derivatives pop.

 

Bailout, do better, pay big bonuses, pay back bailout, copmany tanks, bankrupt and running to congress

Rinse. Lather. Repeat.

 

 

Fri, 12/04/2009 - 08:48 | 152138 BoeingSpaceliner797
BoeingSpaceliner797's picture

I'm with Tyler on this one (believe a post by Tyler stated that, rather than pay bonuses this year, GS should take the amount allocated and take the taxpayers off the hook/guarantee for it's TLGP-issued debt).  Until none of our tax dollars (current or potential future) are backstopping any of these firms, they are not out of TARP.

Thu, 12/03/2009 - 19:33 | 151612 Anonymous
Anonymous's picture

Could the end of day sell-off today be related to this?

Investors selling off Stocks to buy these weird ass securities ?

I would hate to believe that would be true....but it looks like it

Thu, 12/03/2009 - 20:16 | 151662 AN0NYM0US
AN0NYM0US's picture

employment numbers leaked i suspect

Thu, 12/03/2009 - 19:41 | 151616 Anonymous
Anonymous's picture

BAAAAAAAAAAAAA means NO !!!

Do not throw your capital into the back orifice of this weird-assed beast.

Thu, 12/03/2009 - 19:51 | 151626 vroom
vroom's picture

Wow.

10:31am
Buy VIX Put Options as Index May Continue Slide, Macro Risk Advisors Says
from Bloomberg.com
Dec. 3 (Bloomberg) -- Investors should buy VIX puts to profit from a decline in the benchmark index for U.S. stock options because it may decline below 20 this month for the first time since August 2008, Macro Risk Advisors LLC said.

2:31pm
VIX Options Trading Surges to Record in Bet Derivatives Index May Decline
from Bloomberg.com
Dec. 3 (Bloomberg) -- Trading of options on the benchmark index for U.S. equity derivatives surged to a record in a bet that the so-called VIX may decline in the next two months.

Thu, 12/03/2009 - 20:04 | 151643 Howard_Beale
Howard_Beale's picture

Now that's a contrarian indicator. Look out complacent cows...by the way, Investors Intelligence Advisory Survey yesterday shows that bears are at a 6 1/2 year low--a mere 16.7% from the newsletter writers.

Thu, 12/03/2009 - 19:58 | 151634 jbc77
jbc77's picture

The title of this post had me in tears. Nothing like some "weird ass securities". I love this place....

Thu, 12/03/2009 - 20:14 | 151646 Howard_Beale
Howard_Beale's picture

We're talking some of the finest headlines ever from this blog. Always pee before you read.

Fri, 12/04/2009 - 01:32 | 151993 Hephasteus
Hephasteus's picture

And never, never drink coffee while reading.

And always have a backup monitor in a closet somewhere.

Thu, 12/03/2009 - 20:07 | 151648 Anonymous
Anonymous's picture

Going to max out my BAC CC, then not pay bwhahahahahha

Thu, 12/03/2009 - 20:08 | 151650 Anonymous
Anonymous's picture

this is why i don't read zero hedge as often as i would like too

spin almost everything as negative when in reality this stock will be 20 in a few weeks SPY going down or not....and you all will be complaining that you missed it again

Thu, 12/03/2009 - 22:39 | 151822 reading
reading's picture

Anon,

I am here all the time and have been a long time.  I have NEVER heard anyone complain about "missing" the rally in BAC.  They might note that they think it is BS, but I have never heard one word about wish I would of bought it.

Thu, 12/03/2009 - 20:08 | 151651 Plainview
Plainview's picture

Tyler, dude, it's spelt "weird" not "wierd".

 

Thu, 12/03/2009 - 20:30 | 151676 Hephasteus
Hephasteus's picture

I thougth it was i before e except after wierd.

Thu, 12/03/2009 - 20:09 | 151652 Anonymous
Anonymous's picture

My main concern is that Bank of America CEO's continue to receive massive, blockbuster bonuses. To the extent that this new offering of "securities" makes that possible, then I am very pleased with capitalism, the free market system and the wonder of America.

