Bank of America

Earlier today, courtesy of the unbreakable bond between Warren Buffett and CNBC's Becky Quick, we learned that supposedly Warren came up with the idea to invest $5 billion in Bank of America (which really is $2 billion when accounting for the intrinsic value of the warrants, which in turn makes the dividend on his at risk investment a stunning 15% but we digress - more here) while in the bathtub on Wednesday morning. What is interesting, is that according to the just released Securities Purchase Agreement, between Warren's Archimedes moment yesterday, and the announcement this morning, here is what he contractually represents and warrants that he did...

This is just hilarious: According to Bloomberg, Bank of America’s main hesitation was taking Warren Buffett’s money when bank had said it didn’t need capital, CNBC reports without saying where it obtained the information. It adds, the symbolic value of investment worth boost to confidence; "$5b not lot to raise" - also apparently "Terms better than public market." Here is our retort: Bank of America could have told Buffet: "No thank you" and leaked it. Instead it confirmed what Zero Hedge has been saying since October 2010 - that it is absolutely desperate for capital. Also, as to the saying that "terms were better than the public market" - why of course they are - the bank has absolutely no access to the public market. BAC IS LOCKED OUT! But at least we will soon see just how efficient Dodd-Frank's bank insolvency contingency is in real life. Because we have a feeling the brilliant legislation penned by Barney Frank and Countrywide's senator, may fall just a little short...

And BAC retraces 50% from its pop. An 81 year old Buffett should really stick to washing himself while in the bathtub, flying in private jets with Becky Quick, and contemplating ways to have everyone in America pay more taxes, and maybe even consider retirement every now and then, than making "Long-Term" investment decisions.

Goldman bailout part 2 is here. And so the Octogenarian of Omaha doubles down on another taxpayer bailout. At least we can put aside all the lies that Bank of America did not need capital. It needed capital: $5 billion of it. It also confirmed it was completely locked out of both debt and equity public capital markets - the bank's only recourse was a private raise with a crony capitalist who is once again doubling down on the global ponzi.

And so the uber-idiotic rumor which spread like wildfire among desperate traders yesterday, namely that JPMorgan would acquire Bank of America, is next in the docket to be denied (after taking cheap shots at Henry Blodget):

• BANK OF AMERICA SAYS JPMORGAN MERGER SPECULATION IS `BASELESS'
• BANK OF AMERICA DISCUSSES MERGER SPECULATION IN INTERNAL MEMO
• BOFA REPEATS IT HAS NO NEED TO ISSUE ADDITIONAL COMMON STOCK

Now... If only Bank of America can focus its attention for 5 minutes and answer our questions and all shall be well.

Today CNBC had to dig very, very deep to find a C-grade sellside analyst willing to stick his neck out and defend Bank of America. They ended up picking Raymond James' Anthony Polini. Why would Polini go out on a limb saying that Bank of America can exist for 2 years without incremental funding, and that all fears that the bank is undercapitalized are overblown? Well, as the chart below shows, he has been consistently wrong on the bank for the past 3 years, and his average error to the true stock price is about... 50%. On the chart below, the white line is his Price Target recommendation. As for the green square, it is self-explanatory. Anyone who listened to Polini over the past two years, has lost about 80%. But this time it is different. We promise. So, to answer our rhetorical question: one can not lose any credibility, if one never had any to begin with.

One of the key catalysts (aside from the retarded rumor that JPM would buy Bank of America) that prevented BAC's stock from dropping to a 5 handle yesterday, was JPM's credit upgrade of Bank of America (report here). Sure enough, the reacharound from BAC is as usual missing, with the response from the bank's banking analyst Guy Moszkowski, being to... downgrade JPM. And he did not stop there: he also cut, GS, MS, and C: in other words the entire TBTF brigade. Someone should probably explain to Guy that any sell off in BAC's peers will be doubly acute in the stock of BAC itself, which has now become the whipping boy for the shorts, and the proxy of all that is wrong in the US and European banking system. Then again, with the palpable sheer panic in the corridors of 1 Bryant Park, we doubt anyone at that bank has any idea what they are doing at all.

Early this morning, Henry Blodget penned a post titled "Here's Why Bank Of America's Stock Is Collapsing Again" in which he used Zero Hedge data among other, to determine that the capital shortfall for the bank is between $100 and $200 billion. It took BAC exactly 6 hours to retort. Below is the full statement.

