Presenting The Key Questions To Be Answered By Bank Of America In Today's Fairholme Capital Conference Call

Tyler Durden's picture

Ahead of today's Bank of America conference call organized by Fairholme's Bruce Berkowitz which has one purpose only: to rescue his losing investment in Bank of America, which is down almost 30% in the past week, below, courtesy of Manal Mehta, we present 6 prepared questions which we are confident will all get their due attention by Mr. Berkowitz because unless these core questions, which go to the heart of all investors fears about Bank of America, are not answered, and instead nothing but fluff is discussed, the whole exercise will lead to an even greater panic in Bank of America stock. And what would be more ironic than another 20% drop in the BAC stock during this call. Also, in addition to the questions below, we post the following, based on an analysis by Compass Point Research & Trading, which matches an analysis conducted independently by Zero Hedge, and according to which BofA could be forced to repurchase between $28.4 and $62.2 billion, or between $10.6 and $44.4 billion above the bank's current reserves, which would immediately impair the firm's Tier 1 Capital, trimming it by more than 50%, and forcing the company to immediately issue an equity follow on, which will likely lead to a stock price also about 50% lower.

Per Compass: "The bank could be on the hook for as much as $14.8 billion in future losses from U.S. government-back investors Fannie Mae and Freddie Mac, the report said. The losses would come despite a January settlement agreement totaling $2.8 billion that resolved most of the outstanding repurchase claims between Fannie Mae, Freddie Mac and BofA. Compass Point also said the bank could report as much as $44.1 billion in total losses from repurchase requests from private investors. BofA could also lose up to $3.3 billion to monoline insurers looking to recoup losses on mortgage bonds they insured."

As for the questions which we believe are instrumental to getting a fair sense of what is happening with Bank of America, here are the 6 main questions which Moynihan should response before anything else.

We urge readers to dial into this call to hear the honest answers (or lies as the case may be) straight from the horse's mouth - link for the webcast is here.

Questions for Bank of America's CEO:

  1. Earlier this year, you reached an agreement to settle rep + warranty claims tied to a monoline insurer – Assured Guaranty.  Wrapped RMBS deals were typically rotated amongst all the monolines so rep + warranties given to Assured were substantially similar to those provided to MBIA and others.  Yet, in your financial statements – from your latest 10-Q for Q2 2011, you state “We have had limited experience with the monoline insurers, other than Assured Guaranty, in the repurchase process as each of these monoline insurers has instituted litigation against legacy Countrywide and/or Bank of America, which limits our ability to enter into constructive dialogue with these monolines to resolve the open claims. It is not possible at this time to reasonably estimate probable future repurchase obligations with respect to those monolines with whom we have limited repurchase experience and, therefore, no representations and warranties liability has been recorded in connection with these monolines” How is it reasonable – when you have settled with Assured, how is it possible to make a statement that you don’t have enough experience to set aside reserves for claims from monolines like MBIA?  The deals were the same.  To ask a very blunt question – Has Bank of America set aside any reserves for your ongoing litigation with MBIA where you have lost a number of key court rulings?  What would you say to those who say you are hiding behind accounting rules about litigation to not set aside adequate reserves?
  2. The precedents set in litigation versus MBIA has emboldened others to pursue litigation against BAC.  These rulings include allegations of a de facto merger opening BAC to successor liability as well as the use of statistical sampling rather than “hand to hand combat” in fighting mortgage putbacks.  As you highlight in the latest 10-Q, “Additionally, if recent court rulings related to monoline litigation, including one related to us, that have allowed sampling of loan files instead of a loan-by-loan review to determine if a representations and warranties breach has occurred are followed generally by the courts, private-label securitization investors may view litigation as a more attractive alternative as compared to a loan-by-loan review.”  In two weeks, there will be another important decision in the case which relates to an assumption you highlight in your latest 10-Q.  For example, if courts were to disagree with our interpretation that the underlying agreements require a claimant to prove that the representations and warranties breach was the cause of the loss, it could significantly impact this estimated range of possible loss. Isn’t it time to reach a settlement with MBIA before there are further damaging court rulings?
  3. In a December 2010, NY Times article you stated, “But what about Countrywide?   “A decision was made; I wasn’t running the company,” Mr. Moynihan says, although he was obviously a top bank official at the time. “Our company bought it and we’ll stand up; we’ll clean it up.””  In a February 2008 interview, Bank of America spokesperson Scott Silvestri said: Nevertheless, the banking giant says that Countrywide's legal expenses were not overlooked during negotiations. "We bought the company and all of its assets and liabilities," spokesman Scott Silvestri says. "We are aware of the claims and potential claims against the company and have factored these into the purchase."” However, as justification for the BNY deal, the trustee, Bank of New York states “More specifically, before entering into the Settlement, the Trustee has taken into account, among other things, the following: Countrywide’s position that the Trustee could not impose liability on Bank of America under theories of successor liability, veil piercing, or de facto merger is reasonable.” In a number of monoline litigation suits such as MBIA versus Countrywide/Bank of America, the judge has refused to dismiss Bank of America as a defendant claiming that there’s sufficient evidence to support allegations of a de facto merger.  How is it reasonable for BNY to support the settlement under an assumption which runs counter to rulings in a majority of putback lawsuits so far?  
  4. Cost of foreclosure delays.   GSE executives testified that each day a foreclosure is delayed costs approximately $30-$40 per day per loan file.  The GSE’s subsequently required that Bank of America reimburse them for the cost of foreclosure delays.  Initially you estimated the cost of foreclosure delays to be tens of millions of dollars, then it became hundreds of millions and in the latest 10-Q that number had grown to one billion.  In the Q-1 Form 10-Q, you state “Many non-agency residential MBS and whole-loan servicing agreements require the servicer to indemnify the trustee or other investor for or against failures by the servicer to perform its servicing obligations or acts or omissions that involve willful malfeasance, bad faith or gross negligence in the performance of, or reckless disregard of, the servicer's duties.” What reserves has Bank of America set aside to reimburse non agency RMBS securitization trusts for the cost of foreclosure delays?  If BAC engaged in conduct such as robo-signing that led to foreclosure delays, why should investors in RMBS trusts not be reimbursed?  If so, what is the reserve that BAC has set aside for that?
  5. Repurchase Rate Assumption.  In your 10-Q, you state that “The BNY Mellon Settlement led to the determination that we now have sufficient experience to record a liability related to our exposure on certain other private-label securitizations. This determination, combined with changes in our experience with the behavior of certain counterparties, including the GSEs, in the first six months of 2011, was the driver of this additional provision. A significant factor in the estimate of the liability for losses is the repurchase rate, which increased in both the three and six months ended June 30, 2011.” Your 10-Q sheds very little light on how BAC arrives at the repurchase rate assumption and whether or not non-related parties would find those assumptions reasonable?   Also, if the BNY settlement leads you to have sufficient experience to record a liability, why would the Assured settlement not have the same effect for other monolines?
  6. New York Attorney General Eric Shneiderman filed to intervene in the BNY Mellon Settlement claiming “Countrywide's failure to transfer complete mortgage loan documentation to the trusts hampered the ability of the trusts to foreclose on delinquent mortgages” If his allegations turn out to be true, does that mean securitization trusts which were collateralized by mortgages are effectively unsecured obligations?  Does that mean investors in those RMBS trusts would be allowed to put back the securities to Bank of America?

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Mr Lennon Hendrix's picture
The Key Questions To Be Answered By Bank Of America In Today's Conference Call-

When will our stock price be at zero?

bigdumbnugly's picture


umm, well i haven't checked the ticker in the last few minutes but...

gmrpeabody's picture

Watching the CNBC talking heads  screaming for JPM's Dimon to run for president after he's moving speech (NOT) today on what's wrong and right with America.

It was enough to choke a maggot.

FIAT_FixItAgainTony's picture

i hate maggots that choke, must be the reason my tee vee's been off and unplugged all of this year. 

you are brave for attempting to watch MSM.  i comprehend the need to see the spin offered to the sheeple, but i've found i do quite well completely avoiding it.

thanks tyler and zh'ers for being here.

quintago's picture

If BOA has to repurchase, guess what, so do the taxpayers because of the liability they absorbed on the WaMu purchase which will undoubtedly be attacked next, along with every other Shady McShadyville lender's loans which were repackaged and sold to idiots.

moneymutt's picture

Also, can we have our TARP and all the other money FED gave you back, and you go away....

Mr Lennon Hendrix's picture

You can't have your TARP and eat it too.

Sancho Ponzi's picture

And what's this about Fannie Mae, the GSE that should have died but is now being subsidized by taxpayers, buying BAC mortgages? You've got to be kidding, right? Whoever made that decision needs to be fired NOW.

Sancho Ponzi's picture

You can't just rent houses that have been vacant for years without spending thousands of dollars on repairs and maintenance. Hell, many of those subprime houses should be torn down. This administration is totally freaking clueless.

Mr Lennon Hendrix's picture

Soon, to go along with foodstamps, there will be rent stamps.

BAC in the USSA!

Rodent Freikorps's picture

If they were just clueless, wouldn't they -- at least occasionally -- do something that didn't harm the country?

