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Posts Tagged ‘Bank of America’

Money for jam

In Uncategorized on 31/10/2011 at 6:10 am

I’m a shareholder in Lippo Malls Indonesia Retail Trust that has called for a massive rights issue (S$336.8m) that will not be underwritten by the five Joint Mgrs (StanChart, CIMB, Credit Suisse, BoA and UBS). Market is too volatile for them to risk their money for “peanuts”? In normal markets, they would be entitled to a fee of 2- 3% for underwriting the rights issue. This would have worked out to fees of between S$6.7m- S$10.1m.

But the five of them (StanChart, CIMB, Credit Suisse, BoA and UBS) are getting a total of S$1.5m (or 0.45% of amt to be raised) to do bugger all as I see it. This is 31.25% of the fees that will paid in relation to the rights issue. The rest of the fees will go to StanChart (financial adviser), lawyers, accountants, printers and so on.

Guess LMIR didn’t want to upset the investment banks who were planning to underwrite the issue.

Banks’ Alice-in-Wonderland Accounting

In Accounting, Banks on 28/10/2011 at 7:02 am

The problem with a bank’s balance sheet is that on the left side nothing’s right and on the right side nothing’s left.

Think Lehman’s and Dexia’s balance sheets. One day AAA, six months’s later rubbish. That fast leh?

Profit and loss accounts are just as rubbishy. Recently UBS’s third quater profit fell to 1.02 billion Swiss francs (US$1.2 billion) in the three months ended Sept. 30 from 1.66 billion francs in the period a year earlier. The trading loss of  1.85bn Swiss francs (alleged caused by a rogue trader) and charges linked to a cost-cutting plan were partly offset by an accounting gain on the bank’s own credit of 1.8 billion francs and the sale of some investments.

Now this accounting treatment was not not only used by UBS. According to the FT’s Lex, four-fifths of the US$16bn net profits  in the latest announced results of (BoA, Citi, JPMorgan, Morgan Stanley and Goldman Sachs came from using used the same accounting treatment of the banks’ own debts.

Lex describes the accounting treament thus: ” Try this on your credit card company: your creditworthiness has weakened, so you write down the value of what you owe them to reflect the greater riskthat you will not pay it back and credit the difference to your personal account. That is what exactly accounting allows”.

UBS: What else can go wrong?

In Accounting, Banks, GIC on 27/10/2011 at 6:36 am

Readers will know by now that UBS, where GIC is a major long-term (and suffering)  investor, is planning to reduce the scale of its investment banking operations, the source of its on-going problems since 2007.

But they may not know “What they are trying to do has never been done before,” Christopher Wheeler, an analyst at Mediobanca, said. “They want to shrink the investment bank by choice, which means unwinding positions without loss and running down their books while keeping the morale among staff, and it’s unclear who’s running the shop.”

And don’t be fooled by its latest results. Despite being hit by a 1.85bn-franc loss from deals made by an alleged rogue trader, it just made  a better-than-expected third-quarter net profit of 1bn Swiss francs (US$1.1bn).

The loss was almost entirely offset by a 1.77bn-franc accounting gain that came from changes to the value of the bank’s own debt. One of these days, I’ll blog on the Alice-in-Wonderland accounting that allows this type of gain to materialise. According to the FT’s Lex, four-fifths of the US$16bn net profits  in the latest announced results of (BoA, Citi, JPMorgan, Morgan Stanley and Goldman Sachs came from using used the same accounting treatment of the banks’ own debts.

Masterclass in analysis: Buffett’s BOA deal

In Banks, Financial competency, Investments on 28/08/2011 at 8:08 am

When Warren E. Buffett invests in a troubled company, he gets a good deal. Dealbreaker’s Matt Levine crunched the numbers on Mr. Buffett’s Bank of America investment and estimates that the bank’s implied stock price in the $5 billion deal was $5.28 per share, more than $2 lower than where it currently trades. Note the way he uses less than precise assumptions to avoid getting into complications.

http://dealbreaker.com/2011/08/how-much-did-warren-buffett-pay-for-bofa-anyway/

MM got it right, Temasek got it wrong

In Banks, Temasek on 17/01/2011 at 5:34 am

As this article shows, Temasek shld not have been so hasty in selling its stake in BoA, which it got after BoA bot Merrill Lynch where Temasek had a big investment. BOA is doing the things that attracted it to spend US$5.9 bn buying shares in Merill Lynch. Temasek lost US$4.6 bn, it was reported.

Shortly before Temasek sold, MM had said that S’pore Inc’s investments in Citi, UBS, and Merill Lynch had a time-frame of 30 yrs. Temasek held its ML investment for over a yr. GIC still owns shares in Citi (profitable), and UBS (big loss).

(Aside so why should the young listen to him, when Temasek doesn’t? Other instances). Neither does it seem does the local media)

Bank of America is headed for its best year [2011]advising on mergers and acquisitions in Asia-Pacific since 2005, and arranging initial public offerings since 2007, data compiled by Bloomberg show. The combined companies have generated 30 percent more revenue from traditional investment-banking businesses in the region than they did as separate entities … Read the rest of this entry »

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