Mortgage Fines Reveal Board Room Stupidity at $BAC and $JPM, $C, $WFC, $XLF

We all knew billion dollar fines were coming. We now know that they are just speeding tickets. Bank of America, Wells Fargo, JPMorgan and others thought they were getting strategic assets at bargain basement levels. Turns out take-overs were not worth it. Big money spent should have been kept inside. Billion dollar fines will always be a bad use of capital.

The banks will survive because they are too large to fail.

However  you have to ask “How smart was that board of directors to buy a pig in a poke” what will they do next time. What grand strategy will they have.

Banks are the most difficult investments to analyze. So you decide to follow good management. Except you cannot find good management. When they had the chance they bought crap.

George Gutowski writes from a caveat emptor perspective.

US Banks Need Big Political Bargain $XLF, $C, $WFC, $JPM, $BAC

It’s about five years since the 2008 melt-down and Washington is still prosecuting and bringing new charges against banks for their roles in mortgage-backed securities. The Banks need to make a Big Political Bargain and call the Federal dogs off. Fines are in the hundreds of millions. Costs of litigation and senior level distraction are in the tens of millions. The banks need to staunch this flow and look to the future.

The government needs to realize the banking sector is the aircraft carrier of the economy. Must be protected at all costs. So stop with the lawsuits regardless of ideological justification.

Obama has three more years. Republicans can’t win the White House without better Latino support in three years. Three years plus of litigation can be a long time.

So make a deal banks. This has to be business and not personal. Someone needs to be able to have the right lunch with Senator Elizabeth Warren and lay the ground work for the next ten years. Not fight rear guard actions because of the past ten years.

George Gutowski writes from a Caveat Emptor Perspective.

JCPenney Bearhug From Cit Financial. I Smell John Thain $JCP $CIT $CIT

New York Post struck a blow for headlines and jeopardized thousands of jobs by reporting that CIT Group (NYSE:CIT) is squeezing JCPenney suppliers. Subtext: The all important Christmas season is coming. If you understand retail supply chain logistics the Christmas season is happening right now.

JCPenney (NYSE:JCP) has had well documented problems. William Ackman the renowned hedge fund activist wheeler-dealer has a famous long position which he may be re-cogitating. Senior officers are changing at JCPenney. JCPenney has also stopped issuing monthly sales data and therefore visibility for suppliers and the credit structure behind them is more complicated. Clear as mud.

So the word is Cit Group is squeezing credit for suppliers. New York Post has the scoop! No one is talking official like. Will this become a Reg FD issue. JCPenney has no control and no direct knowledge of the true circumstances. CIT Financial probably does not need to disclose anything because this is not material to them. William Ackman is probably drinking a double shot of single malt right.

What’s it all mean. Is JCPenney that different now from say a few weeks ago? Probably not.

I smell John Thain the former big shooter that sold Merrill Lynch to an unsuspecting Bank of America. (NYSE:BAC) Former CEO of NYSE and a President and Co-COO of Goldman Sacks (NYSE:GS)  is sort of hanging out at CIT Group until something better comes along.

Has he crossed swords with William Ackman or is there a bigger game going on. Methinks bigger game.

By the way releasing the story when the market is traditionally the most volatile is suspicious.

Machiavellian moves within an enigma.

George Gutowski writes from a caveat emptor perspective. Follow him on Twitter @financialskepti or follow his evil twin brother who writes Wall Street Murder Thrillers @georgegutowski

Bank of America Short Term Pref Dividend Shuffle Long Term Pain. $BAC

Bank of America (NYSE:BAC) thinks it will save some $500 million a year when it redeems its prefered shares. Yes cancelling the 8% plus with nose bleed yields will help. The dividends paid on preferreds will drop by one-third and earnings available to common shareholders will increase about 20%. All without changing any risk profile. Nice work.

CFO Bruce Thompson says he has no plans to replace the preferreds at this time. This begs the question. What will become the dividend on the common. They currently yield about 0.34% with the shares trading near the 52 week high. You cannot be a big money center bank and pay a lousy dividend to the common share holders.

If you believe interest rates are artificially low you would want to lock in some long-term capital at advantageous rates. Never mind about the short-term thinking of todays capital adequacy ratio. Banks and their investors need to think in five and ten-year time frames.

Lock up some long-term preferreds at low rates. Lock up some thirty year bonds are very low rates and wait for the economic cycle to make you look like a superstar. Institutions still are and always will be your largest core investors. They will understand the value narrative and buy in.

Then you will move beyond having to make sharp deals with Warren Buffett and concentrate on becoming a powerhouse.

George Gutowski writes from a caveat emptor perspective.

Bank of America Rewards Brian Moynihan. They had too. $BAC

Bank of America (NYSE:BAC) rewarded Brian Moynihan with a very large piece of sugar claiming that it was well deserved after all the hard turn around work. What the board  is really saying is that they did a lot of good work by picking and backing this guy. At this stage to come out and not publicly reward him big time would have signalled board dissatisfaction.

Given the story arc of Bank of America’s revival the board has no option but to signal satisfaction. Two marque members in particular would find it difficult to advocate their financial leadership is questionable.

Susan Bies 65 was a Governor of the Federal Reserve and is also a member of the SEC advisory committee improving financial reporting.

Donald Powell 71 was the former head of the FDIC.

Five independent directors are less than twelve months on the board and were not parties to previous decisions. The new guys usually go with the flow until they find their own footing.

David Yost 65, Sharon Allen 60, Arnold Donald 58, Lionell Newell 58 and Linda Hudson 62 probably all nodded and said well done.

So the newbies and gotta be are half the board so you know which way this is going to roll.

George Gutowski writes from a caveat emptor perspective. Follow him on twitter@financialskepti or maybe follow his evil twin who is writing a Wall Street Murder Thriller at twitter@georgegutowski

Google Replaces Financials Too Busy with Complex Derivatives $GOOG $XLF $C $WFC $BAC $JPM

Image representing Google as depicted in Crunc...

Image via CrunchBase

Google announced they are buying car loan securitized debt as they try to improve miniscule cash yields. OK not that impressed with non technology initiatives. But while we are calling the kettle black what this means is the traditional investors in securitized debt are no-show.

Are they too busy with complex derivatives that could explode any minute?

Are they too illiquid and could not take part? (Call Bernanke to verify)

Are they savvy enough to take a pass because they have had a snootful of securitized problems and just do not want to see anymore? Was there a back channel phone call to Fed before the deal?

Anyway Google is now a new candidate for XLF the financial index.

George Gutowski writes from a caveat emptor perspective.

Bank of America Toadies to Hedge Funds $BAC #hedgefunds

Photo of Bank of America ATM Machine by Brian ...

Photo of Bank of America ATM Machine by Brian Katt, Framingham Rest Stop, Massachusetts. (Photo credit: Wikipedia)

Bank of America (NYSE:BAC) is working hard at toadying to the hedge fund business. They have appointed Elizabeth Hammond as  the head of its capital introduction team in the United States. The business, which is part of Bank of America’s prime brokerage unit, specializes in connecting hedge funds with prospective investors like pension funds and endowments.

Of course Bank of America hopes to generate transaction fees from all the frenetic buying and selling that hedge funds supposedly do.

Now if I was a pension fund, endowment or had some huge money with Bank of America I would be very nervous about this relationship. Whose interest is Bank of America really looking after.

Anyway in the mean time lots of lunches and dinners for Elizabeth Hammond.

George Gutowski writes from a caveat emptor perspective.