BoA Purchase Agreement from Berkshire Hathaway | Hacker News Reader

BoA Purchase Agreement from Berkshire Hathaway

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38 pointsfeydr18 comments

Wow, I was only slightly aware of the problems at BoA, but this deal must mean that they were having a big problem raising money. You would think they could of had a fire-sale of some assets like their china holdings to better protect shareholders. That being said having Buffet show confidence in your firm is valuable and it paid off well in the past for GE, Goldman and before that Salomon Brothers.

If they were having real problems, Buffett wouldn't invest. He likes to buy stock in solid companies that are going through temporary rough times and are thus unloved by the market (selling at bargain prices, like American Express after the salad oils scandal).

They were certainly having a problem of confidence, which can be very bad for highly leveraged financials, and Buffett's reputation helped restore some confidence.

Buffett is very shrewd. He invested in Goldman Sachs and GE during the collapse, but he refused to put a dime in Dick Fuld's Lehman Brothers.

This is why Berkshire Hathaway has been earning over 20% annually (on average) for multiple decades. He can get terms that nobody else can, but even then, he knows when it's investment and when it's speculation.

I thought BoA said they didn't need capital...

BoA stocks have been taking what some economists have said to be an undeserved hit in the market. Buffet probably thinks this as well, and decided stock was cheap and the deal would be mutually beneficial.

Yes. Many investors think BoA stock price is below book value. Meaning that if they sold off all of their assets, that amount would be more the the number of shares * stock price. It would look like Buffett agrees.

From this it looks like he bought a series of Preferred stock created especially for this deal. This is not what you or I could buy.

Or perhaps Buffet knows that they will get a fed bailout and he'll get his money back and then some.

Maybe Warren thought BOA was a good investment now that Wikileak's BOA "hard drive of secrets" has been "disappeared".

Not sure what you're referring to. Could you elaborate, please?

A $5B investment, not an outright purchase.

your right it's not an 'outright purchase' but it is a 'purchase agreement'

Given the amount of capital that B&H needs to invest yearly, this is a natural choice.

Buffet likes banks, he said so in the book The Snowball (a must read). Banks have float, which is interest free money "floating around" waiting to be invested by the bank, but not owned by the bank.

BOA also sells insurance, which has more float than a bank. B&H has a pretty effective group of insurance business people. A lot of the B&H wealth comes from the insurance industry.

That's one hell of a bet. I'm actually surprised that Buffet didn't want to buy the bank's debt offerings (if there are any).

I haven't read past the first couple paragraphs (too much legalese) but is there an out clause? If BoA tanks in the stock market, Berkshire could stand to lose a lot of money on the common stock.

> If BoA tanks in the stock market, Berkshire could stand to lose a lot of money on the common stock.

When Buffet made similar bets post-crash, the US govt made sure that he made money. (Of course, GS also had other things going for it, like much of the top-staff at Treasury.)

Obama and Buffet have been very good for each other.

Buffett didn't buy the common, he only has warrants with 10 year expiration. He bought preferreds at 6%, afaik.

I liked this bit from a FT Alphaville post on the topic:

"Warren’s warrant exercise price — a Fibonacci-esque $7.14285"

(which is 5B divided by 700M,but it's a fun number anyway)

First Goldman Sachs, now BoA. Stay classy, Warren.

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