Buffett Pumps Up Bank of America
Posted on Aug 25, 2011
Warren Buffett’s company Berkshire Hathaway negotiated a $5 billion investment with Bank of America on Thursday, a vote of confidence in the recently ailing institution. [Earlier Thursday, Truthdig erroneously reported the figure as $5 million.]
Bank of America shares had lost about a third of their value in August alone before Buffett stepped in, but the shares rose 24 percent to $8.65 in early trading Thursday on word of the deal before falling back at midday.
Always a shrewd businessman, Buffett negotiated exceedingly favorable terms from Bank of America, but it will have been worth it for the bank if the instant infusion of capital quells shareholder fears and attracts new investments, as Buffett’s investment in Goldman Sachs did at the height of the financial crisis. —BF
It is virtually a mirror of the deal Berkshire did with Goldman in the depths of the crisis in fall 2008, except in this case the dividend is less. The Goldman deal paid Berkshire $15 a second in dividends until Goldman bought Buffett out earlier this year.
Market watchers said the deal proved again that Buffett had become something of a lender of last resort to the financial system, as he did with Goldman and also GE.
“This proves to the market that if the bank needs additional capital, which we don’t believe they do, but if they needed to calm the market by raising capital, they could do it within 30 minutes with a quick call to Uncle Warren,” said Sean Egan, managing principal of Egan-Jones Ratings.
Flickr / Wonderlane (CC-BY)