Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

Strategies & Market Trends : 2026 TeoTwawKi ... 2032 Darkest Interregnum -- Ignore unavailable to you. Want to Upgrade?

To: TobagoJack who wrote (78542)	8/26/2011 4:31:23 AM
From: elmatador	Read Replies (1) \| Respond to of 217749

Buffett deal is a confidence booster in the banking sector. Why? Without QE3 European banks -heavily dependent on Dollar funding- will dive. Thus Buffett is a preventive action.

To: TobagoJack who wrote (78542)	8/26/2011 9:18:55 AM
From: 2MAR$	Read Replies (1) \| Respond to of 217749

Bank of America Got Fleeced: Doug Kass businessinsider.com Bank of America’s stock doesn’t seem to mind getting a $5 billion cash injection from Warren Buffett, but there is plenty of doubt out there about whether the bank got a good deal. Along comes Doug Kass, never shy with the emails, who writes that it flat-out got fleeced (while admitting he’s long Bank of America stock): By my calculation, Berkshire Hathaway is receiving an annual rate of interest on its $5 billion investment of about 10.5%, when incorporating the value of the attached call options on top of the 6% annual dividend on the preferred and the redemption premium of 5%. Assuming BAC’s share price is at $7.72/share and a 45 vol, a 10-year option on 700 million shares of BAC that mature on Sept. 1, 2021, that are exercisable at $7.14/share is valued at about $3.40/share (times 700 million shares), or about $2.4 billion! Add another $250 million of redemption premium — that makes $2.650 billion in value (or immediate profits today!) incurring to Berkshire. In other words, the current value of the warrants — taken over the 10-year period — provides an additional 4.5%-per-year return on top of the 6% dividend on the preferred, for a total cost of capital per year to Bank of America of nearly 10.5%. (Taken another way, deducting from the exercise price of $7.14/share the value of the call option ($3.40/share) means that Berkshire Hathaway may be paying, if exercised, less than $4/share for BAC!) If Bank of America didn’t need the extra capital (as CEO Brian Moynihan reportedly told Warren Buffett), was the imprimatur of Berkshire Hathaway really that valuable? From my perch, Moynihan got fleeced by Buffett, the savviest of wolves who slipped out of his bathtub wearing sheep’s clothing. Say it ain’t so, Brian Moynihan! You have a lot of ‘splaining to do.