Thu, 12/03/2009 - 20:10 | 151654 Anonymous
Anonymous's picture

Correction (sorry, I used to be a copy editor):

Bank Of America Prices 1,286 Billion Wierd Ass(ed) Securities At $15/Weird Ass(ed) Security For $19.3 Billion In Total Weird Ass(ed) Proceeds

You left out a "Weird Ass(ed)".

carry on

Thu, 12/03/2009 - 20:30 | 151675 phaesed
phaesed's picture
Okay... I got it... You have 60 million warrants which are equal to 21.4133 (1.2billion/60mil) junior shares which are the equivalent of a single common share, so essentially $321.20 per warrant ( 21.4133 junior shares * $15 = 321.20) If they don't get shareholder approval in 105 days, they can immediately issue 200 million shares and return the initial funds these to holders of the warrants AND the right to receive equalling 3.33 shares/warrant (200/60mil) and your money back for each warrant/junior share. Additionally you are entitled to receive 0.1555 (3.33/21.4133) shares of Bank of America, which as it current trades at around 15.50 or less now, would net the bank $3.1 billion in equity, but would cost 2.31% of their equity, or rather losing 36 cents per share to the current price. Another way to look at it is a loan at the rate of 16.07% fir 105 days. Bank of America meets the payday lender business. You just got fucked if you own this stock. Of course, that's IF the company doesn't go bankrupt... and of course it depends on the price in 105 days, but the ratio is 0.0231 * price in 105 days.

Thu, 12/03/2009 - 21:11 | 151677 phaesed
phaesed's picture

Essentially this is a 105 day guaranteed bond (except for bankruptcy) at a variable rate. Your breakeven is BAC > 14.64

 

So, pump the market in the morning, offload 200million shares in the first 30 minutes, short it all day long and then receive it at a discount, buy an April put placed at the $15 for 0.93 cents....

If they do go bankrupt, you receive your money before the shareholders.

 

Oh, and get this, 105 days from tomorrow is the 3rd Friday in March 2010 (the 19th). 

Perfection.

Thu, 12/03/2009 - 20:54 | 151709 Anonymous
Anonymous's picture

Can you see my screens? Is that you, Dickweed?

Thu, 12/03/2009 - 23:09 | 151865 vreporter
vreporter's picture

Good eye on the opex... just a hedgie coincidence I'm sure!

Thu, 12/03/2009 - 20:45 | 151692 Anonymous
Anonymous's picture

plunge protection team will approve and buy anything, isn't that obvious?

Thu, 12/03/2009 - 21:20 | 151740 EconomicDisconnect
EconomicDisconnect's picture

So this kind of weird ass dilution should mean at least a 30% upside target by Dick Bove next week, yes?

Thu, 12/03/2009 - 21:45 | 151755 Anonymous
Anonymous's picture

Its amazing how wrong people have things on this board.

Thu, 12/03/2009 - 21:53 | 151764 steve from virginia
steve from virginia's picture

 

Just plain robbery pure and simple.

Tip your hat to the fat gentleman with the beard. Without him, many children would have to suffer a Christmas without new Mercedes.

Thu, 12/03/2009 - 21:58 | 151770 Mad Max
Mad Max's picture

Weird-Ass Securities is the perfect name for these, ahem, weird f'ing warrantathingamajiggers.

Thu, 12/03/2009 - 21:59 | 151771 Comrade de Chaos
Comrade de Chaos's picture

The number of 000's is supposed to stun you. If it is a bad deal, why are there so many investors buying into it? So you'll think VALUE and go buy, buy, buy. You must have it in your bubble portfolio, because junior preferred shares with warrants attached only go up.

Thu, 12/03/2009 - 23:20 | 151874 Anonymous
Anonymous's picture

So you're paying 15 for 1/1000 of a share and a warrant to buy a share at .01? The warrant may be worth something someday..

If and when B of A hits the pinks (If Ben isn't renewed and TBTF is actually known to be TBT Exist), the warrants if they're ever separated may be something, the 1/000 of a share, if there is no liquidation that would lead to some more BS.. ( I imagine that all those 1/1000 will end up 1 share, but it's as clear as mud from that.

Phaesed, that was a LOT of bull, but what would you expect from B of A..

