Warren Buffett, whose Berkshire Hathaway Inc. invested $5 billion in Bank of America Corp., said that problems at the biggest U.S. lender by assets will take “much longer” to clean up.
“The bank has a wonderful underlying business -- it’s got lots of problems,” Buffett, 81, told Bloomberg Television’s Betty Liu today in an interview from the floor of the New York Stock Exchange.
“The bet is, is Brian going to get rid of those problems?” Buffett said, referring to Bank of America Chief Executive Officer Brian T. Moynihan, 51. “It won’t take six months or a year; it will take much longer than that even. But the underlying business is doing fine.”
Bank of America, which has lost more than half its market value this year as mortgage-related costs climb, pays Berkshire $300 million annually in preferred stock dividends and gave the company warrants to purchase 700 million shares of common stock for $7.14 each. The deal was announced on Aug. 25, two weeks after Moynihan said his firm had enough capital.
Moynihan, who has been in charge of the Charlotte, North Carolina-based bank since the start of 2010, should be given time to turn the firm around, Buffett said.
“I don’t want him to step down,” Buffett said. “Brian, stay at work.”
Bank of America fell 14 cents, or 2.2 percent, to $6.21 at 1:34 p.m. on the NYSE. The shares have slipped about 53 percent this year.
The lender is selling assets and settling claims brought by mortgage investors as Moynihan reshapes the company. Bank of America posted a record $8.8 billion loss in the three months ended June 30, the company’s third deficit in four quarters. Buffett’s investment is “a strong endorsement” in the bank, Moynihan said in the Aug. 25 statement announcing the deal.
“Eventually, the troubles of the past will be cleaned up,” Buffett said. “And then you’ll have a wonderful business that’s going to earn a lot of money.”
Berkshire, which generates earnings of about $1 billion a month, is seeking uses for a cash hoard that totaled $47.9 billion at the end of June. This month, Buffett completed the takeover of Lubrizol Corp. for about $9 billion. On Sept. 26, Berkshire announced a plan to repurchase shares.
When asked if Moynihan gave him a special deal unavailable to small investors, Buffett replied that the preferred stock of the bank was also selling at an attractive yield.
“You could have gone out, the day before we bought it, and gotten a 9 percent yield yourself,” Buffett said.
Bank of America announced yesterday that it would join other large banks in charging a fee for some debit-card users to recoup revenue lost after new federal rules capped so-called swipe fees. The lender will start a $5 monthly charge in January, said Anne Pace, a company spokeswoman.
“There are 7,000 banks in the United States, and if somebody else offers a better deal, people can go to that,” Buffett said today on CNN. “It’s just like you can change channels on television.”