Seeking Alpha

Bank of America (BAC) shares rocket higher after announcing a $5B investment from Berkshire...

Bank of America (BAC) shares rocket higher after announcing a $5B investment from Berkshire Hathaway (BRK.A). BAC will sell 50,000 shares of cumulative perpetual preferred stock with a liquidation value of $100,000/share to Berkshire in a private offering. The preferred stock will carry a 6% dividend. BAC +20.6% premarket.
Comments (24)
  • lower98th
    , contributor
    Comments (1420) | Send Message
     
    Doesn't this mean that Buffet will be first in line in a fed-guaranteed liquidation and the common stock will get zippo?
    25 Aug 2011, 09:27 AM Reply Like
  • David Urban
    , contributor
    Comments (1036) | Send Message
     
    Still comes after depositors and other creditors in a liquidation.

     

    Buffet once again took someone to the woodshed.

     

    6% of $5 billion is $300 million in annual dividends.
    25 Aug 2011, 09:56 AM Reply Like
  • Duude
    , contributor
    Comments (3358) | Send Message
     
    6% is a sweet deal for BAC, and would be a crappy deal for Buffet if that was all there was to the deal. The sweetener for Buffet is the 700 million warrants with a strike of $7.14.
    25 Aug 2011, 10:47 AM Reply Like
  • David Urban
    , contributor
    Comments (1036) | Send Message
     
    I missed the warrants. That makes the deal even sweeter.

     

    The real loser are current BAC shareholders since they will be dilluted when the warrants are exercised.

     

    The King of Omaha does it again.
    25 Aug 2011, 11:45 AM Reply Like
  • Leftfield
    , contributor
    Comments (3755) | Send Message
     
    Ah, the ultimate insiders' private offering buffet. As in 2008, Warren Buffet is lending to the kleptocracy in a nice insider deal.

     

    This echo of 2008 is not a good omen for BAC. But at least we can be sure Warren will get paid back, with interest.
    25 Aug 2011, 09:28 AM Reply Like
  • Tony Petroski
    , contributor
    Comments (6373) | Send Message
     
    I agree with lower98th and Leftfield but then why the 20% upward move?
    25 Aug 2011, 09:30 AM Reply Like
  • brillion28
    , contributor
    Comments (30) | Send Message
     
    Could be a big short covering. With Buffet investing it may give the appearance of "tremendous support" for BAC. The fear might be increased buying in the company based on this information and shorts are covering....
    25 Aug 2011, 09:33 AM Reply Like
  • Duude
    , contributor
    Comments (3358) | Send Message
     
    Less than a week ago it was reported Obama had been seeking advice from Buffet about the economy. You know Buffet raised the issue of protecting banks from the ongoing litigation fallout on the MBS they created and sold over the years. There's a weak settlement being pushed on the states as we speak. Buffet's investment is a sign of a positive response from Obama. Watch for Bank of America's campaign contributions in the run up to November 2012 for confirmation.
    25 Aug 2011, 11:11 AM Reply Like
  • Conventional Wisdumb
    , contributor
    Comments (1802) | Send Message
     
    It's always amusing when a CEO says his bank is healthy, the rumors are lies, we are well capitalized, etc, and then he does a deal like this. Dick Bove says they have a $120 billion of cash on the balance sheet in a liquidation scenario so what difference does $5 billion make? Obviously the balance sheet really is "BS".

     

    Now we know why Buffet was so vocal lately, he needed the blessing of the Administration to get this one done I suspect. I hate being so cynical but there really is a two-tiered system in this country.

     

    Without mark to market who knows what BAC is really worth.

     

    Short squeeze!
    25 Aug 2011, 09:33 AM Reply Like
  • halconnoche
    , contributor
    Comments (68) | Send Message
     
    Blogger Henry Blodget guesses that they need $20B and the overreaction was similar to 2008 and Lehman. I guess they only needed $5B...today. Its like the old kids game "hot or cold", the closer you get to finding the hidden item the louder the kids scream.
    25 Aug 2011, 09:45 AM Reply Like
  • kaa1016
    , contributor
    Comments (175) | Send Message
     
    I agree with you completely. I thought they didn't need capital. This is exactly what happened in 2008 with Lehman. The difference is Lehman said no Buffet. I've been saying for a while that the balance sheets of these banks are black holes due to the fact that due to the suspension of FASB 157, they can mark to unicorn. Remember, Buffet bought preferred stock, not common. This bank can still go under, but he will be repaid. This goes to show you that you can't believe one word that the banks say. And they say it's not 2008. Yeah it's worse. It's following the script to the tee...
    25 Aug 2011, 09:49 AM Reply Like
  • Financial Insights
    , contributor
    Comments (945) | Send Message
     
