Bloomberg News

Buffett Pulls Off What Berkowitz, Moynihan Couldn’t for BofA

August 25, 2011

(Adds Berkowitz’s comment from Aug. 1 in penultimate paragraph.)

Aug. 25 (Bloomberg) -- Warren Buffett and Meredith Whitney pulled off what Bruce Berkowitz and Brian T. Moynihan couldn’t by generating some investor interest in Bank of America Corp.

Bank of America climbed 11 percent yesterday after Whitney, the bank analyst, said in an interview on Bloomberg Radio that the lender has no urgent need to raise capital. Buffett’s announcement today that he’ll invest $5 billion in the biggest U.S. lender pushed the stock up as much as 26 percent before it eased back to a gain of more than 9 percent.

The surge compares with the 11 percent decline on Aug. 10, when Berkowitz hosted an open conference call with Moynihan, the Charlotte, North Carolina-based bank’s chief executive officer, in an effort to reassure investors in Berkowitz’s Fairholme Funds that his big bet on Bank of America wouldn’t be a costly loser.

“Warren Buffett would have more of an impact than almost everyone else by doing a transaction like that,” said Stewart Massey, chief investment officer at Massey, Quick & Co. in Morristown, New Jersey, which manages more than $3 billion on behalf of endowments, foundations and wealthy clients. “Buffett just has that aura around him that you know make people say ‘Wow I wish I could have structured a deal like that.’”

Fund Down 26%

Berkowitz, founder of Miami-based Fairholme Capital Management LLC, added 7 million shares of Bank of America in the second quarter of the year, bringing his stake to 100 million shares, or $1.1 billion, as of June 30, regulatory filings show.

Bank of America gained 66 cents, or 9.4 percent, to $7.65 at 4:15 p.m. in New York Stock Exchange composite trading. The shares rose 21 percent in the past two days, while losing 43 percent for the year.

Hedda Nadler, a Fairholme spokeswoman, declined to comment on the firm’s Bank of America investment.

Berkowitz, 53, whose Fairholme Fund managed $14.7 billion as of June 30, lost 26 percent this year after betting on a rebound in financial stocks, which comprise 91 percent of its holdings. The value of Fairholme’s holdings in financial stocks rose 8.2 percent in the second quarter, according to data compiled by Bloomberg.

“Our inclination remains to run from the popular and embrace the hated where prices tend to reflect such mistrust,” Berkowitz wrote in a report published Aug. 1. “Often, we are ahead of the crowd, too early, and appear wrong for a time.”

Under today’s deal, Buffett’s Berkshire Hathaway Inc. will get cumulative perpetual preferred Bank of America stock paying a 6 percent dividend, as well as warrants to buy 700 million common shares at $7.14.

--Editors: Steven Crabill, Josh Friedman

To contact the reporter on this story: Gillian Wee in New York at gwee3@bloomberg.net

To contact the editor responsible for this story: Christian Baumgaertel at cbaumgaertel@bloomberg.net


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