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The Street's Most Intellectually Aggressive Analysis: I've Found What Bank of America Hid In Your Bank Account!
Last week I wrote a scathing expose on Bank of America and its
[fraudulent?] transfer of over $50 trillion worth of suspect derivatives
into its FDIC insured depository arm - Bank of America Lynch[ing this] CountryWide's Equity Is Likely Worthless and It Will Rape FDIC Insured Accounts Going Bust.
It drew quite a bit of attention, but the story doesn't end there.
Actually, that was just the beginning. It gets worse, much worse. The
next question Du Jour is, "What exactly did Bank of America Lynch[ing this] CountryWide
put in Aunt Mabel's retirement savings account? Well, I have already
answered that question for subscribers two years ago, but I will explore
it further in public now because it leads me to the most recently
released BoomBustBlog subscriber research (click here to subscribe) in which we have identified entities that are ripe for a fuse to be lit under their contagion infused ass, and Bank of America Lynch[ing this] CountryWide
just so happened to of dumped 5 trailer loads of matches into YOUR bank
accounts. Oh, it's so good to be [Bank of] American. Those who don't
subscribe, and particularly those who haven't seen the RT/Capital
Accounts interview, should spend take the time to view the most
"Intellectually Aggressive Analysis on Wall Street" video below, wherein
through Reggie Middleton vs Bruce Lee vs BAC, the type and composition
of said swap derivatives purportedly dumped into your bank accounts are
detailed and explained and illustrated. Be warned, this is not your
Daddy's investment analysis, and is not for the feint of heart.
The swaps illustrated and explained in this video are nearly guaranteed to
be written with the subject bank of our most recent analysis,
compounding the on-balance sheet derivative exposure, which is already
the highest in the world once proper TEC adjustements are taken into
consideration. This is the same bank, apparently unrecognized by the
markets, media and sell side, that will literally go boom when the match
is put to the dry gunpowder (subscribers only, click here to subscribe): Haircuts, Derivative Risks and Valuation.
To fully appreciate the risks at stake here, just remember that Bank of America Lynch[ing this] CountryWide
bought both CountryWide and Merrill Lynch, the most aggregious mortgage
operators in thier respective categories. It's quite possible that
CountryWide's litigation liabilities alone could sink the whole bank,
while Merrill Lynch was collapsing under its own weight as BAC purchased
them at a PREMIUM! Let me attempt to hit this point HARDER! In 2007, I
posed the question,"Would you buy Countrywide if all of its bad mortgages were magically wiped off the books?"
I
know I wouldn't. I believe there are better investments out there from a
risk/reward perspective. Countrywide is in a bit of a jam, and it is
not just from bad loans on the books. Looking at the Countrywide
Foreclosures Blog (yes, there actually is one), I found this article:14,196 Homes Offered For Sale on Countrywide Financial's Website.
I browsed through some of the site, and the small sample of numbers
that I looked at seemed accurately reported. It also seems to mesh with
Housingtracker.net. Browsing through the comments, someone noticed that
the bank and trust offerings were not included. I looked, and at first
glance, it seemed like he had a point. Now,it is a lot of work to verify
all of this, but if it does pay out (and it looks like it does),
Countrywide has nearly 100% of it market capitalization outstanding as
REOs - in a market where houses just aren't selling and property values
are falling fast. This is totally discounting each and every under performing and underwater mortgage asset they have on their books.
| Held by Countrywide Mortgage Co. | $ 2,910,876,468 |
| Held by Countrywide Trust and Bank | $ 2,969,067,322 |
| Total | $ 5,879,943,790 |
| CFC Market Capitalization | $ 6,180,000,000 |
| % market cap held as REO | 95% |
You
see, CountryWide was insolvent way back in 2007, even if you were able
to ignore the biggest problems that they have (had). Throw in the
soured, souring, and soon to be soured PrimeX style mortages then add in
the massive litigation liabiities and CountryWide is so insolvent that
they would have brought down anything that would have dared stand next
to them, not to mention acquire them. Which begs the question, "Why in
the hell did Bank of America do it?". I posed this in the following
month in January of 2008, Quick Opinion on Bank of America Buying Countrywide...
