Bank of America

[maxtower]

I read recently that Warren Buffet had bought some BAC. Does anyone have any insight on this? The company is a dividend achiever and is paying out 5% right now. I would like to hear your thoughts on the risks involved with this company given the current credit environment.

[tolbiny]

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I read recently that Warren Buffet had bought some BAC. Does anyone have any insight on this? The company is a dividend achiever and is paying out 5% right now. I would like to hear your thoughts on the risks involved with this company given the current credit environment.

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Credit environment is bad, but bankruptcies by competitors is good especially as it allows them to evaluate and purchase debt on the cheap.

[superadvisor]

Like countrywide

[jaydub]

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Like countrywide

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That was a loan.

J

[Uglyowl]

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Like countrywide

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That was a loan.

J

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Incorrect...

Bank of America invested in Countrywide nonvoting convertible preferred stock yielding 7.25% annually. The preferred can be converted into common stock, subject to restrictions on trading for 18 months, at a conversion price of $18 a share. A full conversion would give Bank of America a 16% to 17% stake in Countrywide's common shares, Mr. Mozilo said.

[jaydub]

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Like countrywide

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That was a loan.

J

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Incorrect...

Bank of America invested in Countrywide nonvoting convertible preferred stock yielding 7.25% annually. The preferred can be converted into common stock, subject to restrictions on trading for 18 months, at a conversion price of $18 a share. A full conversion would give Bank of America a 16% to 17% stake in Countrywide's common shares, Mr. Mozilo said.

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That was a loan 2B at 7.25%, 500M of which BAC got in the 5's from the discount window (which CFC was unable to go to).

It was not positive for CFC. Couple other notes from memory on the deal:

1. It puts BAC towards (but not at) the front of the line for assets in case CFC fails.
2. BAC has the option to match other buyout attempts (but cannot initiate one)
3. BAC is almost certainly hedged by shorting CFC.
4. $18 was about 3-4 beneath current trading value.

J

[pig4bill]

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Like countrywide

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That was a loan.

J

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Incorrect...

Bank of America invested in Countrywide nonvoting convertible preferred stock yielding 7.25% annually. The preferred can be converted into common stock, subject to restrictions on trading for 18 months, at a conversion price of $18 a share. A full conversion would give Bank of America a 16% to 17% stake in Countrywide's common shares, Mr. Mozilo said.

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That was a loan 2B at 7.25%, 500M of which BAC got in the 5's from the discount window (which CFC was unable to go to).

It was not positive for CFC. Couple other notes from memory on the deal:

1. It puts BAC towards (but not at) the front of the line for assets in case CFC fails.
2. BAC has the option to match other buyout attempts (but cannot initiate one)
3. BAC is almost certainly hedged by shorting CFC.
4. $18 was about 3-4 beneath current trading value.

J

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It's not a loan. They don't have to pay it back.

1. yeah

2. lol. As if anyone is that stupid, including BAC.

3. Shorting 110 million shares? Doubt it.

4. May be irrelevant, depending on the terms of the deal.

[maxtower]

Was this investment a positive for BAC? What is the likely scenario? They just earn 7.25% on their 2B?

[Fishhead24]

He also bought more of Burlington Northern on the speculation of ..........well, you know what.

[Ray Zee]

i am interested in this as well. there may be some big upsides for them in the longer term. i look longer out generally. has anyone done their homework.