According to the Washington Post’s Barry Ritholtz, for anyone who thought the U.S. banking sector was healthy, Warren Buffett’s $5 billion investment in Bank of America should be a wake-up call.
Many investors assumed the Wall Street bailouts of Bank of America and the other big banks more or less healed the sector. All it took was few trillion dollars in liquidity and a few $100 billion in recapitalization. Voila! In fact, the banking system was not saved. The massive injections of liquidity temporarily salved the day-to-day operations of banks, but they did not repair the more profound troubles. Indeed, pouring billions into nearly identical management teams that mismanaged risk, overleveraged exposure and drove banks off the cliff in the first place was an invitation for another crisis.
In past weeks, Bank of America has been under increasing pressure from investors. Its already damaged stock was cut in half, and commentators including myself argued that the bank was headed back toward the rocky shoals of insolvency.
A few items leapt out:
●Despite its BS claims to the contrary, Bank of America needed both capital and a reputation reboot. Buffett provided a little of both, though I’m not sure which they needed more.
●With the Fed offering banks capital at nearly zero percent interest rates, why would BofA take money at 6 percent? This gives lie to the claim that BofA did not need more capital.
●Investors are cautioned that unless you are buying on the same terms as the billionaire, you are making a very different bet than he is. Clout matters.
Read more at http://www.washingtonpost.com/a-how-to-guide-for-fixing-americas-banks/2011/08/26/gIQAdbUijJ_print.html
No comments:
Post a Comment