Friday, June 10, 2011

(VIDEO) Berkowitz on BAC + My BAC Warrants

Financial service companies are disliked right now. People are worried about the government increasing capital requirements, assets turning increasingly sour and the economy going back into a tail spin. Yet, I own the BAC Warrants. Here are my thoughts.

BAC is currently trading at $10.65 a share
  • $13.2 tangible book value per share
  • $100 deposits per share
  • net credit losses and non performing loans have declined since last year
  • New CEO on clean up duty, no longer in acquiring mode like Ken Lewis
  • 2012 Analyst estimates of $1.71 EPS
You can also see a free value line report on Bank of America here

As time goes on, provisions for loan losses will decrease increasing earnings per share. Also as the capital continues to accumulate inside the bank, the Treasury department will allow BAC to increase their dividend from it's paltry $0.01 per quarter to around 20-30% income, probably around $0.10 per quarter. Dividends should attract more investors and start to drive the share price going forward.

I particularly like the warrants. Here is some basic information on the Bank of America - A Warrants
  • Currently cost $5.68 per warrant. (BAC currently at $10.65)
  • Expire on January 2019
  • Strike at $13.30 
  • For every quarterly dividend over $0.01 a share, the warrant decreases accordingly. For example, if a quarterly dividend of $0.07 was issued, the strike price would decrease to $13.24.
 CNBC had an interview with Berkowitz discussing his investments in bank stocks, especially Bank of America. You can read that article here

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