Tuesday, August 30, 2011
Thursday, August 25, 2011
Bank of America Corp., the biggest U.S. lender, said Warren Buffett's Berkshire Hathaway Inc. will invest $5 billion to bolster the company after losses tied to subprime mortgages drained capital. Bank of America surged in New York trading.
Berkshire will get cumulative perpetual preferred stock paying a 6 percent dividend, the Charlotte, North Carolina-based bank said today in a statement. Omaha, Nebraska-based Berkshire also gets warrants to buy 700 million shares at $7.14 each.
The deal aids Bank of America Chief Executive Officer Brian T. Moynihan, 51, who is cutting jobs and selling assets to help restore investors' confidence. Bank of America lost almost half its value on the New York Stock Exchange this year through yesterday as investors speculated the lender would have to access the public markets to raise capital.
“This is a tremendous vote of confidence in the U.S. banking industry as well as Bank of America,” said Anthony Polini, an analyst with Raymond James Financial Inc. “Bank of America was being punished or victimized as one of the weakest U.S. banks that could be in financial distress. For Buffett to step up like this for BofA has implications for all the other banks.”
The lender jumped $1.03, or 15 percent, to $8.02 in New York Stock Exchange composite trading at 10:25 a.m., leading the KBW Bank Index higher. Berkshire fell less than 0.1 percent.
Buffett conceived of the investment while in the bathtub yesterday morning and had his assistant contact Moynihan's to get the banker's private number, CNBC reported, citing an interview with Buffett.
“Bank of America is a strong, well-led company, and I called Brian to tell him I wanted to invest,” Buffett said in the statement. “I am impressed with the profit-generating abilities of this franchise, and that they are acting aggressively to put their challenges behind them.”
Berkshire's warrants may be exercised at any time in a 10- year period, according to the statement. Bank of America can redeem the preferred stock at any time for a 5 percent premium.
Buffett helped prop up Goldman Sachs Group Inc. during the credit crisis in 2008 with a $5 billion investment that was repaid this year. The Goldman Sachs investment paid a 10 percent dividend. Berkshire is the largest stock investor in Wells Fargo & Co., the only U.S. home lender larger than Bank of America.
Banking can “still be plenty profitable,” Buffett told Bloomberg Television's Betty Liu on the “In the Loop” program on July 8.
The cost to protect against a default by Bank of America plunged. Credit-default swaps on the bank, which surged to a record this week, dropped 65 basis points to 308 basis points as of 10:43 a.m. in New York, according to data provider CMA.
Bank of America's trading floor in New York erupted in cheers and applause when the news was announced this morning, said a person at the company who witnessed the reaction but who wasn't authorized to speak publicly.
Moynihan agreed to sell the bank's Canadian card unit, with about $8.6 billion in loan balances, and plans to leave the U.K. and Irish card markets, Bank of America said this month. The bank has been forced to write down credit-card and mortgage units acquired by Moynihan's predecessor, Kenneth D. Lewis. Bank of America has sold more than 20 assets or units since Moynihan took over last year.
The bank will eliminate about 3,500 jobs this quarter to focus “on what we can control” amid market turmoil, Moynihan said last week. Some workers already were informed of the dismissals, which are in addition to 2,500 reductions made this year, Moynihan said in a memo to senior managers.
Berkshire sold a stake in Bank of America last year and Buffett has publicly criticized Lewis, for missteps including the purchase of Merrill Lynch & Co., a deal struck the same day Lehman Brothers Holdings Inc. filed for bankruptcy in 2008.
Lewis “paid a crazy price, in my view,” Buffett said in remarks released Feb. 10 by the Financial Crisis Inquiry Commission. “He could have bought them the next day for nothing.” Moynihan became CEO early last year.
While the company suffered from errors, its reach among consumers are a source of strength, Buffett told CNBC in 2009.
“One thing about Bank of America,” Buffett said. “It has a wonderful deposit-gathering system.”
Wednesday, August 24, 2011
Tuesday, August 23, 2011
Monday, August 22, 2011
I would like to share with you some interesting quotes from "Andrew Carnegie Autobiography and the Gospel of Wealth" book. Very inspirational. Highly recommended.