It
is a mistake, plain and simple. I normally don't like to tell people
who specialize in a business how to run it, since they probably know
more about their business than I do - but sometimes the mistakes are
just so glaring. I don't care how many analysts are poring over how many
books at Countrywide. BAC's error is not misjudging the value of
Countrywide now, but misjudging the macro environment in which
Countrywide operates.
My
experience has been primarily understanding and evaluating companies
from the equity perspective, but that definitely doesn't mean that I
ignore the fxed income side. I am just not better at it than the other
guys. What I have been noticing of late is that credit markets have been
screaming murder for some time now, and the equity markets have been
humming along new bullish highs and trading runs as if nothing is truly
wrong. This is a strong indicator that momentum trading has again taken
control of the markets. It is an environment where price trumps value.
The last time this came to a head was the dot com bust. It took many
institutional and individual investors 5 to 6 years to break even. Some
never recouped their losses. Well, my gut has been telling me for about a
year and change now that we are back there again. 2008 thus far has
done nothing but confirm that we have come to a head. The pic above was
an actual shot (one of very many at various locations) of the run on
Northern Rock Bank in the U.K. This was real, and it was indicative of a
real problem.
Well,
we had a very recent run on the bank here in the states as well. There
were pictures all over the web when it occurred, and now mysteriously,
they are all gone. All I was able to retrieve was this screen capture of
a thumbnail from Blownmortgage.com. Just as the pictorial remnants of
the run have somehow disappeared, so has the equity markets prudence in
the face of such a run. You can guess which bank got ran on.
There were companies in the dot com era that made purchases that they thought
were risky but potentially profitable, and in more severe cases such as
the internet media companies, many have dwindled down to mere pennies
per share, ex. Razorfish, et. al. So, historically, companies have had
the hubris of BAC to go on and lose most or all of thier investment.
I have been using this chart a lot lately, and it looks like I will be using it a lot more.
If
the housing market goes anywhere NEAR its historical trends, we are
going to see 30% to 40% drops in real prices. Many people poo-poo this
notion, calling it apocalyptic. This is silly to me. Why didn't they
poo-poo the notion of 40% to 200% price increases in the same time
frame? Isn't that even more dramatic? For some reason, investors -
individual and professional alike - have a hard time avoiding following
the crowd. They try to catch bottoms (a risky and foolhardy endeavor in
my opinion), time tops, and always seem to believe something will bounce
back or XYZ asset will never go down in price over the long term (ala
Fitch Ratings HPA models or the Japanese real estate market).
But BAC is Value Investing Like Buffet
No
they are not. They are gambling like cowboys. The caveat to the Buffet
argument is that BAC didn't buy the assets of Countrywide, they bought
the whole company, kit and kaboodle - including the liabilities. I can
understand if they bought just the servicing arm, but they didn't.
Believe me, it is possible to pay less than zero for a company.
The last time Buffet bought a financial company steeped in liabilities
and risks on the cheap, he regretted it and realized that no matter how
cheap he got the assets, he still overpaid. Risk vs. Reward: don't just
stare at the reward side of the equation. If you must, simlpy reminisce
on Solomon Brothers. In other words, the cost for buying Countrywide
could easily be more than what is paid for it.
CFC
is dangerous, plain and simple. The residential housing chart clearly
shows how far out of whack housing values are in historic real terms.
Come on, this makes the remnants of the Gold Rush look mild. If values
come anywhere near the mean values of growth, BAC will be paying the CFC
bill for a long time, and they will be paying a lot more than $6
billion, the cost of acquisition. Now, I hear there are performance
covenants and guarantees in the purchase which may smooth out the pain,
but CFC is in a world of hurt, and doesn't have much wiggle room to
offer incentives. As I have stried my best to insinuate, it is possible
to get CFC for free and still lose money. I know BAC has been in the
business longer than I have been short CFC, but I made more money on
that short than they did on their $2 billion investment. Sometimes, you
are just wrong.
As
of last month, CFC had more nominal dollars in REOs than they did
market cap. Now, just add all of those garbage loans, the plethora of
law suits, a few SEC and state banking authority investigations in a pot
with a market where housing value corrects 30% in real terms with
inventory building higher and higher, and we have a bitter tasting brew
indeed... I hope those BAC shareholders have strong stomachs.
