ERICOPOLY

If it is is "business" then why did he not buy these shares on the open market? The next time he buys a subsidiary using BRK shares as currency, he can reassure the seller that his/her heirs will be able to unload them upon death. Classy way to treat the people -- just like agreeing to never trade away the company purchased. This cultivates better transactions in the future by showing the world that any business owners willing to sell their company to Berkshire will be treated well till death do us part. Yes, I can see that perspective, as long as it was someone who sold their business to Berkshire. Do we know if that was the case here? Was it Al Uletschi's estate? Cheers! True, I did make an assumption based on the rumors that this was his estate.

Ericopoly, Doesn't the estate still need to pay estate tax to the govt? Yes. However, I don't know how much. The guy should have put the shares into a GRAT.

If it is is "business" then why did he not buy these shares on the open market? The next time he buys a subsidiary using BRK shares as currency, he can reassure the seller that his/her heirs will be able to unload them upon death. Classy way to treat the people -- just like agreeing to never trade away the company purchased. This cultivates better transactions in the future by showing the world that any business owners willing to sell their company to Berkshire will be treated well till death do us part.

Yup. Even if the tax rate is 70% on income/dividends you just need a plan, like Warren did... you know, back when he started Berkshire when the tax was 70%. No, you can't do a Personal Holding Company to hold your passive investments -- you'd be hit with the undistributed profits tax. A few things your holding company needs (to avoid the Personal Holding Company label): 1) you need to hold your passive investments in financial subsidiaries (insurance companies will do). 2) you need other shareholders -- BRK passes this test Not sure if there were other criteria, but there you have it. Take away the insurance subs and have Warren & Charlie as the sole shareholders and BRK would either have to pay a dividend or get slapped with the undistributed profits tax. Nice job Warren! Oh yeah, and you guys thought Warren managed the money of his partners "for free" 8) Without you guys, he'd be paying those taxes. That's his management fee.

Complete disconnect in what you are saying. Not only did he pay more by not buying in the open market, the purchase provides a huge tax windfall for someone who obviously does not need one. It wasn't business...it was charity for a long-time shareholder! The GE, GS and BAC deals were business...I have no problem with that. Cheers! The tax windfall was that at the time of death the US government resets the cost basis to present market value. Thus, all the BRK shares can be sold without any taxes at all. Warren really had no hand in helping anyone out here -- except that if he had instead paid a cash dividend then some shareholders would owe tax on the dividend. So he managed to return cash to all shareholders in a tax-efficient manner. The higher dividend tax never matters when you instead just buy back shares, eh Warren?

Corporate tax reform is on the table for 2013 based on the jibber-jabber I read today(fiscal cliff negotiations). That's big news for BAC which is one of the companies that actually gets hit by the high US tax rate -- or at least it will once these NOLs get burned off. It makes sense -- you can raise taxes on the 1/3 of corporate earnings (distributed as a dividend) as long as you reduce taxes on the 3/3 of corporate earnings. A wash most likely for BAC shareholders over the longer term.

Calls, 2015

I had to join the rally today. Too bad I didn't buy yesterday.

Tom Brown mentioned 18b of expenses to come down, even though 1b of the expenses is already baked in. Bill Nygren said that tangible book value is $15 -- it's not, it's only $13.50 I think these guys have a lot of investments to follow.

I changed flies Sanjeev. Now I think Mr. Market will bite!

The buybacks are the same as with the common, I presume you are talking about the warrant adjustment when dividends ar paid. It's easier in layman's terms using an example. Example A: You own 100 shares of common. Suppose you get a 10 cent dividend per share when the stock is trading at $10, then you buy 1 extra share with that dividend. You now own 101 shares of common Example B: You own 100 warrants Suppose you get an 11 cent dividend per share when the stock is trading at $10, then your warrant adjusts to 1.01 share convertable, and the strike is lowered by 10 cents. Your 100 warrants now convert in aggregate to 101 shares (100 x 1.01). Plain and simple. The higher the price per share when a dividend is paid in Example A, the fewer common shares your dividend can purchase. Same logic applies with the warrants as with the common.

How much (dollar figures) real estate is there left for them to sell. Anyone?

Thank you Mr. Parsad and the rest of the board for teeing this one up. Seriously, this is T-Ball. Forget the pitching.

Branches only have a maximum of $100k in cash in the vault (something like that). Better to directly raid the company treasury... via the warrants.

Will need to watch Highlander again. This is like the quickening.

