Buffett Investment Drives Up Financials

Brittney Barrett |

Warren Buffett consistently advocates a policy of investing when others cower. Today the billionaire investor delivered on his message with the announcement that his Berkshire Hathaway fund would invest a massive $5 billion in the fraught Bank of America Corp. (BAC). Buffett has been among the most vocal supporters of major financial institutions since the 2008 financial crisis. Earlier this year, when many investors were fleeing shares of banks, Buffett broadened his holdings in Wells Fargo (WFC).

Buffett’s influence on the market was evident today after the majority of the sector surged in the aftermath of the announcement. Bank stocks have outpaced the losses of the broader market alongside continues anxiety surrounding the impact of European debt contagion and the threat of a double dip. Buffett’s decision reversed that trajectory in morning trading leading eight financial stocks into the S&P top ten gainers list early today.



On a day when the broader market took a significant hit, the strength of the financials is atypical and speaks to Buffett’s influence. The oracle of Omaha, as Buffett is oft referred, cited good leadership and strength as the incentive for the investment. Though it may be the largest bank in the U.S., there continue to be challenges for Bank of America, including continued exposure to mortgages that led the bank to huge second quarter losses. The $5 billion dollar influx will help BAC to stay afloat during these trying economic times and survive the lingering lawsuits surrounding toxic-mortgage backed securities.Preventing the North Carolina based financial institution from collapse will dually act in support of other holdings owned by Buffett, like his shares of Wells Fargo, which were also considerably higher for the day. While current share prices across the financial sector are weak, they are still floating considerably above 2008 lows. A catastrophic event at Bank of America could derail them to new lows and threaten the future of the financial stocks as a whole.

Citigroup (C) and Morgan Stanley (MS) were both up for the day. JPMorgan Chase (JPM), which has set aside considerable cash for the ongoing lawsuits having to do with its own mortgage-backed securities, fell slightly for the day. It was joined by Goldman Sachs (GS), which has had an especially tough year. Goldman lost considerable value just last week after it was discovered that the firm is keeping an exorbitant, well-known attorney on retainer, presumably to defend it in the event of further complications with the bank’s involvement in the 2008 financial crisis.

DISCLOSURE: The views and opinions expressed in this article are those of the authors, and do not represent the views of equities.com. Readers should not consider statements made by the author as formal recommendations and should consult their financial advisor before making any investment decisions. To read our full disclosure, please go to: http://www.equities.com/disclaimer

Companies

Symbol Name Price Change % Volume
HVTA Haverty Furniture n/a n/a n/a 0 Trade
C Citigroup Inc. 74.77 0.85 1.15 37,121,111 Trade
MS Morgan Stanley 53.10 0.46 0.87 12,708,046 Trade
JPM JP Morgan Chase 106.14 1.48 1.41 29,350,598 Trade
GS The Goldman Sachs Group Inc. 257.17 1.69 0.66 5,283,374 Trade
BAC Bank of America Corporation 29.04 0.31 1.08 129,859,355 Trade

Comments

Emerging Growth

Beleave Inc.

Beleave Inc is a biotech company. The Company is engaged in the production of medical marijuana under the Marihuana for Medical Purposes Regulations outlined by Health Canada.

Private Markets

The Green Organic Dutchman

The Green Organic Dutchman Ltd. ("TGOD") produces farm grown, organic cannabis for medical use. The company grows its high quality organic cannabis in small batches using craft growing, all natural…

iPRO Network, LLC

We provide the platform, tools, and resources to empower individuals and professionals to market desirable goods and services to the public, taking the place of traditional methods of commerce.