BAC, Again?

I could care less about BAC's dismal trading record this last quarter, what I find extremely interesting is that they're raising another $2.5-$3 billion (in tier 1 capital). Remember the $5 billion Warren Buffet put in to BAC about 24 hours after having a conversation with the president (BO) which for public consumption was Warren advising Obama about the economy?

Warren seems to be the Treasury and Fad's go to guy when there's blood in the water, they did the same with Lehman. BAC took the money even though at the time they said they had no need for it-if they said anything else, chum would be in the water.  Now that Warren has taken a thorough bath on his investment in BAC, they're raising another $2.8 BB(?) in capital.  This would be interesting for the future of BAC had it not been this week, as it is this week and within the context of MF Global and Jefferies, it sounds more and more like big losses are being taken in the financial sector and contagion from Europe as I have talked about already too many times this week, is already here. Just for some perspective, BAC has their hands in 1 of every 2 American households, if there were a TBTF, alongside AIG, they would be it.

Of course this could be related to the Mortgage/Bond settlement money or a lot of other things, but what is clear is the need to re-cap is becoming more of a trend then a random event.

They came up with a convenient cover story, but how long until they have to seek capital from other sources?

And even with the BS cover story, just like in Europe, why issue 400,000,000 new shares of common when they are trading at -55% off 2011 highs and over -50% off the start of the year? It's kind of the same reason European banks don't want to raise new capital, their share prices are below book value.

If you believe the number, BAC's share price is -67% off book value. Issuing common at these levels is just, well since we don't know the entire story, would seem on the face of it to be plain stupid. Obviously there's a real reason for their need to raise tier 1 capital and it's probably not too different then MF Global's reason, wherever the losses or expected losses are actually coming from.

Other curiosities...
I only spent about an hour watching CNBC before the "F-oh-M.C." announcement, but it was crystal clear that there was, as usual, an expectation that the FAD would do something "Bazooka-like", QE3 was one of the main talking points. I didn't spend a lot of time talking about it because of other fast moving events (in retrospect, just about as much time as it deserved), but there were some curiosities in the whole ordeal.

First, nothing much changed, in effect nothing changed except the wording of the first paragraph was pimped out a little to give this meeting a much different tone then the last 2 meetings, more of a "Goooo Team!" flavor, rather then the last meeting which was more like a 1 on 1 somber chat about the economy with your uncle Bennie.

Here are a few things that stood out:
-There weren't even slight concessions, such as giving the market a small bone by saying that they would continue ZIRP "throughout 2013" rather then through the middle of 2013.
-"Economic Growth Strengthened", while GDP did print a little better then expected, we all know that the revisions will be downward as they always are. The CONSUMER is a big part of why GDP was slightly better. Also, "Household spending increased", yes, that's why GDP came in slightly better and this was spun as, "We are expecting moderate growth", BUT, they already know that consumers blew their wad as household savings are now hitting a nearly 3 year low so this pattern won't be repeated. Business lending is up, Consumer lending is going nowhere so it won't happen again. To present that as a positive is at best, stretching the truth.

-Inflation Moderated-yes, it had no choice then to moderate after the inflationary QE2 ended, however, there's an alarming trend that has year over year inflation targeting 4%, which is above the FAD's mandate of 1-3%-(really 2%), so that's almost double and that is one reason that they stayed their hand. They are increasing money supply which is inflationary, to add QE3 now would kill the consumer through inflation.

-"Downward Risks in Global Financial Markets"-GLOBAL-not just European, which would include the US and this was my biggest argument as to why they would do nothing. One side of the coin would seem to be that Bernie gets in front of the Global banking liquidity shortfall here at home, but the other side of the coin is, "You can't make a plan and set a policy until you know what you are dealing with"

My guess is that the FAD has limited bullets left after the extraordinary accommodation, if an emergency arises, they need to know where those bullets are best targeted.  A failure of BAC would not be acceptable and there aren't going to be any Barclay's lining up to place a bid. The next banking crisis is going to be worse then the first for the obvious reasons and what I just outlined.

The thing is, Bear Stearns and Lehman virtually came out of nowhere and before you knew it, even GE  (a company making lightbulbs and such-not a financial) was in danger of collapse.

I think the thing we or the economy should be most concerned about after MF Global, Jefferies and possibly BAC, is whether or not that Black Swan is creeping throughout the US financial system, it doesn't give much warning, it's more like a Tsunami. Maybe these 3 events are random and maybe they aren't, if they aren't watch-out below.