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It may take more than a tub full of Warren Buffett cash to save Bank of America.
Despite the Oracle of Omaha’s stunning announcement yesterday that he extended a $5 billion lifeline to the nation’s embattled lender, some Wall Street critics still think BofA CEO Brian Moynihan has a long way to go to right the bank.
“There are many headwinds that BofA faces that are yet unresolved,” said Marshall Front, founder of Chicago investment firm Front Barnett.
That’s not to say that $5 billion didn’t buy Moynihan at least one day of breathing room from the incessant negative drumbeat of bad news surrounding the Charlotte, NC, bank.
Shares in the lender, which have lost 50 percent of their value this year, caught fire with the word of Buffett’s pre-market move, opening up about 20 percent. BofA traders on the floor of the New York Stock Exchange greeted the early morning investment with cheers and applause.
Buffett’s move must have been sweet music to Moynihan, who has spent the past month attempting to put out fires at the firm — mostly surrounding fears that it would have to raise capital or sell off some assets.
That negative chorus appears to still be in full throat.
“This [move] raises the deeper credibility issue as to when the bank will regain faith with its investors,” said Dick Bove, bank analyst at Rochdale Securities in a research note.
Other critics of the ailing bank estimate that BofA is still facing massive lawsuits and fines related to soured mortgages and improperly underwritten loans.
While the popular belief is that BofA may be facing a mortgage-related financial hit of less than $10 billion — its share of the $25 billion global settlement being hammered out between the largest US banks and the 50 state attorneys general — some see the bank’s exposure running as high as $100 billion or higher.
Christopher Whalen, a financial analyst at Institutional Risk Analytics, sees the possibility of an even more dire scenario for BofA: court-protected reorganization.
“You can’t have a public company subject to daily news cycles sorting through the kind of stuff they have to face,” Whalen told The Post.
Those worries may have eroded some of BofA’s gains later in the day with its shares closing off its highs at $7.65, up 9.4 percent.
Back in Omaha, Buffett said that he conceived of the idea to invest in BofA while taking a bath.
“Bank of America is a strong, well-led company, and I called Brian to tell him I wanted to invest,” Buffett said in a statement yesterday.
Buffett’s Berkshire Hathaway is getting 50,000 preferred shares bearing a 6 percent interest rate — which means Moynihan will be paying Buffett interest of $300 million a year — or $4.1 million a week.
Buffett’s also getting warrants to purchase 700 million shares at a exercise price of $7.14, worth $3.5 billion, Linus Wilson assistant professor at finance at the University of Louisiana estimates.
For some, the price of a Buffett imprimatur was too steep.
“Moynihan got fleeced by Buffett, who is the savviest of wolves who stepped out of his bathtub wearing sheep’s clothing,” said Seabreeze Partners hedge fund manager Doug Kass.
Yesterday’s BofA announcement echoes a deal Buffett made during the 2008 financial crisis, when he invested $5 billion in Goldman Sachs, for which he received $6.6 billion in dividends.