Buffett Rescues Bank of America

[No DUplicitous DUpe]

Buffett Rescues Bank of America
(posted with permission from: http://sane-ramblings.blogspot.com/2011/08/buffet-invests-5-billion-in-teetering.html)

In a stunning development, Warren Buffett invested $5 billion of Berkshire Hathaway money, a publicly held company he controls to rescue America's biggest bank, Bank of America, previously rescued by the U.S. government as "too big to fail." Despite all the help it received, B of A needed another massive government bailout without which its troubles could have led to a replay of the 2008 global financial system meltdown for giant banks are dependent on one another. That's how serious this development is. Although it will disappear from the news, be aware of how fast our fragile financial system could collapse.

For the B of A, it isn't just Berkshire's money that matters but Mr. Buffett's outstanding reputation, which will now attract or retain investors, investors who no longer had confidence in B of A's top management and were aggressively selling its stock for various reasons but most notably for the B of A's mounting black hole of real estate exposure. But B of A will pay a heavy price for Berkshire's funds and for Mr. Buffett's reputation. In return, Berkshire is to receive a special dividend stream and the option of buying more shares at prices near the bank's two-year low, which would make Berkshire the bank's biggest shareholder. In 2008, using Berkshire funds, Mr. Buffett rescued General Electric and he rescued Goldman Sachs. Like B of A, Goldman had been deemed "too big to fail" by the U.S. government, which also bailed them out.

With bravado, B of A's Chairman and their CEO both claimed they didn't need the money but their Board of Directors immediately accepted it. While Mr. Buffett would not invest in anything he didn't believe in, I believe we will later find that he received strong secret encouragement from the U.S. Fed and the U.S. Treasury Department to make this investment, as they feared making a 2nd taxpayer bailout.

If you are a taxpayer, shareholder, bondholder, vendor or have money deposited in the B of A, Berkshire's investment is very good news. But if you are an employee, we'll see if this is good news for the bank is already laying off 3,500 people and preparing to lay off 10,000 more. If you are not one of those 13,500 people, that money may save your job, but likely, more layoffs are coming.


For more information, please see "Buffett to Invest $5 Billion in shaky Bank of America" http://www.nytimes.com/2011/08/26/business/buffett-to-invest-5-billion-in-shaky-bank-of-america.html?_r=1&nl=todaysheadlines&emc=tha2

[louis-t]

1. This changes my prediction that BoA would be gone in 5 years.

It might take 6 years now. Pissing off every customer you have on a daily basis is not a business model.

[Demeter]

5. I give it till Thanksgiving

This things's going to collapse faster than a souffle. There's no more air for the bubble.

[izquierdista]

7. Or the other possibility...

BofA will sink Buffett (in less than 5 years).

As Charlie Chan said, "man who throw lifeline to Titanic need BIG scuba tank".

[Cool Logic]

2. It always a good idea to buy things when they are on sale...

BOA share gained 10% after the news was announced; thus, Buffet made a cool $500 mil in one day.

[Demeter]

6. That's not buying, that's moving the market by manipulation

and that's exactly what was supposed to happen.

[Fuzz]

3. Not a bad deal for a 'Socialist'.

[No DUplicitous DUpe]

4. From The NY Times Aritcle...

<snip>
Bank of America shares have been pounded in recent weeks amid deepening worries about just how much the mortgage mess will eventually cost the bank, how the downshift in the economy will crimp earnings and whether it can absorb losses without having to raise more capital.
<snip>



From Yahoo finance
http://finance.yahoo.com/echarts?s=BAC+Interactive#chart6:symbol=bac;range=6m;indicator=volume;charttype=line;crosshair=on;ohlcvalues=0;logscale=on;source=undefined

[Skink]

8. He's not afraid of the capitol gains tax.

[No DUplicitous DUpe]

9. Relating to Warren Buffett’s rescue of the B of A, from today’s New York Times...

Relating to Warren Buffett’s rescue of the B of A, from today’s New York Times is: “Profits Falling, Banks Confront a Leaner Future.” Here is a key passage:

“Now, however, as government lifelines fade and a second recession seems increasingly possible, banks are finding growth constrained. They are bracing for a slowdown in lending and trading, with higher fees for consumers as well as lower investment returns amid tighter regulations. Profits and revenues are slipping to the levels of 2004 and 2005, before the housing bubble.” Translation: Like the B of A is doing, big layoffs are coming.


The situation is actually worse. Like B of A, they have a mountain of home foreclosures they haven’t begun to get on top of and the values of those homes are falling by the week. Plus they have huge exposure on derivatives and other fancy financial instruments and on loans to troubled nations. More rescues and mergers are coming. To see the New York Times article: http://www.nytimes.com/2011/08/29/business/top-banks-confront-leaner-future-by-cutting-jobs.html?_r=1&nl=todaysheadlines&emc=tha2.