The CAP term sheet says:
Conversion price is 90% of the average closing price for the common stock for the 20 trading day period ending February 9, 2009
Keeping this real simple, the higher the conversion price, the more taxpayer wealth the bank’s owners extract.
By my arithmetic, those 20 trading days started January 13 and ended February 9.Â What were Bank of America’s executives and directors doing during that time?Â Why, buying their own company’s stock with a vengeance, of course.Â They purchased several million dollars’ worth, including a $1.2 million swing by Ken Lewis himself.
Click through that link and look at it for a minute.Â Notice how they started making large purchases in late January, continued through the first week of February, then suddenly stopped on Feb 6.Â Also notice how they made no additional purchases, even when the stock fell to half the price that they paid just a few weeks before.Â I wonder why.
Such “insider buying” is always good for a little short-term pump in a stock, as you can see from the price history.Â Now, it is completely impossible for this to have been an attempt to manipulate the price smack in the middle of the 20-day window, since the terms were not made public until a month later.Â So if I said, “These people should be in jail,” I would be overreacting, right?
I reiterate my personal request:Â If you do any business with Bank of America or Citigroup — credit cards, checking accounts, whatever — please terminate it immediately and take it elsewhere.Â Especially Bank of America.
Just to clarify my meaning:Â Yes, I think BofA’s executives knew about the broad outlines of the program by late January and deliberately manipulated their stock to fleece taxpayers.
This is not hard to imagine.Â The “20 days average share price” formula is identical to the one Treasury used for the warrants in the original TARP injections last year, with the ending date being the day before Paulson announced the plan.
I believe Treasury devised a rough plan in January to make new capital injections based on a similar formula.Â The ending date this time would be Geithner’s announcement of the plan, scheduled for sometime in early February.Â And although Geithner’s announcement on Feb 10 wound up containing no details at all, Treasury still decided to use Feb 9 as the ending date, which provides further evidence that this was the intention all along.
If BofA executives simply knew the rough outline — that Treasury was planning new capital injections using the same pricing formula as last year; that it would involve preferred stock convertible to common at the bank’s option; and that the ending date would be Geithner’s early February announcement — then they would have motive to start pumpingÂ their stock toward the end of January.
The pattern of insider stock purchases is fully consistent with this hypothesis; look at it for yourself.Â The purchases are large enough to get noticed, but small enough not to represent any serious proportion of the purchaser’s net worth.Â They begin on Jan 20, end Feb 6, and do not continue even as the stock price gets cut in half over the following two weeks.
Or maybe I am just losing my mind.