Bank Of America Report

Bank of America was on the brink of Bankruptcy just a few years ago. Under prior management, growth in assets was pursued at the expense of sounds business practices. This combined with years of poor underwriting and the disastrous loans that came with the acquisitions of Countrywide Financial and Merrill Lynch, caused huge damage to the franchise. To this day Bank of America remains one of the most shorted stocks on the NYSE.

However, the problems BAC has faced are temporary. Brian Moynihan became CEO in 2010 and has made it a priority create a “fortress” balance sheet and clean up their legacy issues. The underlying business is very high quality and is producing 13-15% ROTE. The high earnings power of the underlying business is being clouded by a very high expense rate, high litigation costs, mortgage put backs, high cost long term debt, etc. These issues are quickly being resolved. I expect by 2014-2015, Bank of America will be mostly finished taking care of the financial crisis related issues.

Bank of America is currently one of the best capitalized banks in the United States. Their capital levels are already in excess of the Basel 3 requirements that come into full effect in 2019. Basel 3 requires them to be at a tier one common equity ratio of 8.5% by 2019. At the end of the 3^rd quarter they were already at 8.97%.

At today’s price ($10) Bank of America is selling at one of the widest discounts to its tangible book value ($13.50) in its history. By 2015, I expect BAC to be earning in excess of $30 billion/ year pre-tax and potentially well in excess of this. At this level of earnings, Bank of America is worth at least $25 per share. In addition, in 2013 alone Bank of America could return up to $18 billion to shareholders based on Brian Moynihan’s statement during the 3^rd quarter conference call where he indicated that nearly all capital going forward will be returned to shareholders.

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Goldman Sachs Investment Report

Summary: 

Goldman is trading for the cheapest price in its history as a public company. Goldman is a great business that dominates just about every business segment they are in. Goldman has been hit from every angle recently. Some of the challenging factors include subpar loan demand, low M&A, IPO and other investment banking business, regulatory threats, market deleveraging, lower company leverage, constant criticism etc. This has resulted in one of the world’s premier investment banks trading at less than 75% of tangible book. Goldman is worth over $200 per share and investors are ignoring many positive factors going forward. Over the course of Goldman’s history they have been very nimble in shifting assets to the highest ROI areas, assuming that ROE will be at these very depressed levels forever is not an accurate conclusion. Goldman is trading at a large discount to the liquidating value of its assets that are nearly all mark to market. Investors are ignoring the opportunities and tailwinds that exist. There is a huge potential to grow significantly overseas and competition has been reduced from the financial crisis. In addition, the reduction of the firm’s temporary liquidity will add a few billion to the bottom line. Increased leverage and a return to more risk taking will also boost results.  Large share buybacks at such an advantageous price will further enhance value. Goldman is a low downside bet that could be worth up to $270 in a few years or 3x the current price.

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Goldman Sachs Investment Report

Berkshire Hathaway Annual Meeting

Are you going to the Berkshire Hathaway Annual Meeting?

If so please email me and let me know and register for this event.

The Yellow BRK'ers Meet and Greet is a great event for a first timer and anyone else:

Berkshire Hathaway shareholders from all online communities are welcome to an unofficial gathering on Friday, May 4th, 2012.

You are invited to join as fellow shareholders unofficially gather on Friday, May 4th, 2012 at the DoubleTree Hotel in Omaha to meet and have fun, starting at 4:00 pm and you can linger until 7:00 pm (or longer). There will be a short program at approximately 5:00 or 5:30.

This is a casual atmosphere, with light snacks available. It's a "happy hour" type of gathering - not a formal dinner or anything of that sort.

The DoubleTree is located on 16th and Dodge. There may be some street parking, otherwise, one can use the parking garage with an entrance from the South at 16th & Dodge street, just east of the First National Bank.

To register for the event: http://yellowbrkers.com/