Bank of America Credit Spread: FUGLY
By Barry Ritholtz - August 23rd, 2011, 12:30PM
This is pretty damned FUGLY: Click for larger graphic
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click for larger chart
Mark Gongloff explains the pain:
“In the credit-default swap market, spreads are wider across the board, meaning people are paying up for protection. The Markit investment-grade corporate debt index is 3 basis points wider. The index of European sovereign debt is 10 basis points wider. The index of European financials is also 10 basis points wider.”
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Source:
Bank of America CDS Spread Nears Record As Credit Market Misses Rally Memo
Mark Gongloff
Marktbeat, August 23, 2011, 9:05 AM
http://blogs.wsj.com/marketbeat/2011/08/23/credit-misses-rally-memo-bank-of-america-cds-approaches-record/
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August 23rd, 2011 at 12:52 pm
Hey no problem. Dick “C is the buy of a lifetime at 20 (I mean 200 now post split!)” Bove
just said everything is fine, and they have no need to raise capital.
So someone is seriously wrong here. Either they don’t need to raise capital, and this
is easily a 10-dollar stock. Or they have a lot further to go.
Anyone buying straddles?
good luck
Tim
August 23rd, 2011 at 12:52 pm
435 today, a record whoooeee
http://www.reuters.com/article/2011/08/23/bankofamerica-cds-idUSN1E77M0HF20110823
August 23rd, 2011 at 12:55 pm
[...] Bank of America Credit Spread: FUGLY (Ritholtz) [...]
August 23rd, 2011 at 1:13 pm
BAC forecloses on elderly couple for paying mortgage early.
http://abcnews.go.com/Business/bank-america-moves-foreclose-florida-couple-paying-mortgage/story?id=14355558
August 23rd, 2011 at 1:30 pm
What’s Whalen saying about these guy’s? Are they dead.
August 23rd, 2011 at 1:35 pm
Blodget (FWIW) says BAC may need 200B additional capital, “may”
http://blogs.wsj.com/marketbeat/2011/08/23/bank-of-america-could-it-need-200-billion-in-capital/
August 23rd, 2011 at 2:05 pm
Can anyone explain why the CDS is back to March 09 levels, but BAC bonds and preferred stock are significantly higher than then (though they’re down too, obviously)? One of these prices is wrong; which one and why?
August 23rd, 2011 at 2:50 pm
BAC seismograph…
August 23rd, 2011 at 3:33 pm
When I looked the other day at the BAC bonds, I saw that PIMCO has a pretty large holding. Now they don’t rely on S&P for bond ratings and are pretty savvy investors. As Disinfectant notes above, who is right and who is wrong? Are the BAC insiders loading up on cheap stock given the convictions expressed by Moynihan on the Fairholme call two weeks ago? Inquiring minds want to know!
August 23rd, 2011 at 3:41 pm
“paying up for protection”
Funny how the same terminology is used by the mob
August 23rd, 2011 at 3:45 pm
@Disinfectant Says:
August 23rd, 2011 at 2:05 pm
“Can anyone explain why the CDS is back to March 09 levels, but BAC bonds and preferred stock are significantly higher than then ”
I smell that BAC will push their separate bzns formerly known as “Mozilo retire rich gravy train” into BK to isolate the core bank.
August 23rd, 2011 at 3:50 pm
CDS is a less liquid market. There is a question of how far the Bernanke Put can be extended; wiping out the common equity but protecting the debt instruments is a nice, er, default assumption.
Also, what Robbie Pete Said.
August 23rd, 2011 at 4:01 pm
Robespierre,
That doesn’t explain the difference between CDS and senior debt prices. CDS payoff is based on BAC default, not CFC or MER or some other subsidiary default. And in the highly unlikely event of BAC default, CDS payoff is determined by senior debt recovery prices, so they should be moving in tandem. Yet, the best yield I see on BAC senior debt is about 7.4% on 25-year bonds. 7.4% is extraordinarily far removed from the implied default assumptions of CDS at 372 bps. In March ’09, the bonds traded at 40 cents on the dollar; today, 90+.
I understand if people want to take down the stock price due to the negativity on BAC’s earning potential (I think they’re making a mistake, but that’s my opinion vs. theirs). But the matter of the CDS vs. cash bonds simply makes no sense to me. I am operating under the assumption that the bonds are right and the CDS are wrong. But still, where’s the arbitrage to bring the prices in line? Consider me confused.
August 23rd, 2011 at 4:25 pm
Isn’t that called reversion to the mean?
August 23rd, 2011 at 4:27 pm
….and by the mean I mean out of debt fairy land and back into overextended real world valuation of what that debt is actually worth?
August 23rd, 2011 at 8:37 pm
every day is a good day to sell the banks…especially today
August 23rd, 2011 at 8:57 pm
If the US taxpayer bails out BAC – again – I’ll eat my hat.
.
August 23rd, 2011 at 9:26 pm
Aren’t all the big banks really insolvent, kept alive by the vampire nurturing Federal Reserve at the taxpayer’s expense? Their “assets” are dominated by those “toxic assets” TARP was supposed to buy up and never did. Aren’t those assets kept on the bank books at 100% of value when they could not sell for more than 30% of value?
August 23rd, 2011 at 9:52 pm
…well, what is the surprise here?
@Disinfectant…careful, be very careful…
…it is a religion, you know…i sure hope you are short term…and hedge seriously, but, that’s just me…and my religion…
August 23rd, 2011 at 10:30 pm
Not sure if you’re talking about Barry’s “never average down” religion or his readers’ perma-bear religion, but I subscribe to neither (Barry is my favorite blogger, though!). I average down whenever the opportunity arises and there is cash to do so and have never hedged/shorted a single dollar, yet my results have been quite good – about 25% per year for the past 7 years. It’s called long only value investing and is anathema to most, but very effective for those with the stomach.
Long CFC TruPS.
August 24th, 2011 at 12:27 am
Down 2% on a day the BKX goes all gangbusters lifting 4%?
Why is it every time someone goes on record saying BofA doesn’t need to raise capital, I can’t help but think they need to raise capital?
August 24th, 2011 at 7:10 am
[...] Bank of America Credit Spread: FUGLY (August 23, 2011,) [...]
August 25th, 2011 at 9:24 am
Buffett is buying in to BAC. My CFC TruPS are looking quite good right now, aren’t they? Glad I wasn’t scared or hedged like the rest of y’all.