Make no mistake about this: Warren Buffett just saved Bank of America’s bacon.

A few items leap out this announcement:

1) BoA needed both capital and a reputation reboot. Buffett provided a little bit of both.

2) This gives lie to the claim that BofA needed no money

Counter argument — this was about the stock slide, not the capital structure, which remains opaque.

3) The fine print will be revealing of the specifics of the terms, but I am curious as to how this compares to the deal cut with Goldman Sachs (GS) and GE.

4) Buffett met with Obama a few days ago; I wonder what was discussed in THAT meeting.

5) Investors are cautioned that unless you are buying on the same terms as the billionaire, you are making a very different bet than he is.

More to follow later today.



• Buffett Invests $5 Billion in BofA (WSJ)

• Bank of America Says Buffett’s Berkshire Will Invest $5 Billion (Bloomberg)

Category: Bailouts, Corporate Management, Credit

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

61 Responses to “Buffett Bails Out Bank of America”

  1. T_S says:

    Any chart experts out here? Is that a bullish “double” island reversal?

    that might be a floor…

    not trading it. just sayin’.

  2. mathman says:

    How about this observation from across the pond:

    Here’s another:

    Looks like all our “golden parachutes” have tears and holes in them (or have already collapsed) and we’re pickin’ up speed. Past that, maybe the whole system is designed to fail after a certain point.

  3. AHodge says:

    well my former hero
    before Moodiies testimony that is
    has clearly strayed from fundamentals this cannot possible be a balance sheet bet
    but i cant call this a bad trade he just talked to the guys that will make it work

  4. louis says:

    I wonder if he gave them an hour to respond like he did with LTCM?

  5. freitagfan says:

    One of the analyst said recently that even if BAC didn’t need capital, they should get some just to show they can and to show they aren’t falling apart. Sorry but when you tell us they need $50 billion and then say $5 billion is saving their bacon, I’d have to say all that has happened is you’ve covered your short.


    BR: Never had a short position in BAC — I disclose any position I write about.

    BTW, do healthy people get stents placed in their hearts just to prove they are healthy?


  6. AHodge says:

    it is of course all eyewash $5 bio is chump change compared to the BAC issues
    unlike GS where the dollars were big enough to make a diff
    this is why i petrified of shorting these turkeys
    even a bogus rescue news kills that moment
    but this may fly, bend over taxpayers
    anyone not understand why obama geithner dont want to announce anything
    just do it via their buddy?

  7. b_thunder says:

    “Make no mistake about this: Warren Buffett just saved Bank of America’s bacon.” – did he really, or just gave the stock a short-term boost?

    “Buffett met with Obama a few days ago; I wonder what was disucssed in THAT meeting.” – material, non-public? is the Oracle going to share a cell with Bernie?

    so, i guess the situation is really similar to 2008, the banks/economy are on life support, and the massive Obama-sponsored re-fi of mortgages is coming…

  8. pintelho says:

    same terms is right:

    ” He’s buying 50,000 preferred shares of Bank of America at a dividend of 6% a year. He’s also receiving warrants on 700 million shares at a strike price of about $7.14 a share. Those warrants would have been out of the money yesterday, but will be in the money as soon as markets open. The deal will make Buffett one of Bank of America’s biggest shareholders. ”

    I would buy BAC on those terms too!

  9. HEHEHE says:

    How’s Buffet’s GS investment doing? Believe me this one will be doing worse -absent the feds forcing the foreclosure deal;)

  10. AHodge says:

    and thereby make the quiet further bail look like a buffet miracle,
    works for evrybody, esp the markets
    everybody but the bill payers

  11. Francisco Bandres de Abarca says:

    “I wonder what was discussed in THAT meeting.”

    Correct. Anything of a pending economic aid package which may include elements (mortgage program, etc.) beneficial to Bank of America’s bottom line?

    Full disclosure: long Berkshire Hathaway, short any semblance of law and ethics.

  12. Moss says:

    Lets see… US Gov has BAC’s back, now Buffet has BAC’s back. One thing you can count on is that Buffet made absolutely sure that BAC would not be allowed to invoke its last will in the near future.