And while stocks continue to blissfully exist in some parallel universe, the rout in financials has just entered overdrive, of particular note Bank of America, which has just passed it all time wides on the offered side. When the mid-market is north of 400, probably in about 2-3 hours, it may be time to cue the Lento from Chopin Piano Sonata, No. 2 in B-flat minor, Op. 35.

About a month ago we penned an article titled (and asking) "Is Brian Lin The Next Incarnation Of Joe Cassano?" in which we sought to demonstrate just on what flimsy ground Bank of America has based its litigation reserve assumptions: a topic that since then has become the biggest sticking point in the BAC bull thesis. Considering that since then, Bank of America default risk has exploded by over 150% and the stock price has plummeted by half, at least some have grasped the severity of a situation when incremental flawed assumptions are magnified level after level, until we finally get what, as Manal Mehta terms it, is a Bank of America "Subprime CDO." Since this issue is extremely important to the future of the financial system (a bankruptcy of Bank of America would be hundreds of times more severe than Lehman's), below we present in visual, and thus easy to comprehend, format what we previously explaining in a narrative and which once again brings us to our question: will the man behind the BAC litigation reserve fraud be responsible for the next iteration of an AIG-type implosion?

We take this moment from your busy schedules to update you that the CDS of Bank of America has reached escape velocity and has now entered suborbital traffic. At 370 bps, which is where the CDS is trading as of this moment, it is only 30 away from the 400 it hit in March of 2009 when the world had to be bailed out by the Fed: a ploy which this time will not work since every central bank has already doubled down to the hilt. In other news, expect bashing of evil bloggers who indicate BofA default risk spikes to commence momentarily as obviously it is only they who are to blame for BAC's upcoming bailout.

Can we all just fast forward to Tim Geithner making apocalyptic threats if he doesn't get TARP 2 to bail out Bank of America (which in turn will "help" Rick Perry) please?

Following the recent surge in blue light special asset dispositions courtesy of Bank of America's precarious liquidity conditions, many have speculated that the bank will be forced to sell none other than Schrodinger's Goose: Merrill Lynch, which is at the same time both dead (pre bailout) and golden (due to some legacy reputation it has as a fabled Wall Street firm, now mostly based on intangible value). Nowhere else is this more evident than in the CDS spread between the two entities. After trading at close to convergence for about a year, the CDS levels between the two entities have seen a dramatic dispersion in recent days, soaring to over 50 bps (BAC CDS at 340, ML at 394). This is the widest the spread has been since early 2009 when the world was ending and everyone was buying whatever CDS they could get their hands on. The only comparable widening was in May 2010 when Europe blew up for the first time. So what should one do here? A divergence trade would mean that BAC is going to deteriorate so much it will have no choice but to dump Merrill, an outcome which will likely see both spreads blow out to 2008 wides, only to be followed by the need to nationalize CFC which will likely mean a collapse in Countrywide Home Loans spread (as we hypothesized two weeks ago). As if that was not confusing enough, the likely future of standalone BAC CDS post this event will likely be a tightening as the bank spins off its most toxic division, but then widens as the realization that America's biggest depository is no longer TBTF and spin offs are imminent. That... or the divergence collapses as the BAC blow out continues while investors speculate that upon its sale Merrill will have less risk than its old parent. In either case, keep an eye on this spread as it could be the canary in the coalmine for what BAC management plans to do w/r/t the Schrodinger Goose, CFC, and overall future business as a going concern expectations.

Should we be surprised, frightened, disgusted or simply say "we knew it", that in the informal mixer just after Texas Governor and Republican presidential candidate Rick Perry spoke at a Politics and Eggs breakfast in Bedford, New Hampshire, an unknown gentlemen approaches a casual Perry like an Ian Flemming character, and proceeds to dead drop the following: "Bank of America... We will help you out"... and silently moves on. At least we know now who is funding what, and whose interests potential future president Perry will be paid to defend.

Will BAC be at $4 by November? We don't know. But someone just made a $2 million bet that this is precisely what will happen. Minutes ago, 54k $4 BAC November Puts were purchased at $0.37. The total price: $2 million. Will this event occur? Like we said, we don't know, but it sure looks far more realistic than Paulson's bet that BAC will trade at $30 by the end of the year.