Here are a few relevant good and bad news,
1. On banks (BAC) – bad news
Big U.S. Banks Brace for Downgrades
Banks, bond issuers and investors are bracing for aftershocks from a wave of bank downgrades expected to hit the U.S. as soon as the coming week.
Moody’s Investors Service has said it is likely to reduce by the end of June credit ratings for 17 large global banks, including five of the six biggest U.S. financial firms by assets. The downgrades are expected to raise borrowing costs and crimp some lucrative trading businesses at the banks, including at J.P. Morgan Chase., Bank of America Corp., Citigroup Inc., Goldman Sachs Group Inc. and Morgan Stanley.
…
Some banks have estimated some of the direct costs of a Moody’s downgrade, such as additional collateral they would have to post or termination payments they would make.
In its first-quarter financial report, Morgan Stanley said it could pay as much as $9.6 billion for a three-notch downgrade by multiple rating agencies. Goldman Sachs said its costs could hit $2.2 billion for a two-notch reduction, and Bank of America said a one-notch downgrade could deliver a $2.7 billion hit.
The biggest impact could be to deprive some institutions of trading revenue. A three-notch downgrade of Morgan Stanley could slash demand for derivatives, a crucial business on Wall Street, by around 30%, estimates Alliance Bernstein analyst Brad Hintz.
The downgrades would mean that Moody’s ratings for the five U.S. banking giants are the lowest of the three major credit-rating firms. While Moody’s has given the market plenty of notice, some investors worry that action by Moody’s could precipitate downgrades by S&P and Fitch.
So by the end of this month, we might see some big down swing of BAC stock price. This could be a good opportunity for me to buy in some shares.
2. on AIG – good news
Fed to Sell $7.1 Billion in CDOs Despite Churning Markets
The Federal Reserve Bank of New York on Tuesday said it plans to auction $7.1 billion of complex-debt securities next week from a portfolio set up during the 2008 bailout of American International Group Inc. (AIG), signaling persistent demand for the risky assets despite turbulent financial markets.
The New York Fed asked several Wall Street dealers to bid on seven collateralized-debt obligations from its Maiden Lane III portfolio on June 13 and June 15, according to a posting on the bank’s website. The securities are known as Altius I Funding, Altius II Funding, Davis Square Funding II, Davis Square Funding III, Davis Square Funding IV, Davis Square Funding V and West Coast Funding I.
AIG will receive the $5.6 billion in proceeds from auctions of Maiden Lane III assets. After that, the New York Fed will receive two thirds of the cash and AIG will get one third. We will see more and more buyback of common stocks from Fed by AIG. This is REALLY GREAT news.
3. on BAC – good news
BofA expects to save $230 million per quarter on debt
Bank of America Corp expects to reduce its long-term debt by about $40 billion in the second quarter, eliminating interest expense of $230 million per quarter going forward, Chief Financial Officer Bruce Thompson said.
Bank of America reported sales and trading revenue of $5.2 billion in the first quarter, down slightly from a year ago but up from $2 billion in the fourth quarter.
As for ongoing concerns in Europe, Thompson said the bank has reduced its exposure to the most troubled countries by about two-thirds from 2010 and is now spending time analyzing its counterparty risk with financial institutions outside the region.
“One of the most significant things you can do is just make sure you don’t have any tree that’s too tall – even if you think you’ve done hedging and everything else is right,” he said.
This is a really good move as it will help the company shore up capital as they handle the high level of toxic assets that continue to drag down earnings. This is part of NEW BofA’s strategy to reduce risk and leverage as CEO Brian Moynihan tries to engineer a true turnaround for the company.
About Timeless Investor
My name is Samual Lau. I am a long-term value investor and a zealous disciple of Ben Graham. And I am a MBA graduated in May 2010 from Carnegie Mellon University. My concentrations are Finance, Strategy and Marketing.
TimelessInvestor
Good and bad news
Here are a few relevant good and bad news,
1. On banks (BAC) – bad news
Big U.S. Banks Brace for Downgrades
Banks, bond issuers and investors are bracing for aftershocks from a wave of bank downgrades expected to hit the U.S. as soon as the coming week.
Moody’s Investors Service has said it is likely to reduce by the end of June credit ratings for 17 large global banks, including five of the six biggest U.S. financial firms by assets. The downgrades are expected to raise borrowing costs and crimp some lucrative trading businesses at the banks, including at J.P. Morgan Chase., Bank of America Corp., Citigroup Inc., Goldman Sachs Group Inc. and Morgan Stanley.
…
Some banks have estimated some of the direct costs of a Moody’s downgrade, such as additional collateral they would have to post or termination payments they would make.
In its first-quarter financial report, Morgan Stanley said it could pay as much as $9.6 billion for a three-notch downgrade by multiple rating agencies. Goldman Sachs said its costs could hit $2.2 billion for a two-notch reduction, and Bank of America said a one-notch downgrade could deliver a $2.7 billion hit.
The biggest impact could be to deprive some institutions of trading revenue. A three-notch downgrade of Morgan Stanley could slash demand for derivatives, a crucial business on Wall Street, by around 30%, estimates Alliance Bernstein analyst Brad Hintz.
The downgrades would mean that Moody’s ratings for the five U.S. banking giants are the lowest of the three major credit-rating firms. While Moody’s has given the market plenty of notice, some investors worry that action by Moody’s could precipitate downgrades by S&P and Fitch.
So by the end of this month, we might see some big down swing of BAC stock price. This could be a good opportunity for me to buy in some shares.
2. on AIG – good news
Fed to Sell $7.1 Billion in CDOs Despite Churning Markets
The Federal Reserve Bank of New York on Tuesday said it plans to auction $7.1 billion of complex-debt securities next week from a portfolio set up during the 2008 bailout of American International Group Inc. (AIG), signaling persistent demand for the risky assets despite turbulent financial markets.
The New York Fed asked several Wall Street dealers to bid on seven collateralized-debt obligations from its Maiden Lane III portfolio on June 13 and June 15, according to a posting on the bank’s website. The securities are known as Altius I Funding, Altius II Funding, Davis Square Funding II, Davis Square Funding III, Davis Square Funding IV, Davis Square Funding V and West Coast Funding I.
AIG will receive the $5.6 billion in proceeds from auctions of Maiden Lane III assets. After that, the New York Fed will receive two thirds of the cash and AIG will get one third. We will see more and more buyback of common stocks from Fed by AIG. This is REALLY GREAT news.
3. on BAC – good news
BofA expects to save $230 million per quarter on debt
Bank of America Corp expects to reduce its long-term debt by about $40 billion in the second quarter, eliminating interest expense of $230 million per quarter going forward, Chief Financial Officer Bruce Thompson said.
Bank of America reported sales and trading revenue of $5.2 billion in the first quarter, down slightly from a year ago but up from $2 billion in the fourth quarter.
As for ongoing concerns in Europe, Thompson said the bank has reduced its exposure to the most troubled countries by about two-thirds from 2010 and is now spending time analyzing its counterparty risk with financial institutions outside the region.
“One of the most significant things you can do is just make sure you don’t have any tree that’s too tall – even if you think you’ve done hedging and everything else is right,” he said.
This is a really good move as it will help the company shore up capital as they handle the high level of toxic assets that continue to drag down earnings. This is part of NEW BofA’s strategy to reduce risk and leverage as CEO Brian Moynihan tries to engineer a true turnaround for the company.
About Timeless Investor
My name is Samual Lau. I am a long-term value investor and a zealous disciple of Ben Graham. And I am a MBA graduated in May 2010 from Carnegie Mellon University. My concentrations are Finance, Strategy and Marketing.