    Buffet is very intertwined with the ‘financial system’, via both his stock holdings and put writing and knows what the administration is thinking via his private meetings and ‘tax the top’ mantra.

    As you point out.. no one on earth could have gotten these terms.

  13. robert d says:

    WRONG !!!!

    Once gain, BR, you are rattling the chains of the bank and the USA. You are piling on this bank and on our country. Youa re attempting to continue selling your book..and continue on a one-track beating up of America in order to make your own name in financial circles.

    Try being positive for a change…..we need you and others to see the best, not the worst, of the USA, the banking system, the marketplace.

    From outside of NYC we see the negativity of New Yorkers.
    It isn’t attractive.


    BR: Sold to you . . .

  14. Nuggz says:

    “Make no mistake about this: Warren Buffett just saved Bank of America’s bacon.”

    That’s not so clear to me.

    But what do I know?

  15. Greg0658 says:

    I’ll bet BoA owns (well sorta) title to more land & buildings than AAPL

  16. DeDude says:

    They must be in pretty bad shape to be forced to agree to such a deal.

  17. dan10400 says:

    Forget the terms he got. What this means is that the mess will never be sorted out as we wouldn’t want to cram down Uncle Warren, much less bondholders in this POS.

  18. wunsacon says:

    >> BoA needed both capital and a reputation reboot. Buffett provided a little bit of both.

    Some companies don’t deserve to be saved. By investing in GS or BAC in their time of need, Buffett helps perpetuate them. I say he’s hurting his reputation in some circles (e.g., the circle around my desk).

  19. econimonium says:

    Did anyone actually read the terms? This is one great deal for Buffett regardless of what happens. And if BoA took this deal, what does that tell you about what’s going on? Are they hoping that this puts a nice halo around the bank because of Buffett’s stature rubbing off? They’d better hope a lot rubs off because, right now, they are a total mess.

    Does this save them? Maybe. Sometimes good PR is a self-fulfilling prophecy. But I think the losses to come and fines are still going to be staggering.

  20. EMichael says:

    I wonder what the “over/under” is on guarantees Buffett received during his meeting with Obama?

    9 zeroes or 12 zeroes?

  21. nofoulsontheplayground says:

    On the surface, this deal smells of counter-party exposure. While at first glance it appears to be a smart investment that returns 4% above 10-year T-bills, it looks like a desperate attempt to shore up a shaky system that could put Buffett’s WFC and General RE positions under considerable stress.

    There are a ton of legal questions we need to know before we can look at this as good, bad, or otherwise.

    Frankly, if things are as rosy as some make it out to be at BAC, the dillution from the common warrants should be a counterweight to any positive action from the preferred buy-in capital.

    This could also be one of those shotgun marriages like what we saw in fall 2008, only with guarantees from the Treasury and Fed. Buffett’s people are not going into this unless he’s playing an outcome where he is made whole no matter what transpires.

  22. AHodge says:

    while the $ 5 bio is chump change for BAC
    the Buffett return if pintelho right is not
    6% forever PV at maybe 250% maybe 12 Bio?
    PLUS warrants worth $7 bio for every $10 share price above $7
    can go to $30 40 easy if losses mostly nationalized
    cha ching another $16 to $23 bio

  23. AHodge says:

    it will be interesting to hear moynijhan explain why this a good deal for other shareholders of a we just fine non bankrupt company
    but somehow dont think the shareholders will gripe

    shareholders must be better off w a $5 bio share issue even at $6
    but no special PR comes w that, Au contraire.

  24. dina says:

    Buffett Tells CNBC ‘This Isn’t 2008′
    Is this 1930?

  25. AHodge says:

    be interesting to hear the take of Bove (always wrong i bet on it)
    and meredith whitney former heroine of mine
    wrong regularly lately

  26. Scott F says:

    Regarding Buffett’s recent preferred purchases …In October 2008 Buffett invested in Goldman and GE preferreds. He received a 10% dividend (6% for BofA today). In all of them he received warrants.

    The GE warrants have a strike price of $22.25. Today, 2 1/2 year later, Buffett remains out of the money as GE is trading at $15.8.

