Thursday, August 25, 2011

A Better Bank of America Solution

Warning: This post contains heavily leveraged sarcasm.

August 25, 2011
Buffett’s BofA Stake Nets $1.4B on First Day

The preferred shares pay a dividend of 6 percent per year, and are redeemable at any time by Bank of America at a 5 percent premium.

We know that Bank of America is fully capitalized. That pretty much goes without saying if you read the opinions of potentially unbiased analysts who are coincidentally bullish on the stock.

I therefore offer Bank of America another source of cheap funding.

News at IB

Central banks are flooding the world with cheap money and the markets haven't moved much. Interactive Brokers will lend one million US dollars at just 1.3% for every 200,000 USD in your portfolio margin account. See our high dividend scanner for the many hundreds of stocks that yield over five percent. Please note that portfolio margin accounts are only for experienced investors with USD 100,000 minimum account equity.

1.3% would seem to be a lot better deal than 6%. I'm surprised that Bank of America isn't taking advantage of the great offer.

It isn't just my opinion though. Check out this stellar review from Epinions.

April 30, 2007
Using margin?? You need IB!

Without prior notice, the margin maintenance requirement in my account went from 50% to 70%. When I sold some DNDN call options to raise cash, Ameritrade raised my margin maintenance requirement from 70% to 80%!!! The cust service rep explained that by selling the options, my account's concentration in DNDN stock exceeded 90% resulting in the 80% margin maintenance requirement. And no, there was nothing they could do (even though my wife and I have other accounts there).

To avoid having to sell out a hefty portion of my DNDN stake, I was forced to move my account, and in the process I found the best online broker I've ever heard of. I haven't seen any promotions, and I'm not aware of any referral benefits, so I don't stand to profit by this testimonial. I just feel like it's the 'epinion' thing to do to let folks know when I find a good deal.

Interactive Brokers allowed him to keep his heavily leveraged DNDN stock in 2007. How lucky is that?

Yahoo: Historical DNDN Prices

April 30, 2007: $15.03
March 6, 2009: $2.61
August 25, 2011: $11.79

Okay, in hindsight maybe not all that lucky.

The point here is that this is the land of the free (lunches). We should be allowed to lose all the money we want without companies like Ameritrade messing it all up for us! Similarly, we should allow big banks to lose all the money they want too! It isn't like they'll ever come looking for us to bail them out again.

As a side note, fried left me this comment today.

On CR today, one poster was lamenting the fate of savers and was answered by another that holding dividend paying stocks was the solution.

Interactive Brokers offers a "high dividend scanner for the many hundreds of stocks that yield over five percent" that would apparently be perfect for a 5-1 leveraged margin account. One million dollars of high dividend stocks for just $200,000? I think I just died and went to heaven!


Mr Slippery said...

Mark, your sarcasm cup runneth over!

No one appreciates the bite of finely aged sarcasm (and syrah) like I do.

I have been scratching my head over how a bank that pays a 1 penny dividend, 0.52%, a bank that was not allowed by regulators to raise it, thinks it is a good deal to pay 6% on 5 billion of preferred. Can't they borrow at 0.25% from the Fed, or maybe they don't have any good collateral that hasn't already been pledged. That instills confidence, not.

And why is this good for common holders who are now all behind Warren B. in the capital structure if things go south?

fried said...

Well, Mr. Slippery, clearly you have not been invited to the Obama fundraiser that Buffet is throwing next week. Asking these questions simply proves that you are not on the list. And those who are not on the list are future candidates for the Freedom Farms. Just saying.

Stagflationary Mark said...

Mr Slippery & fried,

Nothing says fundraiser like a garage sale.

Our neighbor is having one tomorrow. They'll be loading up the wheelbarrows with actual goods to get their hands on some cold hard cash. Go figure! ;)