naked capitalism

Yet another sign of deplorable practice in action. Regulators are urging all banks to increase their capital bases. Bank of America bought Countrywide, which lost $2.33 billion last quarter, but management maintains will be profitable by year end (perhaps if they engage in the tactic forewarned by Institutional Risk Analytics, of putting Countrywide in Chapter 11 to stiff Countrywide bondholders. IRA has said that move would have a serious adverse impact on bond issuance by banks). It has also been reported that tax losses from Coutnrywide make the deal cost-free. But you have to have taxable profits to use tax losses (although BofA could carry the losses back as well as forward).

Meredith Whitney of Oppenheimer, who so far has called the performance of banks correctly in this credit crunch. said in her July 15 research report that bank valuaatons (meaning earnings multiples) were headed lower until they “got real”. The overview comment:

For the financial markets to stabilize, we believe banks need to swiftly address true asset values and adjust their books accordingly. As assets have repeatedly been marked down over the past year in what seems like a constant game of “catch up,” investors have grown understandably wary of valuations and accordingly have revalued bank stocks with significantly lower valuations.

The report then explains at some length why the real estate assumptions at the major banks are still too optimistic, even those of Bank of America, which assumes a 25-30% peak trough price decline. She classifies the stock as “perform”.

The comment on the buyback at Bloomberg is skeletal:

Bank of America Corp., the biggest U.S. consumer bank, approved the purchase of up to 75 million shares of common stock.

Bank of America’s board authorized management to spend up to $3.75 billion on the share repurchase, according to a PR Newswire release today from the Charlotte, North Carolina-based company.