So, was I Right?
Let's let the BoomBustBlog archives tell the tale...
Reggie Middleton's Real Estate Recap: As I Have Clearly Illustrated, It's a Real Estate Depression!!!
Dexia
Sets A $5.1bn Provision For Loss On Trying To Sell The Same Residential
Real Estate Assets Upon Which JP Morgan Has Slashed Provisions 83% to
$1.2bn from $7.0bn
Do you remember my recent missive "There’s Something Fishy at the House of Morgan"?
Well, in it I queried how it was that JP Morgan can continuously pull
risk provisions and reserves to pad quarterly accounting earnings at
time when I not only made clear that we are in a real estate depression but the facts actually played out the same. As excerpted from the aforementioned article:
I
invite all to peruse the mainstream financial media and sell side Wall
Street's take on JP Morgan's Q1 earnings before reading through my take.
Pray thee tell me, why is there such a distinct difference? Below are
excerpts from the our review of JP Morgan's Q1 results, available to
paying subscribers (including valuation and scenario analysis): 
JPM Q1 2011 Review & Analysis.
Straight Talk From the Homebuilder CFO: The Coming Land Recession, Pt I
(1)
Land and Debt are four letter words. One of the golden rules to being a
homebuilder is to finance land with equity and use debt for financing
your homebuilding operations. Why? Because when you are highly levered
and the market turns on you, then you will not be able to last during
the downturn. It is a rule that has proved out in every housing
recession period. Why then do builders double up their positions and
try to grow faster than the market average? Greed. The bigger your
company the bigger your compensation package. If not greed, then
stupidity. This is such a basic concept and it holds true in every
downturn.
(2)
There is a dis-connect between the land and housing markets. When a
housing market takes off, the first to know are the builders because
they are looking at the sales data. Eventually, the land market catches
on and begins raising prices. However, when a market is in decline,
the builders are the first to know and the land owners hold their
pricing until it is too late and they realize the downturn is for real.
Did you hear that banks?
(3)
Types of Land Owners. The most ignorant is the farmer or long time
owner. This person has a basis of practically zero because it has been
in the family forever or 30 plus years. They are not sophisticated and
don't really understand the full value of their land. Next up are the
speculators. These guys bought land 5-20 years ago hoping growth would
come there way. Their basis is higher, but they have no debt and don't
have to do a deal if they don't want to. The next group of land owners
is the Investor who put together an LLC...
Straight Talk From the Homebuilder CFO: The Coming Land Recession, Pt II
Land
is illiquid and for the most part does not generate income but does
generate expenses. The exception being leasing land for someone to use
for agricultural purposes. If the very nature of land is illiquidity,
then what is its liquidity in the biggest real estate crisis since the
depression? What is liquidity? Isn't liquidity the ability for a buyer
and seller to meet at current market rates? Stocks for the most part are
liquid because when I hit sell on my fidelity account someone else is
on the buy side. With land, it is difficult to find a buyer at your
price in a timely manner. How about now? How much is land really worth
if you had to liquidate it today for cash. I believe as do many of the
people in private equity, that land is down 50%, thus the land on
builders books are down 50%. Bye bye equity.
Why Keep Telling A Joke That's Just Not Funny? Enter The NAR
For
those who didn't catch it, I espoused my opinions of JP Morgan's overt
optimism on CNBC a couple of months ago, and things are turning out
exactly as have stated with bank reserves being shoved into the
accounting profit bucket just as the foreclosure pipeline is being
backed up by robo-signing scandals which exacerbates the largely under
appreciated shadow inventory problem (The
3rd Quarter in Review, and More Importantly How the Shadow Inventory
System in the US is Disguising the Equivalent of a Dozen Ambac
Bankruptcies!), MBS investors are demanding significantly increased put backs (see The
Robo-Signing Mess Is Just the Tip of the Iceberg, Mortgage Putbacks
Will Be the Harbinger of the Collapse of Big Banks that Will Dwarf 2008!) and "Yes, Housing Prices Have Much Farther to Fall. We’re Talking Years…"
Add
all of this up and consider the junk portfolio of the subject bank in
question as well as the tight knit incestuous circle of swap writers,
and you have a recipe for disaster. Oh yeah, this is just the fallout
from the mortgage operations of the Countrywide acquisistion. Keep in
mind that although there a lot of CDS on BAC's books, the other swap
category (TRS) illustrated in the video above is much more dangerous,
particularly as it relates to this housing market.
