Wednesday, August 24, 2011

Mike Holland vs. Tom Brown On BofA Equity

Another week...another disappointing decline in BofA's equity price. This morning's Wall Street Journal carried an article highlighting the record prices of insuring BofA debt, and the implied higher borrowing costs for the financial utility down the road.

Most assuredly, then, bank fund manager Tom Brown was on Bloomberg, all carefully coiffed and attired in conservative blue suit yesterday, naming BofA as first among his three top financial service selections.

Meanwhile, this morning on Bloomberg, veteran fund manager Mike Holland politely said, when asked, that he had zero interest in BofA shares. He quickly lauded the bank's lawyer/CEO Brian Moynihan as being "all over" the various legal issues involving lawsuits from the legacy home lending business his predecessor, Ken Lewis, bought via Countrywide.

But Holland made clear he wouldn't touch the troubled North Carolina-based bank with a ten-foot pole. Except, of course, he said it in a manner calculated not to cause a run on the bank or a bear attack on its equity by short-sellers.

A check of the nearby 5-day chart of equity prices for BofA, Chase, Wells Fargo, Citi and the S&P500 Index reveals that the index beat all four of the banks. Wells and Chase declined by only about 5%- just a bit more than the index.

Citigroup fell by about 10%, and BofA by more than 15%.

I have no direct knowledge of Brown's fund. I don't know its size or its management style, other than it is restricted to financial entities and selections are apparently on Brown's subjective whims.

Thus, I don't have direct knowledge as to whether Brown tries to juice returns with leverage. But can you imagine the panic he would feel if Brown had borrowed to fund the BofA positions which he (see my prior posts under the BankAmerica label for details) late in the spring?

The second chart shows the same entities' price series for the past three months. The rank orders and relative performances look about the same, except, of course, that magnitudes are larger.

The S&P, Chase and Wells Fargo are down twice as much as for the past five days, while Citi and BofA are down about three times as much.

On a raw actual price basis, the third chart shows BofA fell from between $11-$12 after mid-May to $6 and change yesterday. I don't know exactly when Brown bought his BofA positions for his fund, but it must have been prior to his June 3rd Bloomberg appearance.

The worse news for Tom Brown's fund clients is that BofA's equities have declined pretty much monotonically for the past six months. So their loss could be in the 50% range on that position.

No wonder Brown is on Bloomberg as often as possible shilling for the hapless financial leviathan's equity. His fund's holders- and presumably Brown, as well- have lost a bundle on his call this time.

Oh, as an aside, in his Bloomberg appearance yesterday morning, Brown replied "yes" to the anchor's question/assertion that Brown was only a financial sector portfolio manager now, and no longer holds himself out as an (presumably-objective) analyst.

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