    The Goldman Warrants have a strike price of $115. Today 2 1/2 years later, GS is $114.35 so Buffett is still out of the money.

    Today he received warrants to buy 700 million shares of BAC at $7.14. As of this writing it is trading at $8.24.

    My advice to Warren is exercise now! It might be your last chance for years

  27. wally says:

    “One thing you can count on is that Buffet made absolutely sure that BAC would not be allowed to invoke its last will in the near future.”

    Exactly! That’s the message this sends. That was exactly the message this was intended to send, and that’s the message WEB will be well-paid to deliver.

  28. Livermore Shimervore says:

    So how does this fix RE which in my view is FUBAR’d for at least a decade–given that wages and employment are stagnant at best, falling at worst. BAC fortunes seem to be tied to RE’s hip.
    Makes me wonder what Buffett’s plan is to to undo two of the worst negotiated decision in banking history: the deal for ML and the absofarkingly retarded decision to buy Countrwide BEFORE it went into the shitter…knowing CW was going into said crap hole on share price within weeks. I mean I’m a big fan of Buffett but what’s the plan? I once talked to the brother of a well-known D.C. insider, circa early ’09, who works on Wall Street himself, talking about a BAC collapse like we were talking about a bad weekend for the Yankees. I’m frankly surprised BAC isn’t paying Buffett to get on this. I guess that BAC balance sheet didn’t have nearly as many hand-written red marks as Lehman’s sheet.

  29. wally says:

    Single family RE may be as bad as you say, but I’m willing to bet that apartment construction numbers will begin to surprise on the upside by next spring. And if construction starts to pick up, there is a virtuous cycle beginning.

  30. I have to respond to some of these comments:

    1) To freitagfan: As per my terms & disclosures, I disclose all my positions mentioned in posts. If I don’t mention a long or short position, you may assume I have no position. Your insinuation otherwise is offensive
    BTW, whats your BAC position?

    2) To robert d:
    a) “Be positive for a change” This isn’t a hobby, and I have fiduciary obligations to clients.
    When conditions warrant, as in March 09, I flip positive. When they dont, I dont.
    b) I cannot afford self-indulgent luxuries such as cheerleading or partisanship, as they are costly in the markets. You and Dr.Vincent Peale have that luxury, I dont.
    c) The last time I warned about a slew of companies — AIG, FM/FRE, LEH, BAC, C — they mostly went to zero. YMMV
    d) If you think objectively analyzing what is going on is “piling on our country,” well then all I can say is this country is being destroyed by the reality challenged. You cannot fix things unless you know whats broken and understand how. The frighteningly clueless are dangerous to healthy countries that engage in honest introspection.

  31. diogeron says:


    OK, this may be a stupid question, but if the president told Buffett that he was going to propose the mortgage/foreclosure/rate < program that has been widely discussed of recent days and BOA would benefit, would Buffett (god forbid) be accused of insider trading? At what point would this by an issue? If the president merely said he "was considering…" would that be enough? My wife is an attorney if would have mentioned it to her, she would have likely said, "Hell, ask Barry. Doesn't he have a law degree?"

  32. ex1 says:

    The preferred Buffet is buying is not at a discount to other issues perpetual preferred shares that are trading, and BAC common trades around 2bn USD a day, so assuming Buffet doesnt want to be more than 10 procent of the daily trading volume, it would take him 25 business days to put the trade on.

  33. Francisco Bandres de Abarca says:

    ” . . . all I can say is this country is being destroyed by the reality challenged. ”


    I have grown weary of this conflating of patriotism and a very faux patriotism. That is to say, sapping this nation’s wealth in an attempt to shore up a very broken financial system which has proven incapable of managing risk. The implication that these institutions are somehow critical to this nation’s security and prosperity, while they create a massive drain on GDP, is ludicrous, to say the least.

    Higher taxes to backstop this ongoing process? Harumph.