Subscribers, reference pages 4,5 and 6 of Haircuts, Derivative Risks and Valuation
to see how not only the housing and CRE market losses can affect this
bank, but the losses on the TRS referenced in the video, or more aptly
put, the potential failure of counterparties such as Bank of America Lynch[ing this] CountryWide
to pay these "faux" hedges without another massive government bailout.
You see this bank is a powder keg sitting atop a tinder box in a match
factory with sparks flying all around it!
Let's
move on to Merrill Lynch[ing], who was one of the biggest swap writers
on the street, credit and total return. What do you think will happen to
those swap lines as Europe implodes? Yes, I know many say Greece is not
big enough to do damage, but that is said because many can't see the
forest due to excessive tree bark in their face...
In French Banks Can Set Off Contagion That Will Make Central Bankers Long For The Good 'Ole Lehman Collapse Days! I
made it clear that the French banks were the canaries in the coal mine
that nobody hear chirping. At the time of the original analysis, no on
was harping on the French banks, besides the BoomBust.
Another BIG Reason Why BNP Paribas Is Still Ripe For Implosion!
As excerpted from our professional series Bank Run Liquidity Candidate Forensic Opinion:
This
is how that document started off. Even if we were to disregard BNP's
most serious liquidity and ALM mismatch issues, we still need to address
the topic above. Now, if you were to employ the free BNP bank run
models that I made available in the post "The BoomBustBlog BNP Paribas "Run On The Bank" Model Available for Download"" (click the link to download your own copy of the bank run model, whether your a simple BoomBustBlog follower or a paid subscriber)
you would know that the odds are that BNP's bond portfolio would
probably take a much bigger hit than that conservatively quoted above.
Here I demonstrated what more realistic numbers would look like in said
model... 
image008image008
To
note page 9 of that very same document addresses how this train of
thought can not only be accelerated, but taken much further...
BNP_Paribus_First_Thoughts_4_Page_09BNP_Paribus_First_Thoughts_4_Page_09
So,
how bad could this faux accounting thing be? You know, there were two
American banks that abused this FAS 157 cum Topic 820 loophole as well.
There names were Bear Stearns and Lehman Brothers. I warned my readers
well ahead of time with them as well - well before anybody else
apparently had a clue (Is this the Breaking of the Bear? and Is Lehman really a lemming in disguise?).
Well, at least in the case of BNP, it's a potential tangible equity
wipe out, or is it? On to page 10 of said subscription document...
Thursday, 28 July 2011 The Mechanics Behind Setting Up A Potential European Bank Run Trastde and European Bank Run Trading Supplement
I
identify specific bank run candidates and offer illustrative trade
setups to capture alpha from such an event. The options quoted were
unfortunately unavailable to American investors, and enjoyed a literal
explosion in gamma and implied volatility. Not to fear, fruits of those
juicy premiums were able to be tasted elsewhere as plain vanilla shorts
and even single stock futures threw off insane profits.
Wednesday, 03 August 2011 France, As Most Susceptble To Contagion, Will See Its Banks Suffer
In
case the hint was strong enough, I explicitly state that although the
sell side and the media are looking at Greece sparking Italy, it is
France and french banks in particular that risk bringing the
Franco-Italia make-believe capitalism session, aka the French leveraged
Italian sector of the Euro ponzi scheme down, on its head.
I then provide a deep dive of the French bank we feel is most at risk. Let it be known that every banked remotely referenced by this research has been halved (at a mininal) in share price! Most are down ~10% of more today, alone!
- French Bank Run Forensic Thoughts - Retail Valuation Note - For retail subscribers
- Bank Run Liquidity Candidate Forensic Opinion - A full forensic note for professional and institutional subscribers
Subscribers, reference pages 1-4 and 5 of Haircuts, Derivative Risks and Valuation
to see how the losses through European contatgion can compound the loan
exposure problems of this bank and its likely TRS "faux" hedges
(remember, its not really a hedge if it doesn't get paid), not to
mention direct PIIGS exposure and holdings. Again, reference the video
for potential failure of counterparties such as Bank of America Lynch[ing this] CountryWide to pay these "faux" hedges without another massive government bailout.
