Fox News “Speculates” Buffett Investment Intended To Help Obama

Varney: “I Don't Want To Get Conspiratorial” About Investment, But Does Anyway. Fox Business host Stuart Varney said of Buffett's investment, “I don't want to get conspiratorial, but is it possible that the president had a quiet word with Warren Buffett and said, why don't you go over there and help out Bank of America and maybe help yourself as well?” [Fox Business, Varney & Co. At Night, 8/25/11]

O'Reilly “Speculates” That Buffett Invested In Bank Of America To Help Obama. Discussing Buffett's deal on The O'Reilly Factor, Bill O'Reilly commented on a phone call between Obama and Buffett: “We have to speculate, and that's all we can do because we aren't privy to the call and the White House made no information about that call public. But we have to speculate that that call had to do with Bank of America” because the deal is “helping President Obama.” [Fox News, The O'Reilly Factor, 8/25/11]

Bolling And Crowley Suggest Obama Asked Buffett To Make Investment. Discussing the investment on The Five, co-hosts Eric Bolling and Monica Crowley stated:

CROWLEY: [W]hat was reported today was that Obama had called Warren Buffett prior to making this deal, saying, look, B of A is really stuck in salt here --

BOLLING: Needs some help. Needs some help.

CROWLEY: -- and it needs some help. So that tells you this is crony capitalism.

BOLLING: Two quick thoughts, Bob, very quickly. Mr. Obama made a phone call on his Martha's Vineyard vacation, Buffett was one of the phone calls he got -- I guess yesterday or the day before. And the other one is Buffett's holding a big fundraiser for Obama, I think it's 10,000 bucks to get into that fundraiser. I don't know, it seems too crony to me. [Fox News, The Five, 8/25/11]

But The Investment Follows Buffett's Long History Of Investing In Banking Companies

LA Times: “Buffett Has Been An Enthusiastic Investor In Major Financial Companies, Often During Time Of Distress.” The Los Angeles Times reported:

Warren Buffett is known on Wall Street for his Midas touch, and nobody is more thankful for that these days than Bank of America Corp.

Berkshire Hathaway Inc., Buffett's investment company, agreed Thursday to sink $5 billion into the beleaguered financial giant. The deal helped allay fears that America's biggest bank needs a fresh infusion of capital to withstand mortgage losses and another downturn in the economy.

The investment casts the Oracle of Omaha in a familiar and favorable light, tossing a lifeline to an American icon in need. He made similar moves during the financial crisis for Goldman Sachs and General Electric.

[...]

Buffett has been an enthusiastic investor in major financial companies, often during time of distress. In addition to Goldman, he previously has taken major stakes in Wells Fargo & Co., American Express, Bank of New York Mellon and several regional banks. [Los Angeles Times, 8/25/11]

Buffett Said The Investment Was His Idea

Buffett Told CNBC The Investment Was His Idea. From CNBC's report on Buffett's investment in Bank of America:

Buffett is also stressing the investment was his idea, perhaps to downplay any fears that Bank of America is desperate for a cash infusion.

[...]

Buffett tells us he came up with the idea of an investment while taking a bath earlier this week, and he asked BofA CEO Brian Moynihan yesterday if Berkshire could do the deal. [CNBC.com, 8/25/11]

And The Investment Is Being Lauded As A “Guaranteed Profit” For Buffett

NY Times' DealB%k: Buffett Is “Getting A Guaranteed Profit.” The New York Times' DealB%k financial blog reported:

Warren E. Buffett is among the nation's best deal-makers, and in the $5 billion investment he struck with Bank of America, he's getting a guaranteed profit.

Under the terms of the deal, Mr. Buffett's Berkshire Hathaway will receive 50,000 perpetual preferred shares. That stock carry a 6 percent annual dividend payable quarterly, meaning that Bank of America will be sending about $300 million a year to Berkshire's headquarters in Omaha.

Put another way, Berkshire will be earning $821,917.81 a day, or $9.51 a second. All in all, not a bad way to spend $5 billion, especially when Berkshire had $47.9 billion in cash and equivalents as of the end of the second quarter.

Berkshire will also receive 10-year warrants that can be converted into 700 million common shares in Bank of America, at a strike price of about $7.14. (To be exact, $7.142857.) As of Thursday afternoon, that meant an immediate paper profit of $392 million on the warrants, based on Bank of America's stock price of $7.70. [The New York Times, DealB%k, 8/25/11]

Reuters: Buffett's Company Will Instantly Earn Nearly $3 Billion In Profit From Deal. Reuters reported:

INSTANT RETURN

For Omaha-based Berkshire Hathaway, it is a better deal.

Berkshire gets warrants to buy 700 million shares of common stock at just over $7.14 per share, with an unusually long 10-year exercise period. One Berkshire holder said the warrants were by far the best part of the deal.

“He could well make a 100 percent return on his investment in a few years,” said James Armstrong, president of Henry H. Armstrong Associates. “It's amazing how much a little hug from Buffett is worth these days.”

Linus Wilson, an assistant professor of finance at the University of Louisiana at Lafayette, who has studied the pricing of warrants for large bank stocks, said warrants were worth $3.17 billion before the deal was announced, while the $5 billion of preferred shares were worth $4.46 billion, giving Buffett a total paper profit of $2.63 billion at the outset of the deal. [Reuters, 8/25/11]