Bank of america

[Sandhog]

I enjoyed reading this article which seems to make sense. BoA don't need anymore capitals but BoA wanted to shore up falling stock prices with Buffet's involvement. How stupid some people can be. Just ask GE stock holders how they faired with Buffet's involvement. I think Berkshire will be in the bad shape when Buffet is no longer around to grab money from others. Taken to Task: The Cult of Warren Buffett | Daily Ticker - Yahoo! Finance

When the news broke that Buffett was investing in BofA, the chattering class rejoiced….Buffet has "saved" Bank of America"…Buffett Deal Is "Seal of Approval"… "Time to Buy Bank of America"… and my personal favorite: Buffett's vote of confidence in B of A, US economy.
Warren Buffett is a great investor but the idea his deal with Bank of America is good for anyone but Warren Buffet is baloney.
Warren Buffett is investing in Bank of America for one simple reason — to make money. A lot money.


Moreover, investors who've followed Buffett into investments like Goldman Sachs and GE got burned, assuming they adhered to Buffett's dictum about "forever" being the best holding period. The rest of us didn't get the big dividends Buffett earned and both stocks are currently trading below the levels when Buffett made his "confidence-boosting" investments in 2008, Goldman by 12% and GE by 37%.

 

[Nords]

I think Berkshire will be in the bad shape when Buffet is no longer around to grab money from others.

Buffett's age, sentience, and succession issues have been dragging on the stock price for years.

When he steps down (one way or the other) there'll be plenty of turbulence, but that'll settle out once the board votes to establish a token dividend while they get a handle on the b-b-b-b-BILLION dollars a month in cash flow.

 

[clifp]

I enjoyed reading this article which seems to make sense. BoA don't need anymore capitals but BoA wanted to shore up falling stock prices with Buffet's involvement. How stupid some people can be. Just ask GE stock holders how they faired with Buffet's involvement. I think Berkshire will be in the bad shape when Buffet is no longer around to grab money from others. Taken to Task: The Cult of Warren Buffett | Daily Ticker - Yahoo! Finance

First, it is certainly unclear if BofA needs more capital or not. The various regulators inquires, the potential for expensive lawsuit settlements, the higher capital requirements of Basel III, plus BofAs status as a too big to fail bank, and most importantly the seemingly intractable housing crisis, all point to a strong potential need for higher capital. I personally think if housing prices continue to fall that BofA will need more capital.

There has been lots of commentary on why this was a good deal for Buffett and no doubt it was. But it also was a very good deal for BofA, because of Buffett's reputation as a savvy investor. Most of the commentators missed the real benefits to BofA. Yes the stock prices rose from 6.99 to $7.67 on Aug 25, to 7.25 today, compared to the rest of bank stocks which are generally lower than the announcement.

More importantly was what happened to the price of preferred shares of BofA. Prior to Buffett's announcement most of BofA preferred shares were yielding in the high 8% and even low 9%. During a brief spike I sold my Mom's convertible preferred at yield of 8.6% a week before the announcement. My immediately reaction to Buffett willingness to take preferred stock at 6%, was damn I shouldn't have sold. Not only cause I saw the price of the preferred stock spike but because my view is if Buffett is ok holding preferred at 6% than its ok for Mom to have a bit at 8%. (Obviously Buffett got some great warrants also)

In fact what happened is the yield on BofA preferred dropped by 75-100 basis points and bonds by about 1/2%. Considering the BofA has almost a trillion dollar in outstanding preferred stock and debt, this potentially represents as much as 5 billion a year in saving on interest rates.

Another way of looking at this investment is the perspective of high yield fund manager. If BofA goes south and BofA preferred shareholders, and possibly the bond holders take a haircut, you look less stupid if you invested in securities with higher yield the Warren Buffet.

As for all of the whining about Buffett gets a better deal than the rest of us no wonder he does so well. I'll simply point the old adage if you can't beat them join them. The ticker symbol is BRKB.

 

[Sandhog]

Another way of looking at this investment is the perspective of high yield fund manager. If BofA goes south and BofA preferred shareholders, and possibly the bond holders take a haircut, you look less stupid if you invested in securities with higher yield the Warren Buffet.

As for all of the whining about Buffett gets a better deal than the rest of us no wonder he does so well. I'll simply point the old adage if you can't beat them join them. The ticker symbol is BRKB.

Thanks Clifp for your side of opinion on the matter. I know BRKA is beyond my reach for even a share but I have been saving up to buy 100 shares of BRKB. If I can repeat 15 more times, I can trade in for a share of BRKA. It's part of my retirement plan to have 2 BRKA or 3,000.00 BRKB shares. Most likely mix of two. 2 shares of BRKA and 1,500 shares of BRKB for liquidity for unforeseen expenses.

 

[Nords]

But it also was a very good deal for BofA, because of Buffett's reputation as a savvy investor.
If BofA goes south and BofA preferred shareholders, and possibly the bond holders take a haircut, you look less stupid if you invested in securities with higher yield the Warren Buffet.

We E-R.org posters should let these troubled financial institutions know that we're happy to rent them our reputations, too. I wouldn't mind investing a few thousand bucks in BofA preferred for just a mere 4% [-]SWR[/-] yield. Heck, I'd be happy with just one-tenth of the warrants they gave to Buffett. Then BofA could brag on their E-R.org seal of approval!

Thanks Clifp for your side of opinion on the matter. I know BRKA is beyond my reach for even a share but I have been saving up to buy 100 shares of BRKB. If I can repeat 15 more times, I can trade in for a share of BRKA. It's part of my retirement plan to have 2 BRKA or 3,000.00 BRKB shares. Most likely mix of two. 2 shares of BRKA and 1,500 shares of BRKB for liquidity for unforeseen expenses.

I think the only advantages of BRK/A are (1) you can brag about it and (2) it's so illiquid a transaction that you hesitate before hastily selling it. Because I'm pretty sure Buffett and the rest of the board aren't laying awake at night wondering how the other "A" shareholders will vote.

Meanwhile BRK/B is highly liquid, trades at small spreads, and has an active (and quite profitable) options market. Selling covered calls on BRK/B shares is the closest we're likely to get to a dividend during Buffett's lifetime.

 

[FreeAtLast]

Probably better places to put you money and not have to worry as much. They have much on their plate.

 

[jmourik]

Isn't Buffett sort of a lender of almost last resort? Last resort being the government because they are TBTF. Or for foorball fans, isn't this a Hail Mary pass?

Hopefully when we have to bail out BOA again we keep it for ourselves and kick out management. And break it up.

 

[BUM]

I still don't like financials, and trade SKF on the peaks and valleys.

 

[samclem]

Clearly the investors think it's a better deal for BofA than for Buffett. But I liked this quote:
Warren Buffett to invest $5 billion in Bank of America | Reuters

Goldman-Sachs may have repurchased their preferred shares, but they couldn't recall their warrants, either.

I guess BofA shareholders can see where their dividend stream will be going for the next few years...

I hope all of these machinations are remembered the next time someone brings up the advantages of active stock picking and touts Buffet as an example of a successful stock picker who just has talent innocently picking stocks. "Anyone can do it!" Right.

Hold on, it's BofA on the phone offering me 10 year warrants for 2 additional shares if I buy 2 shares today, with a preferred grab on future dividends.