Abandon Bank!

Bruce Berkowitz is at it again.

Best known for making aggressive investments in retailers such as Sears Holdings (Nasdaq: SHLD  ) -- where he's the No. 2 biggest stakeholder after Eddie Lampert -- and real estate developer St. Joe (NYSE: JOE  ) -- where he's the No. 1 biggest shareholder -- the founder of Fairholme Capital made headlines once more this week, when he made some big moves in the banking industry.

According to StreetInsider.com, Berkowitz sidestepped this week's European blowup by selling out early (and often) on his investments in Goldman Sachs (NYSE: GS  ) and Morgan Stanley (NYSE: MS  ) . Liquidating both positions, Fairholme continued the selling spree as he shed shares of Citigroup (NYSE: C  ) and Regions Financial (NYSE: RF  ) as well.

But it's not all doom and gloom. At the same time that Fairholme fled many of the nation's biggest bankers, Berkowitz apparently doubled down on investments made earlier this year -- in Bank of America (NYSE: BAC  ) . At last report, SEC filings show Fairholme holding 81.9 million shares of B of A.

Why? Berkowitz isn't saying, but if you read between the lines, the answer's clear:

Bank

Price-to-Book

Forward P/E

B of A 0.3 6.6
Citi 0.5 6.6
Regions 0.3 7.8
Morgan Stanley 0.5 7.8
Goldman 0.8 7.7

Source: Yahoo! Finance.

Not to put too fine a point on it, but while many banks look cheap these days, none's quite as cheap as B of A. It's tied for price-to-book with Regions, and it ties with Citi on forward P/E.

As we saw in the past two days' sell-offs, investing in big banking remains a perilous business. Three years after the Great Recession began, still no one's quite sure "what's inside the box." Meanwhile, the least little whisper of trouble in Europe can still set off a panic. It makes sense, therefore, to limit your exposure...and widen your margin of safety.

Moral of the story: Bank of America may not be the best stock in banking, but it's darn near the cheapest. That's what Berkowitz sees in it. That's why he's buying.

Or so say I. But do you see another reason Fairholme Capital might be enthused over Bank of America? Tell us about it on Motley Fool CAPS. While you're at it, add B of A to your Fool Watchlist -- if there's more to this story, we'll tell you about it as it happens.

The Motley Fool owns shares of Bank of America and Citigroup, but Fool contributor Rich Smith does not own (or short) shares of any company named above. The Motley Fool has a disclosure policy.

We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.


Read/Post Comments (3) | Recommend This Article (3)

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  • Report this Comment On November 02, 2011, at 3:54 PM, Teacherman1 wrote:

    I believe his investment in Sears Holdings is for the real estate, not the retailer.

    That is why Lampert got into it.

    It is just taking longer than expected for that to pay off.

    As an "aside", many years ago, when I was senior in high school, I worked for Sears. It is hard to believe now, but at the time they were the largest retailer in the world, and a first class organization.

    Today, I almost never go into one because they don't seem to do anything well and are just a shadow of what they once were.

    How the "mighty have fallen".

    JMO and worth exactly what I am charging for it.

  • Report this Comment On November 02, 2011, at 7:28 PM, Richwhynot wrote:

    And just when was the last non-biased evaluation of Sears real estate done? What was that market evaluation number? And what is the final number regarding liens against those dubious assets? How can anyone be sure that number is positive? This will all blow up one day soon. Meanwhile, Sears closed today at 79.41, up 1.38 on very low volume. SHLD is a manipulated stock.

  • Report this Comment On November 03, 2011, at 11:44 AM, Teacherman1 wrote:

    Gee, Richwhynot, are you short SHLD?

    You seem to be very upset by the fact it went up.

    I have no idea what the answers to you RE evaluation questions are, because I don't own the stock, and have no intentions of owning it.

    I was just making a statement as to why Berkowitz made such an "unlikely" investment.

    If you have the time, engergy, and ability to find the answers to your own questions, by all means post them.

    It would be interesting to see.

    I suspect it would be very difficult to come by, since much of that real estate has been owned by Sears for 60 plus years.

    Good luck in your search and in your investing.

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