    Yeah lets listen to Mr. Blodget upstanding citizen and your regular honest journalist, wait I meant BLOGGER and criminal. Give me a break. I will put my faith in Bank of America's balance sheet, and Warren Buffet over these fearmongers and that criminal. I never realized the amount of paranoia out there till I started reading these comments on SA. That being said, I think this rally on bank stocks will be short-lived.
    25 Aug 2011, 10:09 AM Reply Like
  • BetTheHouse
    , contributor
    Comments (147) | Send Message
     
    Yeah, it's a short squeeze. More crony capitalism. How any middle class investor can trade this rigged market is beyond me. Fundamentals mean nothing. There is zero transparency. Failure is bailed out and papered over. Computers ramp garbage stocks on no volume and then sell it to the rubes at a higher price. Complete and total suckers game. And regular people are the suckers.
    25 Aug 2011, 09:41 AM Reply Like
  • Michael Stuart
    , contributor
    Comments (149) | Send Message
     
    Taking the less cynical approach, this kind of deal worked out well for Buffet with Goldman...
    25 Aug 2011, 09:41 AM Reply Like
  • MexCom
    , contributor
    Comments (3050) | Send Message
     
    The initial jump in BAC from short covering should last awhile. Investors will join in.
    25 Aug 2011, 09:42 AM Reply Like
  • MexCom
    , contributor
    Comments (3050) | Send Message
     
    With the drop in gold, speculators long gold and short BAC are getting wiped out!
    25 Aug 2011, 09:43 AM Reply Like
  • MexCom
    , contributor
    Comments (3050) | Send Message
     
    They will be forced to buy in BAC well above $9-10 share when the are going to be forced to cover from the collapse in their margin buying power.
    25 Aug 2011, 09:43 AM Reply Like
  • J 457
    , contributor
    Comments (947) | Send Message
     
    2.2 trillion in deposits, highly levered, huge mortgage loss exposure.

     

    5 billion will do nothing to save this bank.

     

    There are 6 mm homes either REO or delinquent. A few trillion in mortgage loses, of which I bet BAC has a good portion. After faced with a new round of TARP payments, we Americans will learn the hard way and regret not shutting BAC down in 2008 when we had a chance. Instead, we allowed the politicians to allow BAC to become 3x's as large as they were. Now can they ever be shut down, or are they now truly too big to fail? We shall see soon enough.

     

    If you bank with BAC you're part of the problem.
    25 Aug 2011, 09:43 AM Reply Like
  • kaa1016
    , contributor
    Comments (175) | Send Message
     
    Don't look now but the German market just dropped like a brick the day before Jackson Hole and the short selling ban expires. I sense a market crash within the next week or two followed by emergency global central bank actions.
    25 Aug 2011, 10:17 AM Reply Like
  • bonehead69
    , contributor
    Comments (212) | Send Message
     
    Agree totally kaa1016. All the signs are flashing like neon! I think sooner than that though.
    25 Aug 2011, 12:14 PM Reply Like
  • mdmrjsds
    , contributor
    Comments (502) | Send Message
     
    So, Warren Buffet asks Bank America to bend over and pick up the soap, and the market goes gaga. Do they issue bongs at all of these trading firms, and mandate taking hits immediately upon clock-in and throughout the day?
    25 Aug 2011, 10:18 AM Reply Like
  • David Heinzerling
    , contributor
    Comments (5) | Send Message
     
    Buffet again...first Goldman now BofA!!!
    25 Aug 2011, 10:20 AM Reply Like
  • Duude
    , contributor
    Comments (3358) | Send Message
     
    This was a wise move for BAC. It isn't the $5B but rather turning around the collapse of their market value. The company was on the verge of reneging on some of their loan covenants with the equity drain.
    25 Aug 2011, 10:51 AM Reply Like
  • bonehead69
    , contributor
    Comments (212) | Send Message
     
    Buffet is sure to loose a bunch. BofA will tank by days end, These banks will all be broke as Europe goes under.
    25 Aug 2011, 10:52 AM Reply Like
DJIA (DIA) S&P 500 (SPY)
ETF Tools
Find the right ETFs for your portfolio:
Seeking Alpha's new ETF Hub
ETF Investment Guide:
Table of Contents | One Page Summary
Read about different ETF Asset Classes:
ETF Selector

Next headline on your portfolio:

|