"There has been no luck about it. We used only the best material and enough of it, making our own iron and later our own steel. We were our own severest inspectors, and would build a safe structure or none at all. When asked to build a bridge which we knew to be of insufficient strength or of unscientific design, we resolutely declined."
"This policy is the true secret of success. Uphill work it will be for a few years until your work is proven, but after that it is smooth sailing. Instead of objecting to inspectors they should be welcomed by all manufacturing establishments. A high standard of excellence is easily maintained, and men are educated in the effort to reach excellence. I have never known a concern to make a decided success that did not do good, honest work, and even in these days of the fiercest competition, when everything would seem to be matter of price, there lies still at the root of great business success the very much more important factor of quality."
"The surest foundation of a manufacturing concern is quality. After that, and a long way after, comes cost."
"Ah, gentlemen," I said, "there is the point. A little more money and you could have had the indestructible wrought-iron and your bridge would stand against any steamboat. We never have built and we never will build a cheap bridge. Ours don't fall."
"Nothing tells in the long run like good judgment, and no sound judgment can remain with the man whose mind is disturbed by the mercurial changes of the Stock Exchange. It places him under an influence akin to intoxication. What is not, he sees, and what he sees, is not. He cannot judge of relative values or get the true perspective of things. The molehill seems to him a mountain and the mountain a molehill, and he jumps at conclusions which he should arrive at by reason. His mind is upon the stock quotations and not upon the points that require calm thought. Speculation is a parasite feeding upon values, creating none."
""Yes, my friends, all that you say is true. I have had a long, long life full of troubles, but there is one curious fact about them--nine tenths of them never happened." True indeed; most of the troubles of humanity are imaginary and should be laughed out of court. It is folly to cross a bridge until you come to it, or to bid the Devil good-morning until you meet him--perfect folly. All is well until the stroke falls, and even then nine times out of ten it is not so bad as anticipated. A wise man is the confirmed optimist."
"I determined that the proper policy was "to put all good eggs in one basket and then watch that basket.""
"I believe the true road to preëminent success in any line is to make yourself master in that line. I have no faith in the policy of scattering one's resources, and in my experience I have rarely if ever met a man who achieved preëminence in money-making--certainly never one in manufacturing--who was interested in many concerns."
"He had not a particle of mechanical knowledge, and yet such was his unflagging zeal and industry for the interests of his employer that he soon became marked for being everywhere about the mill, knowing everything, and attending to everything."
"Early hours in the morning and late in the dark hours at night William was in the mills. His life was there. He was among the first of the young men we admitted to partnership, and the poor German lad at his death was in receipt of an income, as I remember, of about $50,000 a year, every cent of which was deserved. Stories about him are many."
Friday, August 19, 2011
"We will continue to ignore political and economic forecasts, which are an expensive distraction for many investors and businessmen. Thirty years ago, no one could have foreseen the huge expansion of the Vietnam War, wage and price controls, two oil shocks, the resignation of a president, the dissolution of the Soviet Union, a one-day drop in the Dow of 508 points, or treasury bill yields fluctuating between 2.8% and 17.4%.
But, surprise - none of these blockbuster events made the slightest dent in Ben Graham's investment principles. Nor did they render unsound the negotiated purchases of fine businesses at sensible prices. Imagine the cost to us, then, if we had let a fear of unknowns cause us to defer or alter the deployment of capital. Indeed, we have usually made our best purchases when apprehensions about some macro event were at a peak. Fear is the foe of the faddist, but the friend of the fundamentalist."
- Warren E. Buffett1994 Berkshire Hathaway Shareholder Letter
Monday, August 15, 2011
August 14, 2011
Stop Coddling the Super-Rich
By WARREN E. BUFFETT
OUR leaders have asked for “shared sacrifice.” But when they did the asking, they spared me. I checked with my mega-rich friends to learn what pain they were expecting. They, too, were left untouched.
While the poor and middle class fight for us in Afghanistan, and while most Americans struggle to make ends meet, we mega-rich continue to get our extraordinary tax breaks. Some of us are investment managers who earn billions from our daily labors but are allowed to classify our income as “carried interest,” thereby getting a bargain 15 percent tax rate. Others own stock index futures for 10 minutes and have 60 percent of their gain taxed at 15 percent, as if they’d been long-term investors.