So, What's the Next Shoe To Drop? Read on...
For
those who claim I may be Euro bashing, rest assured - I am not. Just a
week or two later, I released research on a big US bank that will quite
possibly catch Franco-Italiano Ponzi Collapse fever, with the pro
document containing all types of juicy details. This is the next big thing, for when (not if, but when) European banks blow up, it WILL affect us stateside! Subscribers,
be sure to be prepared. Puts are already quite costly, but there are
other methods if you haven't taken your positions when the research was
first released. For those who wish to subscribe, click here.
Now, let's refresh the output from And The European Bank Run Continues...and more importantly BoomBustBlog BNP Paribas "Run On The Bank" Models (they range from free up to institutional, I strongly urge those who haven't to click upon said link and download your intellectual weapon of choice!) where I modeled Greek losses on BNP. Below is sample output from the professional level model (BNP Exposures - Professional Subscriber Download Version) that simulates the bank run that the news clippings below appear to be describing in detail...(Click to enlarge to printer quality)This scenario was run BEFORE the Greek bonds dropped even further in price...
This
is the US bank that will SHOCK everybody with a most violent reaction
when the excrement hits those cooling machine blades (subscribers only): US Bank Derivative Exposure
This is the European bank that either will set off the global chain reaction or end up being a very significant part of it (subscribers only):
I can be reached via the following channels, or directly via email:
I will be releasing the date (probably this week), location and time of
the NYC meet and greet within the next 24 hours or so, so we can chat,
drink, debate, argue and fraternize with pretty woman together in a
trendy spot in the Meat Packing District or the Bowery (I apologize in
advance to all of my female readers/subscribers). Those who are
interested in attending should email customer support.
the NYC meet and greet within the next 24 hours or so, so we can chat,
drink, debate, argue and fraternize with pretty woman together in a
trendy spot in the Meat Packing District or the Bowery (I apologize in
advance to all of my female readers/subscribers). Those who are
interested in attending should email customer support.
There has been strong interest in the London meeting, enough to warrant
the venue - I simply need to get the travel and venue organized due to a
change of plans. For those that are new to the blog, these are pics of previous meet and greets...
the venue - I simply need to get the travel and venue organized due to a
change of plans. For those that are new to the blog, these are pics of previous meet and greets...
BoomBustBlog on the MotherLand in the Hudson, NYC
BoomBustBlog on the MotherLand in the Hudson, NYC
BoomBustBlog in the 79th Street Boat Basin, NYC
BoomBustBlog in the 79th Street Boat Basin, NYC
BoomBustBlog at BuddhaKahn, Meatpacking District, NYC
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I'm seeing an increase in the number of people who say things that sound mighty Reggie-like to me in the media without citation. Often the same people who were saying something completely opposite a year back but now talking as if they knew it all along.
Your attack on the Squid, that they cannot trade profitably, should have made you a legend in your own lunchtime Reg... this latest piece of mega-ton dynamite, BoA transferring toxic CDS risks to poor innocent American depositors bank accounts, is a mushroom cloud sized scandal
...and worse of all they're not the only bunch of Wall Street crooks doing it ...all with Ben Bernanks blessing at the Fed
...presumably Tiny Tim at the US Treasury must have seen this toxic transfer too
...this has to go viral with truth-syrum guys like Max Kaiser, InfoWars et al and hopefully Fox News
You say we can fight the big bank bullies but the only fight worth fighting is getting this out and bank depositors warned so they've time to pull their money out of these toxic Gangster banks before they explode otherwise its just a moral victory, not a material one too
Brilliant again Reggie, this is absolutely stunning financial research. Sherlock Holmes would be mighty impressed :)
Brilliant individuals always best/beat/out-smart big diseased dinosaurs. Thank fuck you're around because the myriad of Regulators, US Govt, accountants and auditors, non-Executive boards, Compliance and Risk Officers are yet again asleep at the wheel
...or so corrupt all these 'Referees' have jogged off the field for drinks with Wall Streets 'entertainments team' leaving the goalposts wide open for these criminals to rob and loot peoples deposits