ikkyu2 (99.51)

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August 30, 2011 – Comments (5) | RELATED TICKERS: BAC , BRK-A

I promised in this space - around January 2011 or so - that I'd be holding BAC and C for 2 years, or until the story significantly changed; that I wouldn't sell on price movement alone, that I'd hold on the thesis of future profits related to the eventual economic expansion and the market share they gained during this downturn.

No new information has come to light about these banks' balance sheets, but they've taken a 60% and 50% price cut.

And then Buffett stepped in and did his thing.

I've been gritting my teeth trying not to call this a significant change in the story.  But I think it is; I think the management of BAC just paid Berkshire a lot of money - no one knows how much, maybe billions of dollars - to get the use of Warren's good name (and his $5B in capital.)

BAC can access capital at the freakin' discount window for 0.25%.  Why is it using Berkshire's capital at 6% per annum, plus 700 million warrants strike price $7.14?  That's a hefty spread - unlimited upside for BRK in fact -and the only thing BAC is getting out of it is the reputational boost; Warren doesn't park $5 billion dollars somewhere if he thinks he's going to lose it.

Why did BAC need Buffett's good name?  What are they trying to paper over?

I'm still holding BAC - my molars wearing down all the while - but I see this latest development on balance positive for BRK, negative for BAC, extremely negative for the common schmuck shareholder who just took a 50% haircut on his stake and now is told that certain other special shareholders will get a 6% preferred dividend effective immediately.

Like the Roots, ain't saying nothing new.