When You Know it's Gotten Bad for Bank of America

      That moment has to be today when it hit a new nadir for bad news. Lately we've been hearing that 'sometimes bad news is just bad news'-and unfortunately this has been in reference to BAC.


       http://online.wsj.com/news/articles/SB10001424052702304788404579524142169020908


      As opposed to often when bad news has some sliver of a silver lining. You'd like to be able to say-as I've suggested in the past-that there is still the good news that the market now knows the full extent of BAC's losses regarding what it owes the government on its related misconduct and malfeasance from the past. Trouble is that every time it looks like we have our arms around it, more losses and more fines surface.


     Today BAC had the ultimate emarassment-havng to cancel its capital buyback plan and increased dividend. It just doesn't get any worse than this on The Street.

     
     "Bank of America revised its previously announced regulatory capital ratios downward and suspended its share buyback, the company said Monday."

    
     "The revision was due to an incorrect adjustment related to its 2009 acquisition of Merrill Lynch.
As a result, the company is making the following adjustments to the previously announced estimated preliminary capital ratios for the first quarter ended March 31, 2014: the estimated Basel 3 Standardized transition common equity tier 1 capital ratio was revised to 11.8 percent, down 5 basis points; the estimated tier 1 capital ratio was revised to 11.9 percent, down 21 basis points; the estimated total capital ratio was revised to 14.8 percent, down 21 basis points; and the estimated tier 1 leverage ratio was revised to 7.4 percent, down 12 basis points," the company said

     
      http://www.cnbc.com/id/101614456


      A poll question in the above link wonders if the BAC-Merrill Lynch merger is the worst ever. So you know it's gotten bad when you have to take back a dividend increase; for BAC you even more know it's gotten bad when Jim Cramer calls it 'disgraceful'-after all, he's usually pretty understanding when the subject matter is BAC.


      "To announce a dividend increase and then take it back? That's sacrosanct," Cramer said on "Squawk on the Street." "The reason why companies don't like to increase dividends is because they're afraid one day they'll have to cut them."

     
      "This is a disgrace," Cramer said. "Is the bank too big to run? Do they have any idea what's going on? ... I'm looking at it and I'm saying, 'How could I be so stupid?' They're just hard to understand, these banks. It's too hard."


       Yes, I've finally had my faith in BAC shaken too-in the short run at least. Of course, now it's too late to get out of my options anyway-I had 90 $17 calls that expire this Friday as well as another 50 $17 calls which expire Friday, May 23. It's all academic now as these are all worthless.


       I also have some C $50 calls for May 17 which look much worse for wear-pretty much worthless. However, it's not all Blue Mondays-my 40 calls-$101 call May 17 in Johnson and Johnson hit the sweet spot this morning, breaking $101-enabling me to make a cool $1600 in profit-about 70%. I got out of them the minute they cleared that threshold which is looking like exactly the right spot. You win some you lose some. If you don't understand that you shouldn't be in the market at all-for your own good.


       Of course, I couldn't even take the slightest pause, but jumped right into 40 calls in Wells Fargo (WFC) $49.50 for May 23. Of course, the reason they even have calls at the $.50 cent of this stock is a testimony to it's lack of volatility-exactly what you don't want if you're using the kind of aggressive strategy I'm employing here. Oh well. I have to figure that it will be able to get at least to $49.75 or so a few times in the next 3 weeks-in this case, $50 would be an absolute home run, in fact a grand slam. In any case, with its strong earnings and optimistic outlook it has to be the anti BAC among the banks if there is any.


      Of course, that's not all I did-I also had to do 40 May 17 calls for Caterpillar (CAT) at $110 strike-with it trading around $105, that's a pretty aggressive bet on it being able to hit levels it hasn't yet-so far $105 is its top right now. Maybe it can break out maybe it can't.


     What I do feel confidence in, is my new position in Apple. I bought 10 shares in Apple on Thursday-shares not calls. My reasoning is its announced share buyback and 7 to 1 stock split-scheduled in early June so expect a lot of money coming in for that in the mean time. How much do you want to bet it won't have to reverse itself like BAC?


     P.S. Cramer also points out that BAC didn't come by this reversal itself-it didn't decide not to do the dividend increase and the buyback, it was the Fed that made it do this. My initial reasoning on BAC was partly that it had gotten its dividend increased-while C was denied. How different things look now.