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NEW YORK (
Bank of America(BAC - Get Report)'s $5 billion preferred equity investment from Warren Buffett's
Berkshire Hathaway(BRK.A - Get Report) is "a terrible, terrible deal," according to Rochdale Securities analyst Dick Bove.
Bove notes Bank of America CEO Brian Moynihan had said repeatedly the bank did not need to raise additional capital prior to striking the deal with Buffett.
Bank of America CEO Brian Moynihan
"He's gone back on his word. That is, I think, a big negative given his credibility is under such question. Now why did he do it? He did it because he needed to buy credibility," Bove says.
Bove presciently recommended pulling out of the market roughly a month ago and on Wednesday, after a massive selloff argued bank stocks, including Bank of America had "fallen too far" and should be bought. He believes Bank of America shares would have rebounded without the costly help from Buffett.
"There's no way the bank can make money," on the Buffett investment, which will cost it $300 million annually as a result of the 6% coupon, Bove says. Buffett also has warrants to buy 700 million shares of Bank of America stock at just over $7.14--warrants that are already in the money due to the surge in Bank of America stock Thursday on news of Buffett's investment.
In response to Bove's criticism, a Bank of America spokesman pointed to a statement by Moynihan in the bank's press release.
"I remain confident that we have the capital and liquidity we need to run our business. At the same time, I also recognize that a large investment by Warren Buffett is a strong endorsement in our vision and our strategy," Moynihan's statement reads.
Written by Dan Freed in New York.