Doug Kass: Brian Moynihan Got Fleeced By Buffett's BofA Bet
Producer
Bank of America CEO Brian Moynihan got fleeced by famed investor Warren Buffett, renown strategist Douglas Kass said Thursday.
"Buffett is a savvy wolf, who apparently stepped out of his bathtub wearing sheep's clothing and got Bank of America to do a deal at an extraordinarily heavy cost to capital," explained Kass, who serves as founder and president of Seabreeze Partners.
By his estimates, Kass said the cost of capital of Buffett's $5 billion of preferred stock is roughly 11 percent a year. Considering BofA borrows in the intra bank market at nearly 0 percent, Kass called the Buffett deal "ludicrous."
"It's far too expensive to prove to the markets that a smart investor, like Berkshire is confidant in the banks futures," Kass continued. "So either Moynihan lied a few days about about Bank of America's need for capital or he's plan stupid for doing the deal."
Investors should sell Bank of America and buy Berkshire, Kass said. Berkshire is a company that buys low and sells high. Kass himself sold his Bank of America shares Thursday and put the profits to work in other financial names, like SunTrust and PNC .
(Poll: With Buffett's Latest Move, Would You Buy BAC?)
Bank of America shares soared almost 10 percent Thursday after Berkshire Hathaway said it will invest $5 billion in the bank. BofA shares have been hammered more than 30 percent in 2011. During the height of the financial crisis, Berkshire Hathaway stepped in to bolster Goldman Sachs in a similar manner.
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