That's awesome. I'm also selling some at around TBV. I won't sell the warrants, but I'll sell some common. I need to buy out my landlord (who wants to sell). He granted me a lease extension until end of June 2014, and the clock is ticking. Plus I'll probably switch my 2015 $7 calls for warrants here soon. The prices are converging.

And Countrywide was one of the first in line to fall. Those Reps and Warranties had very little value whatsoever at the time the contracts were inked.

BAC's in-house underwriting survived the crisis. It's a relatively large part of my investment thesis when I reason that the people they've got are generally good enough to keep us from another crisis (just watch out for the big acquisitions).

Assuming that Countrywide did not misrepresent their reps & warranties, then this would be true (IMO). I think their "poor me" routine has validity if they were defrauded by the contracts they insured. Oh, yes, the claims are valid. I totally agree with you (no sarcasm). I'm saying that MBIA was so reckless as to get this exposed to a company that could never pay all of it's legal claims (on it's own). Enter the angel of Ken Lewis -- MBIA is saved. Rewrite history so that Countrywide is never bought out and thus MBIA is circling the drain. They ran their business in such a way that they were far too exposed to a company that was in it's own right far to reckless. Thus, who was also far too reckless? EDIT: In short there really ought to be some moral hazard lesson to be taught to MBIA here. There is risk in not bothering to sample the assets your are underwriting huge amounts of insurance against. Reps and warrant claims against a potentially insolvent bankrupt company should be the history, for that's what MBIA should have foreseen as a possibility. They must have been dancing in the streets when BofA saved Countrywide. Now they pretend to hate BofA.

Out of the analysts that have revised their forecast in the wake of the Q3 results, I'm not sure if anyone is less optimisted than Sanford Bernstein's John MacDonald. He is calling for a 2 cent dividend and $3b buyback. He was on the Q3 conference call so it's not like he is missing any of the material.

I try to think in terms of business results relative to purchase price over time. It's easy to get knocked into mainstream financial thinking when the blood starts moving. In the case of BAC, this helped a lot as much of the exciting news came and went with nary a market move. I've anchored myself by multiplying how many shares I can afford by the earnings per share. Knowing that the earnings are "all mine" (thanks Moynihan) I can count on that mentally as my salary. So I have this crystal clear image of how much my take is. I could play the same game with the other banks, but my take would be less. So I'd have to take a pay cut if I sell and diversify. On top of that salary, I feel like there is this huge capital gain coming from revaluation. I just can't walk from this.

I have trouble sleeping whenever my net worth moves suddenly. Last night I slept far worse than I did the night before. Same thing happens when my net worth drops suddenly. After a few weeks I get anchored to the new level and go back to sleep relatively better again. Up or down -- either way the anchor has been pulled and I'm adrift. I don't sleep well in a drifting ship and I just need that anchor to keep me settled it. But I'd say out of one or the other, I sleep worse when my net worth is suddenly on the rise with new high water marks. I get kind of manic and just can't get settled.

I realize it sounds like I'm a bit biased. I just hate the constant drumbeat that suggests MBI is being bullied up by evil lawyers at BAC. That latest letter from Jay Brown even labeled BofA as a bad actor in the financial crisis. I think if Countrywide had been bought by nobody at all (just going directly to bankruptcy), then the managers at MBI would be living in a completely different reality (of entirely their own making). They would not be singing this "oh poor me" tune at all. These guys completely drove their company into the ground and Ken Lewis effectively bailed them out.

What's next? Could National be split in two down the road when California gets into a crisis so that the California policies are walled off in a runoff subsidiary by the New York insurance commissioner, thus allowing so that New York municipal business won't have impaired liquidity? Shouldn't everybody be sophisticated enough to see that coming?

If BAC is at $20 in two years, which is almost a double, what will the warrants be trading at with 4 years to go and the strike price lower than it is today and having the opportunity to go lower still over the remaining 4 years? I suspect much more than a double from here. What if the common is at $25 in two or three years? $30? ... I'm accustomed to deep-in-the-money options having hardly any premium when it's a dividend paying stock. That's because the imputed interest rate cost of the synthetic loan is effectively paid for by the complete loss of any dividend. However in this case we effectively will get the entire dividend. Thus there is a goodly amount of premium in the warrants that will not decay as they go into the money -- it will be the capitalized cost of interest for the synthetic loan. Higher interest rates would benefit the value of that capitalized cost of interest for the synthetic loan. But at today's low interest rates how much will it be worth?