Bank of America

VA49er · Aug 25, 2011 at 5:03 PM

Looks like Warren Buffett just made fools of lots of folks.

Buffett to invest $5bn in Bank of America

By Justin Baer and Helen Thomas in New York

Warren Buffett’s Berkshire Hathaway has agreed to invest $5bn to shore up confidence in Bank of America, in a deal that underscores the billionaire’s singular role in stabilising US financial institutions in times of crisis.
BofA’s shares have tumbled almost 40 per cent this year amid concerns the US bank’s troubled mortgage business could overwhelm its balance sheet, forcing the lender’s executives to reverse course and raise additional equity.

People familiar with the matter said that Mr Buffett signalled he was interested in investing in BofA to Brian Moynihan, BofA chief executive, on Wednesday. While Mr Moynihan maintained that the bank did not need extra capital, he agreed Berkshire’s investment could help ease Wall Street’s nerves.

“Bank of America is a strong, well-led company, and I called [Mr Moynihan] to tell him I wanted to invest in it,” Mr Buffett said in a statement. “I am impressed with the profit-generating abilities of this franchise, and that they are acting aggressively to put their challenges behind them.”

BofA said it would sell Berkshire 50,000 preferred shares, valued at $100,000 each. The stock pays an annual rate of 6 per cent. While it pays less than the 10 per cent Mr Buffett negotiated from Goldman Sachs and General Electric in similar investments he made at the height of the financial crisis, it is still almost 4 percentage points above the yield on 10-year government debt.

BofA may redeem the preferred shares at any time, for a 5 per cent premium. Berkshire will also receive about $5bn in warrants to buy 700m common shares of BofA at an exercise price of $7.14.

Mr Buffett’s investment will not initially add to BofA’s tier one common capital ratio. Proceeds from preferred stock sales do not boost that measure of banks’ financial strength, although under new international capital standards, BofA’s ratio could get a lift if Berkshire exercises its warrants.

The bank said it had no plans to raise equity on the back Mr Buffett’s investment, as Goldman and GE had three years ago.

BofA’s vast book of troubled mortgages and a raft of legal issues have continued to drain confidence in the bank’s capital position, heightening speculation that it might need to raise equity – a costly move that would damage executives’ credibility.

This week BofA hit back, publicly rebutting analysis and rumours published on a number of financial blogs. It strongly denied suggestions that the bank needed more than $100bn in new capital and dismissed speculation that JPMorgan Chase was set to mount an emergency takeover of the bank.

In securing Mr Buffett’s backing, the bank has turned to a proved source of endorsement in stabilising sentiment around troubled companies.

Glenn Schorr at Nomura on Thursday called the deal a “clear vote of confidence” in BofA.

“We assume the regulators have approved this investment and, importantly, are comfortable with the investment in preferred stock as opposed to injection of common,” he added.

Additional reporting by Shannon Bond in New Yor
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VA49er · Aug 29, 2011 at 4:38 PM

It came to him in the bathroom.

Buffett's Bank of America deal, dreamed up in the tub

Plate Dad · Sep 2, 2011 at 4:56 PM

That was 6 days ago.

VA49er · Sep 6, 2011 at 9:45 AM

Plate Dad said: ↑

That was 6 days ago.
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Not my fault it took you that long to see the thread. lol

Anyway, some idiot in another thread in NOTD thinks BofA is going to fold. I think I'll take W Buffett's lead in that battle of the "brains".

Plate Dad · Sep 7, 2011 at 9:32 AM

VA49er said: ↑

Not my fault it took you that long to see the thread. lol

Anyway, some idiot in another thread in NOTD thinks BofA is going to fold. I think I'll take W Buffett's lead in that battle of the "brains".
Click to expand...

I saw that. I think it was that same idiot that said sell your stock awhile back. Because BA was covering up a lot more than they were letting on.

VA49er · Sep 7, 2011 at 9:40 AM

Plate Dad said: ↑

I saw that. I think it was that same idiot that said sell your stock awhile back. Because BA was covering up a lot more than they were letting on.
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Why sell BofA stock? The company has capital, lots of liquidity, and is downsizing which will only help capital in the future. Really, folks needs to stop watching financial shows and actually read balance sheets and income statements. To much on the line to falsify those these days, especially after ENRON, etc. The bank is dealing with the ML and CW mergers but has the means to do so.

karvin99 · Oct 16, 2011 at 8:53 AM

BofA said it would cozen Berkshire 50,000 preferred shares, valued at $100,000 apiece. The capital pays an annual judge of 6 per cent. Time it pays little than the 10 per centime Mr Buffett negotiated from Syndicalist Sachs and General Auto in siamese investments he prefab at the peak of the financial crisis, it is allay near 4 pct points above the production on 10-year governing debt.

wsnowlemon · Mar 23, 2012 at 5:47 AM

useful experience.

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