Warren Buffett's conglomerate Berkshire Hathaway said it would invest $5 billion in Bank of America, sending the bank's stock surging 20 percent and lifting the entire financial sector.
Bank of America said in a statement on Thursday it would sell Berkshire 50,000 shares of cumulative perpetual preferred stock with a 6 percent annual dividend.
TOM RUSSO, PORTFOLIO MANAGER, GARDNER RUSSO & GARDNER, LANCASTER, PENNSYLVANIA (OWNS ABOUT $500 MILLION OF BERKSHIRE SHARES)
It's a reasonably priced deal for Buffett. It's opportunistic. And the only concern I would have as a shareholder is whether it ties up capital in a way that prevents Berkshire from finding another better deal down the road. But there aren't a lot of great opportunities in this environment, and by the time another opportunity comes around, Berkshire would have built new capital through its insurance income. And if they were stretched, they could always sell some public equity holdings that don't have a strategic impact.
Bank of America is willing to strike a deal that might end up being overly generous to the buyer, because of management's belief that this deal might repair the reputational hits the bank has repeatedly suffered from. It's a chance to build back their reputation.
MARSHALL FRONT, CHAIRMAN OF FRONT BARNETT ASSOCIATES LLC,
(Buffett) is cash-rich. This is not surprising given his history of being able to find companies whose debt and equity are not valued correctly.
The key here is that Buffett perceived again a mispricing... as others were cowering in the corner.
MARTY MOSBY, LARGE-CAP BANK ANALYST AT GUGGENHEIM PARTNERS, MEMPHIS
This is a vote of confidence in the stock. This gives some soundness and stability to the shares and infuses some argument on the other side, the positive side.
Uncertainty and fear in the market have biased the stock downward, but now this shows someone saying the stocks have been down too much, that they have enough common equity to persist through their problems.
This doesn't fix any of the problems at the company, but it starts to fight back against some of the overblown anxieties against the stock.
JASON WARE, EQUITY ANALYST AT ALBION FINANCIAL GROUP, SALT LAKE CITY
Huge news. May change the trajectory of BAC, of the money center banks in general. Prince Al-Waleed did the same thing in the early 90s with Citigroup when that bank was up against difficulties.
Buffett's large investment is a vote of confidence in BAC balance sheet, management team and prospects.
NANCY BUSH OF NAB RESEARCH, AN INDEPENDENT ANALYST COVERING BANK STOCKS, ANNANDALE, NJ
This stock had gotten beaten down by the shorts, the high frequency traders and the rumor-mongers until it was just an unbelievably attractive value. Warren Buffett wouldn't buy it unless he saw great value.
Perhaps even more than the capital, the imprimatur of Buffett will build confidence in BofA. This investment will encourage other similar investors, who may have been staying away, to take a closer look.
I welcome this deal: the banking industry needs consolidation among the smaller players and we need private capital to come in.
KEITH DAVIS, BANK ANALYST AND PRINCIPAL AT MONEY MANAGER FARR, MILLER & WASHINGTON, WASHINGTON DC
With the balance sheet the Bank of America has and the huge cache of reserves and much more capital than they had going into this crisis a few years ago, it doesn't surprise me that Buffett has recognized that there's value here.
It could cause a pretty significant rally in the whole sector. To have Buffett step in on Bank of America, which has been so troubled, that says volumes about what he thinks is ultimately going to happen in the housing market, and that the issues that banks are facing right now are solvable.
JON FINGER, MANAGING PARTNER OF FINGER INTERESTS, HOUSTON
This helps with the credibility gap that I think has existed in the minds of some shareholders. It reiterates the point that the balance sheet is healthy. They needed an endorsement in the market and they got it.
PAUL HARRIS, PORTFOLIO MANAGER AT AVENUE INVESTMENT MANAGEMENT, TORONTO (MANAGES C$250 MILLION ($255 MILLION) IN ASSETS)
Maybe they (BofA) felt they wanted more capital and a bigger buffer... but I guess my view is that they're not diluting common shareholders again to do it. And they're doing it to the right person (Buffett) because he understands the banking industry.
SEAN EGAN, MANAGING DIRECTOR AND PRINCIPAL, EGAN-JONES RATINGS IN HAVERFORD, PENNSYLVANIA
This proves to the market that if the bank needs additional capital, which we don't believe they do, but if they needed to calm the market by raising capital, they could do it within 30 minutes with a quick call to Uncle Warren.
MALCOLM POLLEY, CHIEF INVESTMENT OFFICER AT STEWART CAPITAL ADVISORS, PITTSBURGH
I think he's being pretty opportunistic but that's classic Buffett.
He's not going to make a preferred investment in a company he doesn't think is going to be around. This gives him a pretty certain return.
JACK KAPLAN, MANAGING DIRECTOR AND PORTFOLIO MANAGER OF CARRET ASSET, NEW YORK
It's definitely confidence-inspiring for sure. The rate he's getting is not as generous as the one that GE and Goldman Sachs paid, which says a lot.
It's not surprising that Bank of America needed this investment given the news that's been swirling around, but the premium is not a crisis-level premium.
GARY TOWNSEND, CEO, HILL-TOWNSEND CAPITAL, CHEVY CHASE, MARYLAND
It is very much in character with what we've seen from Berkshire in the past. It's a preferred investment.
I think it's a confidence builder for the entire financial sector.
It's interesting how it comes right before the Jackson Hole presentation by Bernanke.
BRUCE BITTLES, CHIEF INVESTMENT STRATEGIST, ROBERT W. BAIRD & CO, NASHVILLE
It comes as a surprise because the stock was languishing... I think it's a positive in that markets had lost a lot of confidence.
Financials have been at the heart of the decline all year long. They have underperformed. The bigger story is it should give the average investor more confidence.
(Reporting by Lauren Tara LaCapra, Clare Baldwin, Ashley Lau, Dan Wilchins, Jonathan Spicer, Joseph Giannone and Ryan Vlastelica in New York and Joe Rauch in Charlotte; Editing by Chris Kaufman)