NEW YORK — The smart money is split on Bank of America.
Big investors George Soros and John Paulson are selling shares of the nation’s largest bank. But Bruce Berkowitz, Thomas Brown and other fund managers find the stock so attractive they are buying up boatloads. Billionaire investor Warren Buffett also invested $5 billion in the bank.
So who’s right? For now, the sellers are winning this bet. BofA’s stock plunged 44 percent in the third quarter. On Monday, it sank another 9 percent to $5.53, a level not seen since the financial crisis in March 2009. There has been customer backlash over a recently announced $5 fee on debit cards and a several-day outage of its website.
The Charlotte, N.C., bank has been crippled by losses from poorly written mortgages, especially those from Countrywide Financial, the subprime mortgage lender the bank bought in 2008. It’s also fighting a barrage of lawsuits from the government and other large investors who say the bank should either buy back billions of dollars of faulty mortgage securities or pay damages. In the first half of the year alone, the bank paid out $12.7 billion to settle such claims.
The best-known seller is Soros, who sold 1.2 million Bank of America shares in the second quarter. Paulson and David Tepper of Appaloosa Management each sold half of their Bank of America holdings in the same quarter.
Other investors are enticed by the low price of the stock. At around $6 a pop, shares of BofA are the cheapest among large U.S. banks.
“Bank of America right now is very, very cheap,” said Brown, chief executive of hedge fund Second Curve Capital, who has been buying the stock in recent months.
Brown’s recent shift turned heads because he was one of the most vocal BofA critics while a widely followed financial analyst at Smith Barney and Donaldson Lufkin & Jenrette. Brown particularly disliked the bank’s strategy of pursuing growth via acquisitions.
“It’s poorly managed, and it’s still too big but getting smaller, which is a good thing,” Brown said.
BofA’s market capitalization is now $57 billion. However, that’s just a fourth of the bank’s “book” value, a measure that investors watch closely. Book value is the value of a company’s assets if it were to be liquidated. That value is $230 billion.