  34. TheUnrepentantGunner says:

    HEHEHE: buy a clue, or at least a vowel that isnt “E”

    Buffett exited his goldman investment… at a healthy profit if i recall correctly.

    as for the rest

    He’s hard to bet against. He doesn’t win them all but he’s right often enough that it’s tough to be on the other side.

    Barry may be right that he has intrinsically changed the odds though just by his name stepping in. If it was random anonymous billionaire “X” or mutual fund X buying this it might be NBD… but with Buffett it sends a signal.

    With that said, I bought a B-share i think in early 08. $4600ish back then. I was thinking it was like a mutual fund with almost no expense ratio, and in the value space where I normally don’t play anyway.

    Oops. Average loss has been about 8% a year, year after year. Split adjusted I need those b-shares to get back to 90 something.

    Now I am going to throw up, thanks guys you just saved me $10 today.

  35. nofoulsontheplayground says:

    Buffett’s “investment” in BAC must be tied to a counterparty risk.

    Berkshire’s Goldman Sachs infusion back in late 2008 was essentially collateral for a massive underwater naked put position Buffett wrote on the S&P prior to the financial crisis.

    Berkshire’s GE infusion also had the hallmarks of counterparty CDS risk, with GE and General RE likely involved.

    My point here is that unless Berkshire’s position is a death-spiral convertible preferred issue, there has to be some kind of CDS counterparty risk that BAC, the Fed, and the Treasury leveraged to get this infusion. The buy in makes no sense unless it is a death spiral convertible preferred or collateral for underwater credit default swaps.

    If this is a case of CDS gone bad, why did it happen now and not in 2008? What has changed since then between Berkshire and BAC?

  36. argh says:

    winner of best advice on the web today:

    “Investors are cautioned that unless you are buying on the same terms as the billionaire, you are making a very different bet than he is.”

  37. VennData says:

    All you nasayers about Buffett’s GS investment are clueless, you’re listening to the bears on CNBC.

    He got a 10% yield for two years. GS paid him an additional 10% to get out of the deal. He got the GS warrants at 105 for FREE!

    You are all sheep listening to the CNBC Fast Money feed you their book. Bet you in ten years, this deal will make a better return than all of your day trading.

  38. ex1 says:

    BAC perpertual prefs yielded 8.5 percent as of close ystd.

  39. AHodge says:

    If you think objectively analyzing what is going on is “piling on our country,” well then all I can say is this country is being destroyed by the reality challenged. You cannot fix things unless you know whats broken and understand how. The frighteningly clueless are dangerous to healthy countries that engage in honest introspection.

    the wisest thing i have read in a long time…
    these folks cloak themselves as patriots, confidence builders and displayers of mental health

  40. BennyProfane says:

    Let’s not forget what happened last week with the downgrade, Buffet chiming in with his “AAAA” comment, and, lo and behold, the top gun at S&P (a competitor) is suddenly retiring after an investigation is announced. Hmmmmm………and, then, Buffett does his usual “aw shucks, I’m just a cherry cola junkie from Omaha who knows how to pick ‘em” media tour telling us America is the best place in the world, meets with Obama (like that doesn’t happen a lot), and, now this. BTW, The Oracle himself is holding a fund raiser for the Orator in Chief in the next few days. Hmmmmmm………

    The campaign is in full swing. What a great country.

  41. rktbrkr says:

    This is a win, win,win for Buffett
    1) the deal he got, while not a sure thing, is a lot better than was available to anyone else
    2) If BAC had completed it’s trip into the shitter it would have pulled down Buffet’s WF turd too
    3) If BAC precipitated a rerun of the last crisis then Buffet’s favorite sitting president would be toast

    Moynihan must have been negotiating this deal while he was disavowing the need to raise capital, so much for believing anything he says. Of course he could say they did the deal because they needed credibility not cash…but thats not a very healthy message to put out, kind of like saying we just needed some high visibility eyewash. Celebrity investing.

    If BAC has some serious problems in the opaque cloud of bank accounting then this only buys a little time

    Achterlieber! DAX was down 4% in 15 mins, ein flashundkrash mit blitz sellin!

