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Buffett Needs to Send Bank of America (BAC) Another Life Preserver

December 19, 2011 10:41 AM EST
Bank of America's (NYSE: BAC) common stock is in desperate shape and the action is painting a picture which suggests things are "really that bad" at the behemoth bank. Things look so dire that Warren Buffett may need to step in again to help save face and to send a message to the market.

This time though, Mr. Buffett needs to buy the common stock -- not just preferred.

In August, Buffett's Berkshire Hathaway (NYSE: BRK-A) (NYSE: BRK-B) invested $5 billion in BofA, buying 50,000 shares of Cumulative Perpetual Preferred Stock with a liquidation value of $100,000 per share. The preferred stock pays a dividend of 6 percent to Mr. Buffett. The firm also received warrants to purchase 700,000,000 at at an exercise price of $7.142857 per share. These warrants are now over 29 percent underwater.

If Buffett bought BofA common stock directly it would send a strong message to the market and could get the stock off its back.

BofA's CEO Brian Moynihan should be sending smoke signals to the Oracle now to help the stock out. Moynihan for his part has been trying to sell non-core assets like crazy, all to no avail.

Shares of BofA are down 2.3 percent to $5.08 Monday after tapping a new 52-week low earlier at $5.01.


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