Bank capital: BofA sells CCB stake, takes Buffett’s cash
Buffett instils confidence but at what price?; Deals positive signs for bank capital-raising
Chief executive of Bank of America, Brian Moynihan, has been trying to pull the bank out of pending capital woes by selling assets and accepting an injection of money from Warren Buffett. In the second half of August, Bank of America announced a $5 billion cash injection from Buffett’s firm, Berkshire Hathaway, in return for preferred stock in the bank. That stock pays a 6% annual dividend. The deal also gives Buffett warrants to buy $5 billion of common stock, meaning he could end up owning 6.5% of the company.
Bank of America has posted losses in three of the past five quarters, including a $6.7 billion loss in the first half of 2011, and has been losing investor confidence. On the day of the news of the cash injection, the bank’s stock rose 10%. Glenn Schorr, analyst at Nomura, referred to Buffett as Bank of America’s "white knight".
In his report following the announcement, Schorr said: "The injection of $5 billion from Buffett should dampen the heightened volatility in recent trading of BAC stock and its CDS, and we think it is a clear vote of confidence for the stability of Bank of America’s franchise."