Buffett Pumps Up Bank of America
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
WAIT, BEFORE YOU GO…
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.
If you're reading this, you probably already know that non-profit, independent journalism is under threat worldwide. Independent news sites are overshadowed by larger heavily funded mainstream media that inundate us with hype and noise that barely scratch the surface. We believe that our readers deserve to know the full story. Truthdig writers bravely dig beneath the headlines to give you thought-provoking, investigative reporting and analysis that tells you what’s really happening and who’s rolling up their sleeves to do something about it.
Like you, we believe a well-informed public that doesn’t have blind faith in the status quo can help change the world. Your contribution of as little as $5 monthly or $35 annually will make you a groundbreaking member and lays the foundation of our work.