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Buffett Bailout Of BAC Sends Stock To Early August Levels, Changes Nothing
The Buffett bandaid move, coming 48 hours after Buffett's conversations with Obama, and which also comes oddly enough just 24 hours before Bernanke was expected to announce QE3, succeeds in temporarily sending the stock back to early August levels. It also succeeds in sending the financial sector higher, which as we explained yesterday is the main reason for why the 2s10s had to be steepened, so as a result Operation Twist now can go back to its original formulation of broad 2s30s flattening and result in purchases of bonds across the board. As for what to expect with this surprising move out of Omaha? Absolutely nothing. The $5 billion in cash, unlike Buffett's investment in Goldman, will be laughably insufficient, considering that the bank's mortgage exposure is in the tens of billions, while its litigation liability is another $20-30 billion. This does nothing to change our thesis that BAC will need to come to the market again and again to raise capital. However, as this "raise" confirmed, BAC only has access to private investments: we hope Buffett has very deep pockets to keep doubling down. The other news to come out of this - Paulson will be saved with another deus ex machina and will not need to sell his gold or GLD holdings, removing the liquidation overhang from spot gold. The only good news out of all of this: the taxpayer bailout of Bank of America, when it comes, will be $5 billion less.
Here is a track record of Buffett's previous bailouts:
- GS deal struck Sep. 23, 2008 while GE deal struck Oct. 1, 2008.
- GS fell 67% from Aug 25 $155.71 to low of $52 on Nov. 20
- GE fell 42% from Oct 2 $22.15 to low of $12.84 on Nov. 20
- NOTE: Buffett warrants in GS, GE were worthless by Oct. 8, 2008 amid rout in stocks
BAC since the beginning of the year:
And the, traditionally shady, HFT trading on the news:
Lastly, here is Peter Tchir's take:
So after denying the need for capital, BAC has decided to give a great deal to Mr. Buffett? He invests 5 billion in preferred shares. These pay a 6% dividend (cumulative). So anyone who bought shares yesterday at $7 was hoping to geet a 0.57% dividend yield, non-cumulative. So much better current income, the cumulative gives an additional advantage, and if it all goes bad, he is higher in the capital structure. The preferred are callable by bofa at 105% of par. So if they call the preferred shares Buffett will get 5.25 billion. He has warrants to buy 700 million shares at 7.14. He could have bought 700 million shares at 7 (the closing price). That extra 14 cents on 700 million shares, is $100 million. But he will have made $250 million on the preferreds getting called, so net even if he converts to shares, he will have made an extra $150 million. This may be great news, but in many ways it stinks. Will BofA actually get sued by some existing shareholders this time around? They seem to have made legal mistake after legal mistake, and it is possible existing shareholders won't be so happy to see such a sweatheart deal go to someone else this time around?
When the stock opens above $8, I expect we will see all sorts of reports on how much the value of the deal is to Berkshire. The same thing happened with Goldman and GE back in 2008. GS went on to new lows after the investment.
Buffett gets - high income, some seniority, and cheap options. BofA pays up to get capital they didn't need. Market is going to react positively, maybe for a long time, but I think it would have been a much stronger signal if he bought $5 billion of common shares at $6.50. 
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Those who BTFR are about to get their asses handed to them.
Everything and anything to maintain the ponzi!
Fuck Bank of America.
For now though! JP can get out of his BOA crap and move on to other "choices" :))!
I wonder what Bruce Berkowitz thinks about all this. I could imagine he has a lot less sympathy now with BofA's CEO. I mean, he made a public cc with Moynihan and now the whole world can see how he (and all other listeners) got bullshitted to the hilt. And Buffet got such stunning terms. I mean, he could at least have asked Bruce if he wanted to participate with a couple hundred million $, no? but perhaps he has...?!
Yep - this should buy a few weeks anyway.
Not if the Bernank signals that TBTF is still TBTF. The Fed is most likely back-dooring funds to BAC as well as the other insolvents. Its all about perception. Trade accordingly. The Fed cannot let stocks freefall as too many dominoes fall.
I wonder if Joe Biden begged the Chinese to lighten up on their America is toast rhetoric. I am sure he made the case for propping up America a little longer for the coming Christmas season, where US consumers are supposed to go out and buy a bunch of Chinese made shit with their credit cards. Kicking the can towards the abyss one day at a time.
