Bloomberg News

Tepper, Kingdon Exit Bank of America Stakes as Buffett Invests

November 15, 2011

Nov. 15 (Bloomberg) -- Appaloosa Management LP’s David Tepper, hedge fund manager Mark Kingdon and Lansdowne Partners Ltd. cut bets on Bank of America Corp. in the third quarter as Warren Buffett’s Berkshire Hathaway Inc. invested in the lender.

Tepper, who counted Bank of America as his largest holding last year, sold his remaining 10 million common shares in the period as Kingdon, founder of Kingdon Capital Management LLC in New York, disposed of all 11.5 million, regulatory filings yesterday show. In September, Berkshire bought $5 billion of preferred stock with a 6 percent dividend and received a warrant to buy 700 million Bank of America shares.

The changes in holdings show how some of the world’s most influential investors disagree about the wisdom of investing in the Charlotte, North Carolina-based company. The lender, led by Chief Executive Officer Brian T. Moynihan, plunged more than 50 percent this year amid investor concern that it may sell shares to replenish capital after it booked about $40 billion of expenses tied to faulty mortgages.

“I don’t know in the world of high finance if anyone feels like they have the time horizon that Buffett has or if they feel BofA can produce the level of returns that can be made elsewhere,” said Douglas G. Ciocca, CEO of Kavar Capital Partners LLC in Leawood, Kansas, which manages about $225 million in assets. “I’m not sure investing in BofA is the best use of your capital.”

Lansdowne Partners, founded in 1998 by Paul Ruddock and Steven Heinz and now Europe’s largest equity hedge fund, sold all of its 5.08 million Bank of America shares in the three months ended Sept. 30. Highfields Capital Management LP, the Boston-based hedge fund run by Jonathon Jacobson, also eliminated its holdings.

Berkowitz’s Bet

Other investors trimmed their Bank of America holdings in the third quarter, filings show. Odey Asset Management LLP, the London-based hedge fund founded by Crispin Odey, reduced its holding by 78 percent to end the period with 820,000 shares, while Dallas-based Carlson Capital LP, a $6.5 billion hedge fund, cut its stake by 98 percent to 110,400 shares.

Among investors betting on Bank of America is Bruce Berkowitz, founder of Miami-based Fairholme Capital Management LLC. He added 5.36 million shares in the third quarter and held 105 million as of Sept. 30, according to a filing. In August, Berkowitz organized an open conference call with Moynihan to reassure investors his bet on Bank of America would pay off.

Bank of America fell 2.6 percent to $6.05 yesterday. The shares plunged 44 percent in the third quarter, making it the second-worst performer in the 24-company KBW Bank Index, which slid 27 percent. Regions Financial Corp., based in Birmingham, Alabama, dropped 46 percent in the period.

10-Year Warrant

Berkshire’s warrant to buy 700 million Bank of America shares at about $7.14 each may be exercised until Sept. 1, 2021, and the lender can redeem the preferred stock at any time for a 5 percent premium, according to an Aug. 25 statement.

“None of the hedge funds, even with the size of the capital they control, are powerful enough or have the ability to pull one of the grandstand private-placement type deals that Buffett can command,” Kavar Capital’s Ciocca said yesterday in a phone interview. Berkshire’s injection may have discouraged other investors because the deal had “too much similarity” to crisis-era investments, he said.

In 2008, Buffett helped prop up Goldman Sachs Group Inc. with a $5 billion investment that has since been repaid.

The chairman and CEO of Omaha, Nebraska-based Berkshire dreamed up the Bank of America investment while soaking in the bathtub and had his assistant contact Moynihan’s to get the banker’s private number, CNBC reported on the day the deal was announced, citing an interview with Buffett.

‘I Wanted to Invest’

“Bank of America is a strong, well-led company, and I called Brian to tell him I wanted to invest,” Buffett, 81, said in the August statement. “I am impressed with the profit- generating abilities of this franchise, and that they are acting aggressively to put their challenges behind them.”

Moynihan has been shutting branches and selling assets, including most of his firm’s stake in China Construction Bank Corp., as the U.S. lender prepares for capital rules set by the Basel Committee on Banking Supervision. He said in September that he would eliminate about 30,000 jobs after consumer- protection rules squeezed revenue from debit and credit cards.

Berkshire, the largest shareholder of San Francisco-based Wells Fargo & Co. and New York-based American Express Co., invested in other financial firms this year. Berkshire acquired 2.29 million shares of Visa Inc., the world’s biggest payments network, in the third quarter after buying a stake in No. 2 MasterCard Inc. earlier this year.

Buffett’s company added 9 million Wells Fargo shares in the three months ended Sept. 30, bringing the total investment to 361.4 million shares, valued at about $9 billion based on yesterday’s close. Berkshire also holds 69 million shares of Minneapolis-based U.S. Bancorp valued at $1.76 billion.

--With assistance from Charles Mead, Dawn Kopecki, Andrew Frye and Saijel Kishan in New York and Jesse Westbrook in London. Editors: Peter Eichenbaum, Dan Kraut

To contact the reporter on this story: Dakin Campbell in San Francisco at dcampbell27@bloomberg.net

To contact the editor responsible for this story: Rick Green at rgreen18@bloomberg.net


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