Despite having recently told investors Bank of America doesn't need to raise capital, CEO Brian Moynihan will accept $5 billion in capital from famed investor Warren Buffett. The deal not only surprised the "Fast Money" traders on Thursday, it also caused them to question Moynihan's credibility.
"When you tell me two weeks ago that you don't need capital and you go out and you give this kind of preferred status to capital, to me, that is scary," Veracruz founder Steve Cortes said, adding it's reminiscent of 2008, when the banks said they were OK, even though they weren't. "I think this is a fightening development."
(Poll: With Buffett's Latest Move, Would You Buy BAC?)
The deal Moynihan struck with Buffett hurts investor confidance, trader Guy Adami complained, because investors wonder why they weren't offered the same kinds of terms and conditions. Options trader Jon Najarian agreed, adding Moynihan should have turned Buffett down or offered him to buy common stock.
"It doesn't foster investor confidence. It makes people want to get the same terms that Warren Buffett got," Stuart Frankel's Steve Grasso added. "Bank of America said they didn't need cash. This is cash."
So what's the trade?
Cortes shorted BAC early Thursday. As of midday trading, he held that position.
Pete Najarian, co-founder of TradeMONSTER.com, is holding puts to the downside because he's not convinced Buffett is in BAC long-term.
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Trader disclosure: On August 25, 2011, the following stocks and commodities mentioned or intended to be mentioned on CNBC’s "Fast Money" were owned by the "Fast Money" traders; Steve Grasso owns (AMD), (ASTM), (BA), (BAC), (C), (D), (JPM), (LIT), (LPX), (LVS), (MAR), (MHY), (NDAQ), (PFE), (PRST), (XHB), (XLB) and (XLI). Guy Adami owns (AGU), (C), (GS), (INTC), (MSFT), (NUE) and (BTU). Steve Cortes is short the Euro. Steve Cortes is short Gold. Jon Najarian owns (GLD) & (GLD) puts. Jon Najarian owns (TXT). Jon Najarian owns (AAPL) call spreads
JOSH STEINER
Hedgeye Risk Management is recommending to clients they short (BAC) and financials in general through the (XLF).
Steve Grasso
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