Look at the bones. Run away!
http://www.youtube.com/watch?v=XcxKIJTb3Hg
Thanks for posting that historical data on Buffet's 2008 bailout performance. I firmly believe that, with this BAC preferred purchase, Buffet again is too early (should have waited and got the $5.00 warrant trigger which will make more sense in November), as the stock will continue to slide on further re-financing fears. As to how this alters the form of QE3, you have to wonder if Tyler is not engineering the QE3 TWIST 2.0 himself.
Haven't you heard? Tyler is the puppetmaster here, and while I don't have proof of this, I'm pretty sure that he and ZH are to blame for the weaker than expected recovery we've been experiencing.
recovery? hahahahahahaha there is no recovery. the gdp numbers are cooked along with inflation. the increase in sales and profits among companies is largely due to the 11.2% inflation the US is experiencing right now. see www.shadowstats.com
Sorry - I thought the sarcasm was obvious enough.
Well, Buffet did say he would give most of his money away before he died. Maybe this is his idea of charity.
Gotta like nipples that point UP (the way it should always be)
This must mean that the Bernank must have given Buffet assurances about a more market friendly approach(QE)--announced on Friday from Jackson's hole.
market's still going down BAC along with it
CDS is a real kicker - went down 105bp with not a single break in between.
368/382 an hour ago.... 258/292 now, and avg spread given from the desks wider than before, lol.
Will revisit high 300 bp trading by November...
Someone just took that bet as latest run was 10bp higher on the bid.
That was me, ZeroPower. I actively trade while i post at ZH.
This should be fun to watch. Bounce and drop, little bounce, bigger drop, and down it goes. Tossing nickels to BAC when they need big dollars won't do much. Trying to instill confidence in this sham of a market. It won't work for long.
STFR
aapl is only down 1.3%
market will finish green bears are hunted until probably post obama jobs speech be careful
I BOUGHT THE FREAKING DIP LAST WEEK BITCHEZZZ!!!
i hope you sold today 2 minutes after opening
Sweet! Now you can afford a new caps lock key.
*applause*
yea-- it better be a "preferred" caps lock !
for a second....I thought that was a real bug on my screen!
what if merrill lynchs gold was suddenly revalued
during open market conditions
jackson hole tomorrow
DAx reversed first..back to 5500,,
alx
makes you wonder if buffett has inside info that the countrywide "problem" has a taxpayer backstop in the works
The backstop is a bullshit settlement in BAC's favor. It's obvious to me now. The one guy holding up the deal in BAC's favor was the NY AG and now he's "off the team."
There's your bailout.
there is nothing common about his shares or his information
According to NYT, Obama is considering restructuring millions of mortgages (failed to mention they will primarily be BofA mortgages).
Hmmmmm. No, that would imply that there are back-room deals and manipulation going on, but this is America.
@sausage--hardly inside info
fair enough - I wasn't clear on the linkage between countrywide and fannie / freddie, I thought c-wide portfoliod most of their loans
.
Possibly shaking out the weak shorts? It will be a volatile day nonetheless.
Tyler, don't forget the NY AG just got kicked out of the negotiations for the BAC settlement because he refused to let them out of criminal liability.
Don't be shocked if the settlement ends on sweetheart terms for BAC and Berkshire. It would totally fit the "fix" narrative.
They're still liable in New York State. There are other attorney general's who are following Schneiders lead. That settlement lead by Democrat Miller of Iowa is a bankster friedly Trojan Horse. Yves Smith at Naked Capitalism has been covering this story for months.
Buffet --- pride Cometh before the fall
If you can't be wrong
You will never know the truth
Nice! I like that, if you can't be wrong you can never be right.
Vivek
"BofA pays up to get capital they didn't need."
Really?
"Market is going to react positively, maybe for a long time,[...]"
No seriously, REALLY?
We are getting a standard 4 percent remortgage for everyone
I'm holding out for 0%.
Those of us without a mortgage get what?
Rothschild buying Societe Generale and Buffet buying Bank of America. The outfit is disparate.
Germany buying fucking Europe!
Actually, more accurately put, and this will probably make you angrier....
