Buffett a savior for CD investors? Hardly
The announcement that Berkshire Hathaway is investing $5 billion in Bank of America Corp. preferred stock and warrants got me thinking.
We all know that, when Warren Buffett, the fabled Oracle of Omaha, invests in a company, institutions immediately flock to its stock to take advantage of the "pop" that invariably follows.
But, if the object of Buffett’s fancy is a bank, does that mean savers should expect to profit as well?
(No question about it. Low CD rates have finally destroyed my sanity.)
BofA offers California customers a 1.50% APY on 5-year certificates of deposit. That’s pretty pathetic, compared to the 2.50% you can get at tiny MainStreet Bank in Herndon, Va.
In some dream world, I suppose, Buffett’s multibillion-dollar equity infusion would give new life to the floundering financial Leviathan, leading it to compete more aggressively for deposits by increasing yields.
And, according to Bloomberg, Buffett has said: "One thing about Bank of America. It has a wonderful deposit-gathering system."
But there’s no chance investors will benefit.
Check out rates of other banks in which Berkshire Hathaway currently has large positions.
While higher than BofA’s, they’ve declined just as steadily.
The best 5-year CD yield available at a Berkshire investee bank is the decent 2.15% APY offered by American Express Bank. The octogenarian stock picker owns about 12.6% of its parent company.
Berkshire also owns about 3.6% of US Bancorp, whose mega-bank subsidiary offers a respectable (but not exciting) 2.00% APY on a 59-month CD.
It’s downhill from there.
M&T Bank (4.4% Berkshire-owned) offers a "promo" 60-month certificate at 1.75%, and Wells Fargo (owned approximately 6.6%) has a 1.65% 58-month deal.
The best we can hope for from any bank that takes on Warren Buffett (or any other high-profile investor) as a major shareholder is that it will make no difference to savers.
Rather, taking its marching orders from Ben Bernanke, the bank involved will continue squeezing deposit account holders.
In fact, a big investor "vote of confidence" could encourage it to slash rates more dramatically. After all, the interests of shareholders and creditors in any business, including a bank, are usually at odds.
What’s good for one is bad for the other.
Darn it, why should bank shareholders be the only ones getting a boost? What about the morale of depositors?
Why do I keep asking questions I know the answer to?
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