Warren Buffett to the Rescue, Again

Aug 25, 2011
J. Webster
Comments Off on Warren Buffett to the Rescue, Again

He helped save Goldman Sachs in 2008 with a $5 billion loan, and now Warren Buffett helps save Bank of America with the purchase of 50,000 preferred shares at $100,000 a piece – another $5 billion loan. The preferred stock has a dividend yield of 6% and BofA has the option to buy back the shares at any time for a 5 percent premium.

Sure, it’s not the 10% dividend yield he got when he loaned Goldman Sachs money, but it’s a win win for Buffett, as it only ensures that his top bank stocks, Wells Fargo and U.S. Bank, aren’t weighed down further by the drag of Bank of America’s capital worries. BofA CEO Brian Moynihan had this to say:

“We are building the best franchise in financial services and we have laid out a clear plan to deliver long-term shareholder value,” Bank of America chief executive Brian Moynihan said in a statement. “I remain confident that we have the capital and liquidity we need to run our business. At the same time, I also recognize that a large investment by Warren Buffett is a strong endorsement in our vision and our strategy.”

I’d like to know what those phone calls to Buffett were like? What do you think? Is this enough of a capital cushion to keep the shorts off BAC?

Update: Actually, it turns out Buffett called BofA about purchasing shares of the bank, and he said the idea came to him when he was talking a bath. The joke going around is people hearing he told Becky Quick while in the bath he was going to invest in BAC. She’s the only person that seem to ever interview Buffett for some reason…

Buffett tells us he came up with the idea of an investment while taking a bath earlier this week, and he asked BofA CEO Brian Moynihan yesterday if Berkshire could do the deal.

Why now? Buffett tells Becky that BofA’s shares “have gone down a lot” and the bank is “certain to be around” for a long time.

He says Wells Fargo , a large Berkshire holding, and BofA have the best deposit franchises in the country, and compares today’s investment to Berkshire’s past deals for GEICO and American Express. (CNBC)

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