Ricky Bobby's picture


Makes you wonder - so much easier to destroy then to build.

Rodent Freikorps's picture

All this news has made me nervous.

So...I went to Ebay and loaded up on some more powdered eggs and tactical bacon.

Other than that kind of stuff, I'm good whichever way things go. If someone could figure out how to do freeze dried Pepsi, they become a billionaire.

karzai_luver's picture

Many of these sub primes have been bought for next to nothing and are now being flipped so if you are quick and smart it's easy money.


If you want jobs fixing them up or knocking them down is the question.


Well fixing them up provided easy money for more than knocking down so thats what you will get.

Nothing cluelss if you are in the system.


Drag Racer's picture

McGraw-Hill is the owner of S & P, you know the downgrade guys, and this company, you know the ones with the construction job search network.

Mr Lennon Hendrix's picture

If we were to start blaming people the list would take up a few pages or so.

karzai_luver's picture

They bought the service rights is the way i read it.


But yeah fire em all you will get enough someday.



Sudden Debt's picture



gangland's picture

which would you take? pesos or pesetas?


slaughterer's picture

Mr. Lennon hendrix


to the point! 

Dr. Engali's picture

How much are you going to sell  Merrill to JP Morgan for?

Ancona's picture

It's coming at them from all sides now. I think it is just a matter of a few days before we hear about some kind of restructuring or another.

Spitzer's picture

Who cares about the forensics. Anyone (Paulson) that was too dumb to realize that these banks where finished in 08 needs their head examined.

Funny how Maradith Whitney got famous for doing some forensics on Citi, Fanny and freddie, yet Peter Schiff predicted those bankruptcies in 2006.

Alea Iactaest's picture

Being right but getting the timing wrong is still wrong.

ShankyS's picture

How bout the backdoor countrywide bailout we're gonna pay for? 

phungus_mungus's picture

Since the BOA, Fannie Mae, Freddie Mac trifecta of realestate timebombs is unspooling. Do you think we'll stop seeing those silly stories about the bottom of the hosuing market, rebounds and green shoots?


Yeah, me neither...  

heatbarrier's picture

What about AIG claiming :::cough::cough::: "fraud"?   

...Ah, we can't comment on ongoing litigation.  (thinking "speeding ticked at the Indy500")


Misean's picture

Here's the menu. Remember, this is your last meal, make it a good one.

Long-John-Silver's picture

I know what will be said.


We are Lehman Brothers. We are dead.

Eally Ucked's picture

What is notional value of SIV, what is market price for it if any?

Misean's picture

The value is whatever we say it is, so sayeth FASB, so shall it be. How dare you question the gods!

citta vritti's picture

what about REMIC status for RMBSes where loan docs. weren’t sent to the trustee on time?

Misean's picture

The REALLY big boys who bought these things are figuring out what to do. Once they move, the IRS will swoop in and maul a few medium sized investors for taxes, and collapse the mess.

firstdivision's picture

Is this a glimpse of what will be occurring at Paulson & Co after the BAC call?

Bob's picture

Like a glass of fresh glacial water!  Thanks, I needed that. 

Greater Fool's picture

Some interesting non-questions there. They clearly convey the idea that BAC is only a few denied motions away from bankruptcy. 

pan's picture

Counterparty risk = anti-money....bitchez!

Seasmoke's picture

1. What really happened between Ken Lewis and Hank Paulson ?

2. Why did you not include who the real investor of the mortgage loan was (and where the money came from) at origination ?

3. Why have you used robosigning MERS (and others) to break all rules of property laws in the chain of assignments by using fraudulent signatures

4. What is the Mark to Market on your HELOCS ?

5. Why would anyone ever pay a mortgage that is serviced (not owned) by Bank of America ?

franzpick's picture

6. How many residential and other properties are in default, what % are still being used by "stay-ins", and what % of the total have not been auctioned or sold?

economessed's picture

Looking back 80 years or so, we had the Bank of the United States blow-up.  Today it's Bank of America.  That rhyming sound you're hearing is history delivering the same lesson to those who are doomed to repeat it.

Winosawrus's picture

Is that the sound of a run on your bank in the background??

Camtender's picture

Did Ken Lewis ever admit that Paulson had a gun to his head over Countrywide? I thought there was a video of this on youtube................

Victor Berry's picture

Do you think Angelo Mozilo, John Thain, Stan O'Neal, Ken Lewis, et al, are all kicking back in their 24-kt gold lounge chairs enjoying the BAC shit storm show?  I'm sure their personal chefs and butlers are busy bringing them the finest popcorn money can buy!