Today's after-hours announcement that, Bank of America will raise $45 billion in new capital and pay back its TARP loan has all the psychological feel of Warren Buffett's BNI buy-out. All things seem not what they appear...
First, what value is there to paying back TARP now that capacity to infinitely inflate mortgage securities has gone the way of Michael Jackson? What operational advantage, really, is to be gained in this climate? Per being freed from government-imposed salary restrictions, what is the point of attracting "talent" when there is little outside of trading anyone can do to boost the bottom line?
Might this move instead be meant to conjure belief the health of BAC's mortgage portfolio is improving amidst continuing collapse everywhere the eye turns ... er, uh, I mean everywhere Dubai World turns? Does TARP repayment possibly seek to counter growing doubt in all things "quantitative easing," now that the specter of sovereign debt default has moved front and center? This would not be the first time over the past couple years Bank of America was used to plug some gaping hole (Countrywide) or another (Merrill).
Funny this announcement should come right when ol' Bubbles Bernanke himself — the Kong of the Monetarist Monkey kingdom, and self-proclaimed savior of the financial system — is about to meet his own sizzling hot version of George Forman's Lean, Mean, Grilling Machine in the U.S. Senate. My guess is within the first minute of Mr. Bernanke's opening statement we'll hear an "I told you so" self-congratulatory allusion to BAC's TARP repayment as though this were a reflection of the program's success (with Senator Dodd piping in with "All Hail Kong!" for good measure).
Much like its XLF cousin, BAC appears at risk of being torpedoed. Having lost considerable relative strength during October's turn lower, this stock appears more vulnerable right now than at any time this year.
Despite having registered a technically solid bottom at the start of the year, BAC's late-July rocket shot higher is suspicious in light of last year's unwind. Coincident relative strength was taken to an extreme, suggesting a measure of certainty about future prospects hardly justified it seems. The stock more or less has been paying for this ever since.
So, then, now reaching a point of relative strength balance following October's dive into the sell-side, we learn in the blink of an eye that, capital last week unavailable to Dubai World was in fact just waiting for Bank of America to come to its senses and pay back its TARP loan!
Anyone care to buy a bride?
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