These and other blessings are showered upon us by legislators in Washington who feel compelled to protect us, much as if we were spotted owls or some other endangered species. It’s nice to have friends in high places.
Last year my federal tax bill — the income tax I paid, as well as payroll taxes paid by me and on my behalf — was $6,938,744. That sounds like a lot of money. But what I paid was only 17.4 percent of my taxable income — and that’s actually a lower percentage than was paid by any of the other 20 people in our office. Their tax burdens ranged from 33 percent to 41 percent and averaged 36 percent.
If you make money with money, as some of my super-rich friends do, your percentage may be a bit lower than mine. But if you earn money from a job, your percentage will surely exceed mine — most likely by a lot.
To understand why, you need to examine the sources of government revenue. Last year about 80 percent of these revenues came from personal income taxes and payroll taxes. The mega-rich pay income taxes at a rate of 15 percent on most of their earnings but pay practically nothing in payroll taxes. It’s a different story for the middle class: typically, they fall into the 15 percent and 25 percent income tax brackets, and then are hit with heavy payroll taxes to boot.
Back in the 1980s and 1990s, tax rates for the rich were far higher, and my percentage rate was in the middle of the pack. According to a theory I sometimes hear, I should have thrown a fit and refused to invest because of the elevated tax rates on capital gains and dividends.
I didn’t refuse, nor did others. I have worked with investors for 60 years and I have yet to see anyone — not even when capital gains rates were 39.9 percent in 1976-77 — shy away from a sensible investment because of the tax rate on the potential gain. People invest to make money, and potential taxes have never scared them off. And to those who argue that higher rates hurt job creation, I would note that a net of nearly 40 million jobs were added between 1980 and 2000. You know what’s happened since then: lower tax rates and far lower job creation.
Since 1992, the I.R.S. has compiled data from the returns of the 400 Americans reporting the largest income. In 1992, the top 400 had aggregate taxable income of $16.9 billion and paid federal taxes of 29.2 percent on that sum. In 2008, the aggregate income of the highest 400 had soared to $90.9 billion — a staggering $227.4 million on average — but the rate paid had fallen to 21.5 percent.
The taxes I refer to here include only federal income tax, but you can be sure that any payroll tax for the 400 was inconsequential compared to income. In fact, 88 of the 400 in 2008 reported no wages at all, though every one of them reported capital gains. Some of my brethren may shun work but they all like to invest. (I can relate to that.)
I know well many of the mega-rich and, by and large, they are very decent people. They love America and appreciate the opportunity this country has given them. Many have joined the Giving Pledge, promising to give most of their wealth to philanthropy. Most wouldn’t mind being told to pay more in taxes as well, particularly when so many of their fellow citizens are truly suffering.
Twelve members of Congress will soon take on the crucial job of rearranging our country’s finances. They’ve been instructed to devise a plan that reduces the 10-year deficit by at least $1.5 trillion. It’s vital, however, that they achieve far more than that. Americans are rapidly losing faith in the ability of Congress to deal with our country’s fiscal problems. Only action that is immediate, real and very substantial will prevent that doubt from morphing into hopelessness. That feeling can create its own reality.
Job one for the 12 is to pare down some future promises that even a rich America can’t fulfill. Big money must be saved here. The 12 should then turn to the issue of revenues. I would leave rates for 99.7 percent of taxpayers unchanged and continue the current 2-percentage-point reduction in the employee contribution to the payroll tax. This cut helps the poor and the middle class, who need every break they can get.
But for those making more than $1 million — there were 236,883 such households in 2009 — I would raise rates immediately on taxable income in excess of $1 million, including, of course, dividends and capital gains. And for those who make $10 million or more — there were 8,274 in 2009 — I would suggest an additional increase in rate.
My friends and I have been coddled long enough by a billionaire-friendly Congress. It’s time for our government to get serious about shared sacrifice.
Warren E. Buffett is the chairman and chief executive of Berkshire Hathaway.