Monday, April 20, 2009

"Know" News is Good News???

Just a few observations with today's market. Bank of America reported estimates that were three times over estimates... clearly an amazing feat. Today's story is not so much what was reported, but it is what was not reported. Analysts were more concerned about loss provisions that are being set aside in commercial and residential loans. It appears loss provisions are nearly doubling in anticipation of a tidal wave of future losses. Not that the government won't throw another lifeline to a company that is too big to fail. But more along the lines that BAC cannot begin to repay TARP funds which in essence means they are going to stay under government control. Specifically, this could add momentum to Ken Lewis' tenure as BAC CEO.

COF, one of my favorite short plays from 2008 lost 1/3 of its value today. Unsecured debt from a company that specialized in finding the right card for everybody is now coming back to haunt them. I would like to remind readers that BAC also has a tremendous amount of exposure to credit card debt. Some people are concerned about the stress test. I believe that most banks will pass this test, but the story beneath test results will rule the day once figures are released. While one "expert" was calling a perfect day to buy, I am a bit more apprehensive. For sure, CRE is on the chopping block. The question is, who else? Casinos in spite of LVS loan arrangements appear to be a healthy play here. Consider puts on WYNN 1/25s or OTM puts on MCRI at 2.50.

1 comment:

AX said...

Doesn't take a genius to figure out BAC's $4 billion in profits. $2.2 from Merril bad debt taken as "unrealized" gain and 1.9 pre-tax gain from sale of Chinese bank shares. Never mind the $6billion in loan-loss provisions.

Our mistake was ever getting off the COF gravy train, we shorted it at $50 last year.