Thursday, August 25, 2011

Bove Says BofA (NYSE:BAC), Buffett Deal Sucks

According to Rochdale Securities analyst Dick Bove, the deal by Bank of America (NYSE:BAC) CEO Brian Moynihan allowing Warren Buffett's Berkshire Hathaway (NYSE:BRK-A) to invest $5 billion in the bank, harms both Moynihan and the giant bank.

Bove said, "He's gone back on his word. That is, I think, a big negative given his credibility is under such question. Now why did he do it? He did it because he needed to buy credibility." Its "a terrible, terrible deal," concludes Bove, "There's no way the bank can make money."

Essentially Bank of America is buying Buffett's endorsement for approximately $300 million annually. That doesn't include the warrants to acquire 700 million shares of Bank of America stock at just over $7.14 a share. Buffett could cash them in now for a nice profit, as the bank is trading at $7.69 a share, as of 12:38 PM EDT.

In response to Bove's criticism, Bank of America's Moynihan released a statement saying this:

"I remain confident that we have the capital and liquidity we need to run our business. At the same time, I also recognize that a large investment by Warren Buffett is a strong endorsement in our vision and our strategy."

My question is why didn't Moynihan just say right out that the bank has the capital and liquidity, not that he was "confident" they did?

No comments: