|Warren Buffett (left) paid $5 billion for preferred shares that will earn him an annual dividend of 6 percent. George Soros (right) sold 1.2 million Bank of America shares in the second quarter.|
Bank of America draws some investors
But others are divesting its stock
NEW YORK - The smart money is split on Bank of America.
Big investors George Soros and John Paulson are selling shares of the nation’s largest bank. But Bruce Berkowitz, Thomas Brown, and other fund managers find the stock so attractive that they are buying up boatloads. Billionaire investor Warren Buffett also invested $5 billion in the bank.
So, who’s right? For now, the sellers are winning this bet. Bank of America Corp.’s stock plunged 44 percent in the third quarter. Yesterday it sank another 9 percent to $5.53, a level not seen since the financial crisis in March 2009. There has been customer backlash over a recently announced $5 fee on debit cards and a several-day website outage.
The Charlotte, N.C., bank has been crippled by losses from poorly written mortgages, especially those from Countrywide Financial Corp., the subprime mortgage lender the bank bought in 2008. It is also fighting a barrage of lawsuits from the government and other large investors who say the bank should either buy back billions of dollars of faulty mortgage securities or pay damages. In the first half of the year alone the bank paid out $12.7 billion to settle such claims.
The best-known seller is Soros, who sold 1.2 million Bank of America shares in the second quarter. Paulson and David Tepper of Appaloosa Management each sold half of their Bank of America holdings in the same quarter.
Other investors are enticed by the low price of the stock. At around $6 a pop, the shares of Bank of America are the cheapest among large US banks. Goldman Sachs Group trades above $90.
“Bank of America right now is very, very cheap,’’ said Thomas Brown, chief executive of hedge fund Second Curve Capital, who has been buying the stock in recent months.
Brown’s recent shift turned heads because he was one of the most vocal critics of Bank of America for years when he was a widely followed financial analyst at Smith Barney and Donaldson Lufkin & Jenrette.
Brown particularly disliked the bank’s strategy of pursuing growth via acquisitions.
“It’s poorly managed and it’s still too big, but getting smaller, which is a good thing,’’ he said.
Another optimist is Buffett, the renowned investor and chief executive of Berkshire Hathaway Inc. Buffett paid $5 billion for preferred shares that will earn him an annual dividend of 6 percent. He also gets the option to purchase 700 million shares of common stock at $7.14 per share. Buffett’s warrants are worthless for now.
Berkowitz, of Fairholme Capital Management, bought another 7 million shares in the second quarter for a total of 99 million, making him one of the 10 largest shareholders of the bank.
Berkowitz, who was named stock manager of the decade by research firm Morningstar Inc. last year, said he believes the bank has the ability to generate enough cash to be well capitalized.