Germany fucks europe, then buys it. I'm of course speaking ZH style here, over a much longer time-line.
;-)
Vivek
http://aadivaahan.wordpress.com/2011/08/24/precursor-03-bottom-falling-out-still-still-and-a-gander/
It really is 2008 all over again.
WB is buying time for the benster! Tomorrow will be bloody!
Now we know what the conversations between Buff and Obam where about.
I don't think this will ever cost 1$ to Buff even if BAC goes to 1 cent.
You know he got some kind of 'insurance' from Obama. Buffet isn't altruistic, despite how he tries to portray himself.
Buffet probably got gold from the Fed as collateral...
Would you "trust" Obamatron?
and now the talking cue ball starts saying maybe things aren't really that bad out there and the market can get back to trading on fundamentals and weekly reports instead of fear.
Yep everything is fixed. August didn't happen just like everything in 2008 din't happen either. The markets are supposed to be at the bubble valuations. The third time to try Dow 15k, Nas 5k, S&P 2500 is the charm.
What frickin BS. I wonder which insiders knew of this deal yeszterday morning.
Anyone looking in from the outside would laugh at this.
A bank whose business model is to print money and lend at interest cannot stay solvent.
A bank which is the largest in the nation. A bank who does not have to mark it's assets to market.
A bank who is a primary dealer with the FED.
This is long term put a fork in it done.
pods
THIS IS JUST GETTING OUT OF HAND. (PERIOD)
I wonder what the conversation was with Obama earlier this month.
This round of QE will go to restructuring millions of mortgages (BOFA mortgages), helping out Main Street voters while helping out major campaign contributors. It is a win-win all around.
Was that in exchange for penning an op-Ed saying we need to raise taxes?
Buffet laying down the terms of his loan-sharking deal?
On a 2 Trillion Dollar Balance Sheet...5 Billion is PEANUTS!
The more I think about it the more I think "the repurchase rate assumption in the Bank of New York settlement is changed from 40% to 100%"... isn't going to happen.
I mean, do settlements of this nature ever come close to 100% ? If it did, it wouldn't be much of a "settlement."
Plus, at this point I don't think the government lets Buffett fall down on this one
I think he already dropped a turd on all of us
Also, right or wrong, Buffet's involvement is likely to bolster confidence and not be percieved as a sign of weakness that the public markets are closed to BAC. BAC isn't GS but Buffet's investment in GS was (although not immediately) a big turning point for that firm. Buffet is Mr. Stock Picker, sure - but at this point in history he's also Mr. Plugged-In and that's important to how others percieve his investment decisions. I know it hurts but BAC has essentially taken Cramer's advice (find a billionaire to vouch for you) and it just might do the trick.
I feel so dirty and unwashed
The secret is to bang the rocks together, guys!
Don't yer cave have running water?
Buffett is actually pretty smart...He realizes, its in his best interest to keep this crooked game of Monopoly going..So appease the peasants saying, he should pay more taxes and being O'bama's pet...He wants to be spared when the peasents do eventually storm the Bastille!!
Only thing this did was fill the BAC gap on 8/8. We can now proceed lower....
.
Dodd/Frank set up a structure to bail out the TBTF banks so this is a no lose situation for Buffet. And he has the cash earning 0% now. 6% with a warrent kicker seems like a decent return during a depression.
I give TPTB credit for yet another nice try. Guess the hope was that the retail lemmings would hear "Buffett" and call their brokers to pile back in. At least the market isn't buying this BS anymore. As Tyler said it best on Twitter-- "Is this going to be the shortest bailout half life in history?" Brilliant.
amazing...talk about insider trading....Buffet wants more taxes...but he also want to spend his money his way..lol...I wonder how much Obama's campaign will get....We don't need a bailout....but we just gave the Oracle a great bailout deal...lol....Greece....unemployment.....and gold is down....I think I have gone into loonie mode....I fell like Papillon asking the guy next to him in the other cell....."how do I look"....I feel crazy...I can't understand one thing that is going on...Tomorrow I expect Bernanke saying gold is illegal...
Welcome to my nightmare...
BAC has a 267B residential mortgage portfolio, mark that down 2% and there goes 5.6 Billion..Or how about those 80 Billion in 2nd Mortgages??? Where you think those are marked???
