Kass: Bank of America Got 'Fleeced' by Buffett

Friday, 26 Aug 2011 09:13 AM

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Bank of America officials may be applauding Warren Buffett's $5 billion investment in the bank, but a closer look at the details shows the legendary oracle of Omaha is the real winner in the deal, says investment manager Doug Kass.

Buffett will make a 10.5 percent annual return on his Bank of America investment when taking into account the value of his stock options, Kass says, according to Business Insider.

All told, Buffett’s deal with Bank of America is equivalent to buying the stock for $4 a share.

"Moynihan got fleeced by Buffett, the savviest of wolves who slipped out of his bathtub wearing sheep’s clothing," Kass says, referring to the bank's CEO Brian Moynihan.

Experts say Buffett is looking like a lender of last resort to the bank should it need the money.

"This proves to the market that if the bank needs additional capital, which we don't believe they do, but if they needed to calm the market by raising capital, they could do it within 30 minutes with a quick call to Uncle Warren," says Sean Egan, managing principal of Egan-Jones Ratings, according to Reuters.

Others agree that despite the image that Buffett is helping out another American institution, that the move isn't charity in that it will turn a profit.

"He's not doing it out of charitable motive or even out of a concern for the safety and soundness of the financial system," says Robert Reich, who served in three U.S. governments, most recently as Secretary of Labor under President Bill Clinton, according to Reuters.

"He's got a lot of shareholders and they depend upon him to maximize the value of their investments."

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