This is fun.
There is a rumor circulated on Wall St. that JP Morgan will take over Bank of America within the week. The government will support the deal with a $100 billion investment in preferred shares issued by the combined entity. Alternatively, the government may guarantee the value of a large pool of Bank of America assets. The word is that Treasury Secretary Geithner has discussed the transaction with JP Morgan CEO Jamie Dimon.The “merger” would completely destroy the value of BAC’s common shares. --McCain quoting BizInsider
So the question: did Buffett buy common stock in WF or preferred?
Sounds like bullshit to me.
ReplyDeleteBS or not, the common shares would not become worthless.
ReplyDeleteIf true...the feds back 100B in guarantees the common stock would still be adjudicated against 200B in assets. Plus investors would know that the feds are their to guarantee solvency. Figure IF it's true, at least $14 a share which is double it's current value.
If not true...speculators are going to snap it up on the chance it's true and drive it up to 11 or 12 a share.
Tell that to those that held Kmart common before the re-org. $7 Billion in assets and less than $2 Billion in liabilities should equal $5 billion in existing shareholder equity.
ReplyDeleteActual final result was cancellation of all common shares and Wall Street and company insiders stealing the $5B.
Same thing would happen here. Why would JP go into this without a huge upside? The equity will all go to Wall Street and to JP. Current shareholders will be stiffed. Always happens that way.
Art
You can't have insolvency without a bank run. Deposits are flooding into B of A not out. Investors can't hit the stock as much as they want. Until deposits evaporate, B of A had plenty of cash to cover short, medium term guarantees. Imo.
ReplyDeleteHello?
ReplyDeleteB of A's RE assets are in terrible shape. Mark-to-market would have an effect, and if the rumor's correct, it would be a near-$100Bn effect.
B of A's assets MIGHT be in terrible shape. I'm not disagreeing that this is a possiblity Dadster. All I'm saying is that the stock getting hammered isn't enough to force Uncle Sam into the mix. They do have quite a bit of cash on hand to cover short term loans if they get called in.
ReplyDeleteBUT if Uncle Sam must get into the mix, the taxpayer better get a FAR better deal then 3 years ago.
On a side note, forced, temporary nationalization (which you hammered me for advocating 3 years ago) would have resolved these issues by now any we would have a banking system that was working towards improving the economy instead of blowing it up again. We wouldn't be worrying so much about what garbage Bank X has on it's balance sheet that's for sure.
Buffet just purchased $5,000,000 in preferred stock. Considering how crooked that man is--in conjunction with the current Administration--I would have to postulate a deal in the works.
ReplyDelete$5,000,000,000 is his intent, not $5MM.
ReplyDelete"Forced nationalization" differs from "more-or-less-forced-merger" in degree....especially since JPM gets $100Bn in "help."
ReplyDeleteBK would be just fine with me; Buffet's $5Bn should be at risk, just like the Chrysler bonds. Getting rid of the bozo "management" at B of A (and a number of others) would be very salutary, indeed.
But FDIC cannot afford another bust. Why do you think they're letting Anchor Bank live?