Mark it to market...and it goes down $56B.
Wow.....CNBS is on full-on "propaganda mode" this morning. Anyone listening in the past hour would think Buffett just saved America. Cramer is beyond delusional in his euphoric response. Becky Quick was having a near-orgasm on the telephone with her baby crying in the background, having just talked to her love-interest, Warren. Melissa Lee suggeted this marks "the bottom" in financials. Yeah, Melissa, just as the bottom was in when Warren bought into GE and GS back in 2008? Is that what you mean? How did that work out for everyone?
Of course, all the talking heads are agreeing. No contrarians on CNBS this morning. And then, suddenly, the market reverses course and is down 60. Par for the course.
You must be a glutton for punishment. Disconnect CNBC a.s.a.p. if you know what is good for you. And when the cable company calls 500 times asking why you quit, you will get great satisfaction sharing your opinion of the msm.
LOL! Nugget! I got this image of Becky rubbing her knees together and squirming around in her chair--much better than actually watching TV!
i guess these experts know something tyler doesnt ;)
http://blogs.barrons.com/stockstowatchtoday/2011/08/24/analysts-say-enough-on-bac-citi-selloff/
I wonder at what pace is JP selling now? :)))
Harrisburg, PA may miss $3.3million bond payment.
http://www.bloomberg.com/news/2011-08-25/harrisburg-pennsylvania-may-not...
no problem, just call uncle Warren
The muni/state crisis is only just beginning
This is insane. This man has a conflict of interest and has taken enough from taxpayers in bailout money. Get this a$$hole the hell out of our lifes.
THE FUCKING COCKSUCKER HAS SO MUCH MONEY TO LOSE....WHY WOULD ANYONE PAY ATTENTION TO HIM? HIS TRACK RECORD SUCKS....
+1 for the back boobs.
Thanks Homie....only at Wal-Mart....who the fuck would go outside looking like that?? morbidly obese is the medical term....
What a joke. Paying 6% to Buffett while the taxpayer earns 0% off the money it loans BAC? $5B is nothing compared to the exposure at BAC. If the market was actually efficient, the common shares should tank as a result of this deal. Its obvious they are getting scammed.
Tyler David Faber just read your bullet points on Buffett's last few investments in GS and GM. And not even the courtesy of a reach around.
so this just confirms that BAC was on the verge of failure........and ........even though it is a preferred investment, does this not signal that there will be NO new QE3?..........why would you want to invest new funds in a bank if there was the prospect of new curve flattening in the system?
It does change something. It defines the time frame we are in with respect to a 2008 repeat.
Now where did they put that triangle? Oh yeah, right about here. If this is right, get your Dow 10k hats out.
Germany Fin Min Schaeuble says Current US mentality not a model for solving today's problems.
http://www.fxstreet.com/news/forex-news/article.aspx?storyid=a25d1b3e-b2...
You can be sure a big part of Berkshire’s strategy is the belief that a total demise of BAC will be prevented by the government if necessary. The investment may have a low probability upside, but, that’s still a good deal when it also has a zero probability downside. It’s just a more subtle version of privatizing profits and socializing losses which is now baked into every deal in the financial sector. And, as others have already pointed out, these are deals that are only available to a chosen few at the top.
Buffett himself admits this is what our markets have come to: “There is class war in America, and my class is winning.” I wonder how many shares of Berkshire the top execs at BAC own?
Today I had already 4 calls from investment companies with "incredible oppurtunities".
I must all be going pretty good on the stockmarket side when the hustlers start stalking again...
I think I'll start to listen to the next call to see which stocks I should start shorting.
I have a good investment opportunity for you! Eat more sausages, drink more beer!
BAC!! NOW AM GONNA SHORT THIS SUCKER DOWN TO ZERO!!
Hopefully, Buffet will get his ass handed to him on this one and he will shut the f*ck up and go away. Of course here in ponziland, I am sure there are implicit guarantees by the debt brotha that allowed him to essentially throw $5 billion in FRNs into the black hole that is BAC with little risk...I can't wait until he is out there broke, talking about how he should have bought gold.
EU markets completely in the ditch, US markets to follow
Just bitchen!
