I want to know when we’re going to get apologies and retractions of the claim that Bank of America did not need any new capital.
Remember, that was a mantra. Well, how about that deal then….
Bank of America Corp. (BAC), the biggest U.S. lender, said Warren Buffett’s Berkshire Hathaway Inc. will invest $5 billion to bolster the company after losses tied to subprime mortgages drained capital. Bank of America surged in New York trading.
Berkshire will get cumulative perpetual preferred stock paying a 6 percent dividend, the Charlotte, North Carolina-based bank said today in a statement. Omaha, Nebraska-based Berkshire also gets warrants to buy 700 million shares at $7.14 each.
Six percent eh? That’s damn expensive money – something like 30 times the official “overnight” rate to borrow. In addition he got warrants to buy 700 million shares at $7.14 each, which are (at this writing) about 75 cents each in the money. Oh, and there’s no lock-up period on those either.
Can I ask an inconvenient question on the latter? 447 million shares have traded hands on BAC this morning thus far. Were any of them shorted against the box by Berkshire, given that there are no apparent restrictions on his disposition of those warrants?
Buffett conceived of the investment while in the bathtub yesterday morning and had his assistant contact Moynihan’s to get the banker’s private number, CNBC reported, citing an interview with Buffett.
Riiiiiight. The phone call that was reported with Obama and the incessant pumping yesterday of exactly this “idea” in the corporate media (CNBS, again) didn’t have anything to do with it I’m sure. I’m also sure there’s no sort of backdoor deal in the wings from the government; after there there’s no record that the 2008 “investments” were ultimately backstopped by the government, right?
Oh wait… there was and they were. Oh darn.
The market didn’t believe a word of it in the general sense, although BAC is still trading 12% higher as I write this. We’ll see how long it lasts, or whether this simply provides incentives for the Bears to look at the facts and say “you lied about not needing capital – now we’re really going to lean into you.”