Warren Buffet Buys BoA $5 billion investment

[Welshbeef]

What does he know that we dont?

Is it a red herring i.e. push a small ish amount (relative to his fund) into this to shore up another investment OR is it a genuine investment?

If it is.... AIG suing for $11billion due to misselling of $28billion rubbish junk debt which was sold as AAA rating.

He bought Goldman Sachs for buttons wen it was on its knees in Sept/Oct2008 (has he since sold it for a song while taking in billions of profits as it bounced back)?

[smifffymoto]

He probably knows no more than I do but people listen to him and watch what he does.Everything he does his for his own financial gain so I wouldn't trust him one bit.

[richarda0109]

Warren talks about getting the idea in the bath. Was it then that Ben from the FED rang him up and talked to him about a sweet deal before his impending broadcast. Noticed that Warren got 50000 of "Preferred Stock" not the ordinary stuff that you and I can get.

In my mind the fires from the toxic waste that BoA have when they bought Merrills are going to keep on going for sometime yet and that BoA is just the US version of RBS.

Rgds
Richard

[Digga]

Saw this on Bloomberg last night and it did seem to have stunned markets.

He had been in conference with Obama, so the move could be motivated by anything from political reasons to inside knowledge of the road ahead - QE3 etc.

With regard to banks and especially those in the Eurozone, the cynic in me wonders whether the financial inustry is over-egging the problem in order to play the markets?

[fido]

Are these ordinary shares on the open market or convertible preferred shares?

[Welshbeef]

Digga said:

Saw this on Bloomberg last night and it did seem to have stunned markets.

He had been in conference with Obama, so the move could be motivated by anything from political reasons to inside knowledge of the road ahead - QE3 etc.

With regard to banks and especially those in the Eurozone, the cynic in me wonders whether the financial inustry is over-egging the problem in order to play the markets?

llat

If that is true then the trade should be reversed as it is insider trading.
I hope it isn't as his air of supreme ability would be called into question.

[greygoose]

According to the Daily Telegraph, he'll get $300 million a year in interest and can buy 700 million shares at $7.14 per share, if the Bank want to buy him out early then they have to pay a premium of $250 million too.

[fido]

greygoose said:

According to the Daily Telegraph, he'll get $300 million a year in interest and can buy 700 million shares at $7.14 per share, if the Bank want to buy him out early then they have to pay a premium of $250 million too.

So basically he's bought 6% preference shares. Sounds like a good deal - as long as the BoA remains an on-going concern he'll receive 6% of their profits before any ordinary shareholders and the right to covert into shares if the company recovers.

[Welshbeef]

greygoose said:

According to the Daily Telegraph, he'll get $300 million a year in interest and can buy 700 million shares at $7.14 per share, if the Bank want to buy him out early then they have to pay a premium of $250 million too.

So its 6% Pref Shares with the option to buy more at a very good rate.

So it would take 16 years to pay back the original investment (ignoring inflation). And assuming the bank doesnt go bust his stock would be worth at least the same so in 16 years at the bare minimum he will double his money.

Of course in time banks will recover and when they do he could maybe make 1000%++ profit. Very good deal.

Now is that deal only available for mega investments or is it open to any investor?

[voicey]

Sounds a bit more like a convertible bond to me but I'm just a lowly FX guy so don't trust what I say!

[Rocksteadyeddie]

The reason Buffett gets such good terms can be seen in the stock price of BofA and every other bank around the world yesterday. Buffett does things for Buffett. He was asked to buy into numerous financial institutions in 2008. He refused them all, with the exception of Goldmans. The deal he gets is basically the bank paying for the use of his name. He probably has more positive effect by investing in a company than any other corporate or individual in the world. Is it political? I doubt it. He's a money man through and through. He just doesn't do politics. The Snowball is a fascinating read.

PS Also bear in mind he is along time shareholder in Wells Fargo.

[fido]

voicey said:

Sounds a bit more like a convertible bond to me but I'm just a lowly FX guy so don't trust what I say!

They are both quite similar except non-payment of interest on a bond is technically a default .. whereas if they can't pay out the 6% dividend it's tough sh8t.

[Digga]

Rocksteadyeddie said:

PS Also bear in mind he is along time shareholder in Wells Fargo.

I didn't know that, but them I'm not a 'Buffet buff'. It is funny though, because the talking head interviewed on Bloomberg about the deal was.... an 'expert' from Wells Fargo no less. Who failled to mention the connection.

[Beardy10]

fido said:

voicey said:

Sounds a bit more like a convertible bond to me but I'm just a lowly FX guy so don't trust what I say!

They are both quite similar except non-payment of interest on a bond is technically a default .. whereas if they can't pay out the 6% dividend it's tough sh8t.

He's got preferred stock.....I can guarantee you they won't be able to waive the dividend....they will be cumultive at the least.

[Rocksteadyeddie]

Beardy10 said:

He's got preferred stock.....I can guarantee you they won't be able to waive the dividend....they will be cumultive at the least.

Agree. He'll probably rank ahead of the US Treasury in terms of seniority.

[davepoth]

He's one of the few people in the world who can make a market. Him buying that much of BoA means nobody will lose confidence in an institution which was looking a bit shaky. He'll make a chunk of money out of it - it's a bank after all - but I don't think he's even that bothered about the cash any more.

[Welshbeef]

davepoth said:

He's one of the few people in the world who can make a market. Him buying that much of BoA means nobody will lose confidence in an institution which was looking a bit shaky. He'll make a chunk of money out of it - it's a bank after all - but I don't think he's even that bothered about the cash any more.

But it's not his money to lose it is the funds

[Rocksteadyeddie]

Welshbeef said:

But it's not his money to lose it is the funds

I'm not sure there is much of a distinction in that the vast majority of his personal wealth is invested in BH stock. His interests are very closely aligned to those of the business that he runs.

[davepoth]

Welshbeef said:

But it's not his money to lose it is the funds

I think this is actually out of his personal stash; and CNN are reporting a one day $357,000,000 gain...

[Rocksteadyeddie]

davepoth said:

Welshbeef said:

But it's not his money to lose it is the funds

I think this is actually out of his personal stash; and CNN are reporting a one day $357,000,000 gain...

I'd be very surprised if that was the case. To the best of my knowledge he has nothing like that amount in liquid assets personally. The point of Berkshire, and WB's entire career, has been the reinvestment of his gains in the business. He has promised to give 10% of his wealth per annum to The Bill and Melinda Gates foundation. This will be in Berkshire stock.