Barama goes to MSM CONcast ceo to insure the NBC's, even Mr Maddows pMSNBC pump the correct propaganda.
Then Barama "I didn't come to bailout fat cat bankers" has his buddy finance czar Buffet bail the fat cat BAC and all is well.
Buffett invested in Bank of America for the same reason that he provided Goldman Sachs a life line. It’s because he knows which strings are attached to the public purse; this ultimate insider can use taxpayer money to recoup his lifesaver investment later when the bailouts arrive (like Goldman’s).
Tomorrow's headline: Buffett to buy City of Harrisburg, PA.
Buffet to buy USA.
.
And Folks: Do you know WHY Buffett's bailout was done now as opposed to before or never??
News flash: Administration is planning to unveil a new housing market bailout in the form of foreclosure prevention through massive mortgage refinancing of the 1 in 5 US homeowners who can't refi because their house is underwater
Again, Warren is leveraging his DC connections, not doing this out of any kindness. And he's profiting off the US taxpayer!
if I masturbate while watching CNBC and ZH is mentioned, does it count as a reacharound? Because whenever I watch CNBC I feel like I'm jacking myself off...
Reload Bac shorts on the back of ol Uncle Warren!
Why hasn't the justice department filed insider trading charges on David Sokol?
Tyler, haven't you been reading about the impending DC housing bailout?
The official leaks started yesterday, hence Uncle Warren's "perfect timing"
he had the NYT link in this mornings front running the whole plan is presented there
massive rental subsidy via conversion of foreclosed houses and associated impact on inflation data (understating)
massive refinance to the Feds soon to be announced duration twist
People should not underesitmate what Obama's grand deal will have in it when he announces after Labour day
free accomodation
free food and booze
free iPads
Another 'risk free' investment from Uncle Warren. 700 million 10 yr ATM warrants are worth how much? BAC just delaying the death spiral. $5 billion in preferred will keep the ship afloat for a few months, but with their 0ff Balance Sheet 'assets', the equity is worth nothing. Maybe the Obama meeting with Buffet was required to strong arm Warren-who knows. SOSDD
The only thing this foreshadows is Bernankes next move. This has little to do with BAC
No. It foreshadow's the next fiscal stimulus. DC is planning the next huge bailout of the housing market. THey're going to refi underwater homeowners to "prevent" foreclosure.
Buffett has waaay too much personal control at Berkshire...he is King Cnut commanding the waves of foreclosure to reverse in his idiotic purchase of BAC. I think he is like Pat Summitt and suffering early alzheimers.
When Berkshire has to pay up on the Irene hurricane damage to their insurance holders, Warren will be cashing in his BAC warrants at light speed.
Gold 2012 Dragons now on sale!
These bastards are running scared! I'm so tired of them bringing out Buffet to try and calm the masses! That old fart just needs to step back and let the chips fall where they may!!
Buffet only gets involved when there is a government backstop. BAC is being bailed out by the Fed/Treasury complex.
Berzerkshire holders better run. The ghost of Will Durant haunts us today.
Shockingly enough, the rally in BAC shares is sort of vanishing. When BAC shareholders look at the bad deal they got and also at the desperation of BAC management, well some may sell.
Dollars to donuts, BAC ends the day at $7.14. Buffet selling that baby down all day!
All will be well with BoA
Buffet loses it and thinks that after decades of experience -- drawing to inside straights is now a sound investment.
(Newsflash to the uninitiated -- you only draw like that when you know what the card is.. )
Clearly, Buffy has had the nod from the dealer.
Can all the hosts on CNBC just zip Buffet's pants down and deep throat him? I would actually be easier to watch that than listen to all this crap all day.
I wouldn't invest anything in BAC. They got a country-wide stance.
BAC earlier made a statement that they DO NOT need capital. Now when shareholders are cheated out of the value - is this deal by the board LEGAL?
Buffet gets the oppertunity to pay more taxes already. He deserved the granting of his wishes.
Heh Warren fancies himself as a J.P Morgan. No, not the bank named after him, THE J. P. Morgan who stopped the 1907 panic.
Amusing.
Though I'd put money on Buffet being the Fed's new public face with HeliBenny handing him the cash risk free.
ya say ya wanna revoLUTION
ya say ya wanna revoLUTION