Thursday, August 25, 2011

Buffet's Berkshire (BRK-A) Props BoA (BAC)

Berkshire Hathaway (NYSE:BRK-A) announced it has invested $5 billion in Bank of America (NYSE:BAC), in a deal similar to the one Warren Buffett made when he invested in Goldman Sachs (NYSE:GS).

Some are spinning this as some type of patriotic move by Buffett, but that's a ridiculous and ignorant conclusion. Buffett knows the stock has been beaten down, and this is all about creating shareholder value and nothing else.

This is why Buffett likes to support the state interference in financial companies, as it makes it a sure bet to invest in when they are under pressure, knowing he is about as safe as he can be with the capital he invests.

Buffett's investment is in 50,000 shares of cumulative perpetual preferred stock, which will give a 6 percent annual dividend. Bank of America can acquire the stock back any time by paying a premium of 5 percent.

Berkshire also has the option of acquiring 700 million shares of Bank of America via warrant priced at about $7.14 a share. The company exercise the warrants any time over the next ten years.

Investors have been hammering Bank of America its mortgage loan portfolio, as it is believed the giant financial institution has billions left to deal with.

Bank of America was trading at $7.83, gaining $0.84, or 12.02 percent, as of 11:53 AM EDT.

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