  42. ex1 says:

    The deal is not at all that great for Buffet, but the only way he can gain that kind of exposure so quickly. The prefs yield 6 percent, the warrants were probably worth around 700m-1bn USD (when doing this kind of size, that far out, you usually pay close to the long term vol avg, maybe 35 is reasonable), making the effective yield on the prefs 7-7.5 percent. Similiar issue prefs traded at a yield of 8.5 as of yesterday. Maybe Im miscalculating something here.

  43. rktbrkr says:

    Cute headline “Buffet Betting against Schneiderman”. Unfortunately I think Schneiderman will eventually fold, he’s lonelier than Jimmy Stewart in High Noon.

  44. patfla says:

    Buffett has become the J. P. Morgan of our time.

  45. patfla says:

    I hope Schneiderman hangs in there.

    Remember Robert Khuzami? Greeted with many cheers but he didn’t fulfill our hopes which sounds familiar.

  46. Sechel says:

    Bloomberg reports Buffet came up with the idea in his bath-tub. Graham Dodd must be rolling over in his grave. Interestingly enough Berkshire is down on the news.

  47. rktbrkr says:

    patfla Says:
    August 25th, 2011 at 2:59 pm
    Buffett has become the J. P. Morgan of our time.

    He has big positions in BAC and Wells, just needs CITI to complete his Banksters hat trick

  48. ToNYC says:

    As Becky quickly rolls over her weeks-old baby to pick up Uncle Warren who breathlessly tells us that Warren got the idea in his bathtub Wednesday morning to get 6% with a “what-you-don’t know” put. Not so fast, Archimedes and hold the Eureka but my momma got out of her tub yesterday and got a 5 yr CD at 1.0% for her kind of hard-working savings money. This avuncular land shark gets the ear of the NYFED and access to Permanent Zero funds to fund his ATM calls, without mentioning the AIG no-haircut free money granted in 2008 for his armchair heroics that kills anyone’s Bar Mitvah money.
    Enjoy the circus; watch your wallets.

  49. Lord says:

    Saves the government bacon too. If BAC was allowed to fail how could they have gotten any other bank to do what they needed in an emergency?

  50. WaveCatcher says:

    The Buffett sweetheart deal + Obama’s meeting with Buffett = NO COINCIDENCE.

    Somehow or other… the tax payer is going to get screwed again.

  51. “…this country is being destroyed by the reality challenged. You cannot fix things unless you know whats broken and understand how. The frighteningly clueless are dangerous to healthy countries that engage in honest introspection…” –BR, above

    How does Anyone ‘Fade’ that?

  52. bear_in_mind says:


    I know you posted this article (below) earlier this month, but haven’t seen anyone explicitly connecting this ‘dot’ to the Buffett announcement as well as Obama/Geithner’s inability to tie-off New York Attorney General Eric T. Schneiderman’s pursuit of BAC.

    Bank of America’s back-door TARP
    CNN Money
    August 10, 2011

    Granted, there’s so many leaks in the dike, it’s hard to keep track anymore but I don’t know how anyone could honestly argue that BAC is not on life-support. If BAC is healthy, open the books, mark-to-market, and clear the air. If not, break-up this toxic monster now before allowing to further damage to American taxpayers.

  53. rktbrkr says:

    Desperation deal for BAC.

    Where does the next 45B come from and at what price? Good comment – they should have told Uncle Warren to buy common on the open market!

  54. victor says:

    @rktbrkr: easy answer to your question. Inside the bowels of BAC resides now MER the once proud broker who went broke on account of 1 to 56 average leveraged schemes or “products” as they called them. So, take the $5B from WB and have the ex MER wizzards appply a measly 1 to 10 levarage hocus pocus and voaila! You’ve got the $50B you needed.

  55. Rondo says:

    How is it that they were allowed to pay back the TARP, and now they need a capital injection by Buffett?:

    If they had been telling the truth and had been fully committed to the notion that they were not undercapitalized, then why were they allowed by the banking regulators to dilute the shareholders with the Buffett deal?*:

    Henry, one problem we have, and I know you KNOW this already, is that we depend on the Federal Reserve to regulate and supervise the banking industry. What do we get for that confidence the Fed wants us to give them?… Nothing? Absolutely nothing. We allow BAC to demonstrate with statements regarding solvency, and then to gut the shareholders by diluting them with a self-serving deal with Warren Buffett, after attacking you, the messenger, simply for pointing out the obvious conclusions of the marketplace itself. I have said this before, but when Warren Buffett dies they will need to put a special hatch-door in his coffin so he can stick his cold dead hand up out of the grave and put one last hotel on Park Place.

    *In other words, if they were allowed to (and required to) stand by their statements that they were not capital deficient, then they should be made to resolve the issue without a capital injection from Buffett.

    Live by the sword… Die by the sword.

    The fact that the Federal Reserve has allowed this is the entire picture of the dilemma we face as citizens in a country in which our regulators cannot be depended on to do what they are responsibly charged to do.

    The picture is of a dysfunctional Fed. While I was indeed complimentary of Benber N. Anke in his initial response to the financial crisis (praising him then, Barringo, does not necessarily translate to praise afterward), he should be run out of office on a rail before he has the opportunity to do more damage to the economy that he and his cohorts have already done.

    Monetarism is the fault… Blind, unconscionable monetarism.

    Let’s see if Benber would want to raise Milton from the dead now and appologize again (like at the little social in which he tongue-in-cheeked an appology to Uncle Miltie) for the Fed’s failure to liquify the economy during the Great Depression years of the 1930s. My God… if it’s not liquid now, when the Hell will it ever be?? No, Benber N. Anke is getting a hard lesson about the failure of his life-long-love-child…Monetarism!

    I’ve explained the reason it fails, in my theoretical macroeconomic work that you have both kindly allowed me to publish.


  56. vs says:

    Reg. BAC/Buffet:

    If you look at other preferred series, perptuals, they yielded around 8 percent yesterday close. The warrants for 700m stock, strike 7.14 Aug 2022, the stock was at 7.00 at the time the deal was made, could be valued at tops 4 dollar a warrant, so less than 30m USD altogether. Just for Buffet to accumulate 5bn USD of BAC common would take at least 6-8 weeks. I dont see how this is a bad deal for BAC, if anything its looks expensive for BRK.

    thanks for your time,


  57. ex1 says:

    correction on the above, the warrants were probably worth somewhere in the range of .7-1.5bn, making the effective yield on the prefs between 7 and 8.5, so if anything Buffet is paying above market rate to get this kind of exposure. If Buffet would have called anyone here and said he wanted to invest in your business, you’d listen, in this case Moynihan made a good deal. Either way the stock price says it all, 7.63, vs 7 when the deal was done, compared to more or less any market that is down over the same time frame.

  58. rktbrkr says:

    What did Fannie get for $500M esp if this wasn’t an arms length market price transaction, just wondering how many mortgages, also be interesting to know what BAC carrying value was for these, (mortgages being held for the duration don’t need to be marked to myth or market?) .

    I said a while back that the US would end up buying bad mortgages from the TBTF at “fair values” to bail them out, do GSEs have bottomless pot of cash for the mortgages fraudsters?

    Seems strange that Fannie would turn these over to mortgage servicers since Fannie has been doing an active business unloading their inventory on

    (maybe homepath is actually administered by a 3rd party and BAC junk will get dumped into this pot?)

  59. AHodge says:

    ask warren what his legendary micro balance sheet scrutiny came up with?
    and how naked BAC be if the tide went out

  60. AHodge says:

    ask warren about p 236 notes to the 2010 BAC annual report, such “assets” as
    the $16 bio above fair value that loans are “carried” at. As if we believe even their version of fair value
    and the $14 bio capitalized value of future mortgage servicing rights. yes that number is a plus

  61. DiggidyDan says:

    Buffett met with Obama a few days ago; I wonder what was discussed in THAT meeting.

    i told you all this type of stuff was really happening

    Thought it up in the bathtub while drinking a cherry coke after a meeting with the POTUS. How naive do these people think we are?

    It’s a sad caricature of reality swaddling a rotten conspiracy of lies and subterfuge. . . Like biting into a twinkie with shit filling instead!