Fund managers and analysts fear that Bank of America needs to raise lots of additional capital by selling stock, at extremely low prices. They believe the bank lacks the financial strength to cover its big exposure to troubled mortgages. The TV talking heads, disappointed investors, and even investment bankers within BofA who get bonuses in stock and are watching it collapse, take a dim view of its future and Moynihan's leadership. In the current news cycle, the relentlessly negative tilt about Bank of America now rivals the talk about the European debt crisis.
Buffett takes a different view: Berkshire wouldn't have invested in BofA if it needed his money. The Berkshire chairman reckons that the bank would work through its current problems, and that the underlying banking business will prove highly profitable.
It's interesting that it took a dynamo to pull GEICO out of its ditch -- an Irish-American executive named Jack Byrne who combined excellent analytical skills with flamboyant salesmanship¬¬ who would heave his hat into the headquarter's atrium every morning and rally the troops like Knute Rockne. The financial press and most of Wall Street thought Byrne would fail, and he proved them wrong.
Berkshire's BofA investment is clearly an endorsement for Moynihan, just as it was a vote for Byrne. And if Moynihan's claim that BofA will earn as much as $25 billion in a few years proves correct, Berkshire's profits will exceed $10 billion.
It all started with memories of a salad oil scandal that spooked investors half a century ago.