Doubt it. The only danger to BoA is from the government itself as they see it as "deep pocket" defendant from which money can be safely extorted (shareholders and/or customers pay for that eventually).
But what a gutsy move!
Don't see that either. The structure of the loan/preferred/warrants id very similar to what he did with Goldman Sachs, only not as lucrative (interest rate is lower) and GS was in more dire straights then, at the height of liquidity crisis.
BoA is being bled by the feds and states' AGs, but it should have more than enough reserves. Buffett's investment is safe and is something that only few investors could structure. BoA also wanted the "halo effect" of Buffett to shine on this capital infusion.
Doug Kass: Brian Moynihan Got Fleeced By Buffett's BofA Bet - CNBC, by Drew Sandholm, 2011 August 25
next time I’ll post instruction just for you.
IMHO...
BAC accepting his offer implies that they really needed the cash infusion, since it will cost them hundreds of millions per year in dividend to him. BAC, if healthy, could certainly borrow at a lower rate. IMHO, only to the masses does this look like a “vote of confidence” from Buffett. When you think about it, this deal helps the PR image of both BAC and the White House. It’s a way of providing a small bailout using Buffett’s capital and simultaneously providing the “oracle of omaha” seal of approval for BAC, which was the unison media chorus the morning the deal was made public. No one in the press that morning asked “why would BAC need this capital if their assets were rock solid ?”
He has the warrants to purchase common just in case the bank somehow does very well and the price of Common goes way up. That’s an upside potential.
The phone call “from” Obama could have been backchannel initiated from Buffett; it very well could have been really about confirming that Treasury would bail out BAC if necessary, but I’m just speculating.
This would be the only possible downside to Buffet; if BAC fails. His Preferred shares would come before the suckers who own it’s Common stock, but behind creditors and bondholders, in the bankruptcy line.
But because of the size of BAC, undoubtedly, Obama would not want them to fail on his watch and would do something to keep them afloat through the end of 2012. This would, of course, ensure that Buffett continues to receive his $300 million a year in dividends.
Considering that if BAC goes belly up before Buffett exits his Preferred holding he would be in a real pickle, and given that he’s reliant on BAC working out and getting help from the government if necessary, his deal may be subject to political winds.
IMHO, Buffett must have received some tremendous assurances. The administration certainly would want to give those assurances in exchange for the good PR from Buffett’s deal. It would be noted in the administration’s files that Buffett was doing a “good citizen” thing with $5 billion dollars - so one would think that any assurances given to Buffett by this administration were intended to carry weight with the government beyond 2012.
Sounds perhaps a little precarious were it not for Buffett’s and the administration’s history.