Thu, 12/03/2009 - 23:29 | 151888 Zeppelin5637
Zeppelin5637's picture

Beware the Ides of March!

Thu, 12/03/2009 - 23:36 | 151901 Anonymous
Anonymous's picture

I think this means BAC is going to dissolve or liquidate in 105 days and you can gamble some money on the carcass. You may or may not receive anything left of the smoking smoldering heap at dissolution time.

?

Seriously, that's what I get from reading this thing.

What do you think it means?

-MobBarley

Fri, 12/04/2009 - 00:21 | 151935 phaesed
phaesed's picture

So using those assumptions above, essentially the simple risk arb is to buy the jr. preferred @ $15.00, short the common @ $15.5, excluding transaction costs this is essentially an 3.33% return if the shareholders approve or 0.155 * the market value of BoA on March 19th, 2010..... hrmmm, I wonder if the share price falls 50% that will motivate the shareholders to agree to the terms.

 

So funny, guess I'm loading up on March puts

Fri, 12/04/2009 - 01:01 | 151936 phaesed
phaesed's picture

Ok further thoughts.... sorry...

Min return (assuming no margin & short @ 15.50/common) = n*(15.50 - 15.00), s.t. n = number of shares

if issuance = yes & p(t) < 15.00, s.t. p(t) = price on March 2010, then r = (15.50 - p(t) - div) - (p(t) - 15) = .50 - div =.49

if issuance = no & p(t) > 15.50, then r = (15.50 - p(t) - div) - (p(t) - 15) + 0.1555*p(t) = 0.1555*p(t) + 0.50

     since p(t)> 15, then r > (0.1555*15 + 0.50). Therefore r=(2.9 * n)/(15*n) = 19.33% return in 105 days

However, the interesting part is what happens if they go bankrupt before March 19th, 2010

in this case r = (15.50 - p(t) - div) - (p(t) - 15) + ( %recovery * 15)

Assuming the % recovery is 0, r = .49*n = 3.267% return over 105 days

But if you assume that the banks holding these get swapped out at 100% recovery you get

r = 0.49 + 15 = 15.49*n = 103.267% return in 105 days

All assumptions exclude margin and further hedging techniques.

Like I said, I'm buying puts

Fri, 12/04/2009 - 01:38 | 151999 phaesed
phaesed's picture

and correct me if I'm wrong, *shrug*, obviously there are rounding errors, but those should be relatively close estimates... Like I said, correct me if I'm wrong :)

Fri, 12/04/2009 - 00:57 | 151962 Hephasteus
Hephasteus's picture

Initial public orficing is getting  a bit out of hand lately.

This just wreaks of prepadding capital in still unsecured loan class of stock offering, with the intent of pulling legit money into the firm and then simply erasing the fed's presence from it before offering up BAC to the grim reaper.

Fri, 12/04/2009 - 13:40 | 152568 Anonymous
Anonymous's picture

You, Sir, are a genius.

This has been troubling me for some time as I know that this, being my personal bank, is likely the one to go soon because that would disadvantage me and reality favours those events that disadvantage me personally. It's a cosmic conspiracy.

So basically you're reading this the same way I am but more precisely you're outlining the causative factor. The desire to sacrifice investor money and not FED money on the holy alter of dissolution. Yes. Yes that is what it is.

You know, I do beleive that BAC services more americans than all the other banks put together. Not sure bout that, but I understand it's vast and structurally necessary to the sheeple.

So the picture I'm getting is...an smoldering american wasteland of joblessness, pennilessness..government defaults..

Crap.

2010 here we come.

Fri, 12/04/2009 - 00:53 | 151967 Anonymous
Anonymous's picture

ur funniest post ever

Fri, 12/04/2009 - 13:39 | 152563 Anonymous
Anonymous's picture

I think this is a trap for people good at math. Like some a you guys.

Fri, 12/04/2009 - 23:29 | 153597 Anonymous
Anonymous's picture

Does anyone know what the implied market cap of BAC is going to look like? Let's not forget it's a very large cap stock even at "depressed" levels -- what kind of market cap does a "doubling" to $32 (see poll) imply after all this crap is issued?

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