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Buffett’s Magic at Work for Bank of America

by Chicago Agent

A $5 billion investment from Warren Buffett had immediate impact on Bank of America's stocks Thursday.

Bank of America posted big gains on Thursday after news broke of a $5 billion investment from financial wizard Warren Buffett.

Stocks opened high for the bank and rose as much as 25 percent, before ending the day with a $1.3 billion gain for the company – and Buffett.

“Anytime Warren Buffett invests in a company it instills confidence in not only Bank of America investors but the entire sector,” said J.T. Smith, the chief investment officer at Aristar Funding Corp., an investment bank.

In a report for Market Place, Sally Herships also mentioned Buffett’s reputation, with one source suggesting that his personal influence exceeded even the cash he invested.

“Buffett’s reputation is so powerful that by linking his name to the banks, he’s insuring success in his own investment,” Herships said.

Smith also said that Buffett’s strategy – which Buffett claims he came up with while in the bathtub – worked in more ways than one; he also protected his 350 million shares in Wells Fargo, which earned him some $700 million before lunch on Thursday.

Some storm clouds still fly over Bank of America, though, even with Buffett’s investment. In mortgage losses alone, Smith estimated that the company could see losses in the range of $80 billion.

But not all investors are down on the firm. John Hempton, chief investment officer at Bronte Capital defended the bank, saying that any potential losses could be spread out over time.

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