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Bailed Out Once Again: Warren Buffet Rescues Bank of America From Potential Disaster

|Includes: Bank of America Corporation (BAC), GS, JPM

Bank of America (DIJA: BAC) knew that there was no helping hand coming from the Federal Reserve or the Government this time.  TARP money doesn’t go around three times. Last week I posted an article How Much Money Did Uncle Sam & the Federal Reserve Really Give to Wall Street Banks?, this helped outline how bad of state many of the investment banks and financial institutions actually are and how much help they received along the way.  Bank of America borrowed a total of $91.4 billion dollars and that alone has not been enough to restore the company into good standing. Thanks to them the Oracle of Omaha aka the Bank of Buffet is hear to save yet another company which many consider is ‘Too Big To Fail.’ This is quite a shocker and employees at Bank of America should be thankful that Mr. Buffet decided to invest roughly $5 billion in the struggling bank stock.  Bank of America was struggling to say the least, as we pointed out they were one of the Dow Jones Laggers in the article “Dow Jones Leaders & Laggards: Who’s Holding Up the Market?” If you are a shareholder you loved this news more than anything.  Bank of America has been hit hard as of late with share prices falling from $15 to $6 within the past 6 months. Luckily i dire need of any good news this announcement was that shining light at the end of the tunnel shooting up share prices from $6.15 to $8.20 in a couple hour spam, only to be sold off at the end but Warren Buffet’s impact goes much further than the little pop in the share prices. There are still some big looming questions out there as full details of this deal have yet to be disclosed.

Below are my five big questions in reaction to the announcement:

1. Bank of America’s capital structure and reputation were lagging, Warren Buffet’s investment gives a big boost to both.

2. Does this prove the point that Bank of America did in fact need money? Something they always denied.

3. I’m interested to see what the final agreement states and what terms Buffet and B of A actually agreed on.

- How much will this deal cut compare to the Goldman Sachs one?

4. Was this asked for by President Obama? I know Mr. Buffet and Obama are close friends and the two did in fact meet a few days ago.

- What was actually said during that meeting?

- Did Obama ask Buffet to do this as a favor knowing a bailout was out of the question but letting them fail would be devastating?

5. What does this do to the overall stability in Bank of America’s stock?

- Is it now a buy knowing that Warren Buffet is so heavily invested?

- Also what terms is he buying his shares at, as I am sure we are making a whole different investment than he is?

Only time will tell and give us more details about this one so stayed tuned for more on the announcement as it is revealed later in the day. Also we are interested in hearing your take so please don’t be shy and send us your thoughts on either our Facebook or Twitter or Leave a Comment!



Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.