Fairholme capital BAC conference call

BAC is applying a strategy of not selling core assets. they are trying to

reduce expeness
reducing potentially large liabilities
selling slowly non core assets

rather than sell good core assets which will make money later. As a result of this they have lower capital ratios then Citi which has been more aggressive in selling assets.

If the environment becomes much worse they may regret this strategy. They may be forced to sell good assets at a price lower than what they could have achieved 6 months ago. Or they may be forced to raise capital from their shareholders.

If interest rates increase and expenses reduce from managing legacy assets profits (less headcount to do this job) will increase, which will increase their capital ratios.

Low rates and weak GDP are terrible for banks. They focus on cost cutting as a result. Unless focus on fees, underwriting and trading. Hopefully the latter will be drilled out of banks.

A long recession will affect earnings and hence their ability to have sufficient earning power to achieve the capital ratios demanded by Basle III.

A significant component of rep-and-warrant is what happens to home prices. So because home prices obviously reflect or impact the collateral losses that investors incur, and that's the basis upon which people look for rep and warrant.

We've assumed that 3% decline in home prices over the course of 2011. And in 2012, we assumed they're up very modestly 1% for 2012.