Let’s rev up the Wayback Machine:
During a campaign ad:
“When I go to the White House, I’m gonna be answerable to you, I’m not gonna be answerable to a bunch of fat cat donors.”
Obama lashed out at Wall Street, calling bankers “fat cats” who don’t get it, in an escalation of tensions with the industry.
……(he) also expressed frustration with banks that the government has assisted.
“I did not run for office to be helping out a bunch of fat cat bankers on Wall Street,” Mr. Obama said in an interview on CBS’s “60 Minutes” program on Sunday.
Fast forward to 2011.
Obama started courting the Wall Street investors he derided as ‘fat cats’, just in time for the latest BoA crisis.
Bank of America is in trouble, and for good reason. A failed TARP participant, it was also the largest taxpayer-funded bailout recipient. Like other bad businesses, it should have been forced to liquidate.
In July, Buffett had a meeting with Obama at the White House, to discuss the ways in which ‘private philanthropy can help address the country’s greatest challenges.’ It turns out that ‘philanthropy’ might have been a political favor. Buffett not only infused $5 billion dollars into BoA’s coffers, but got a pretty sweet deal that no other investor could get.
When Bank of America Corp agreed to sell $5 billion of preferred shares to Warren Buffett, it gave the Oracle of Omaha a $3 billion gift with the deal.
The 700 million warrants attached to the preferred share sale were worth $3.17 billion when the deal was crafted, said Linus Wilson, an assistant professor of finance at the University of Louisiana at Lafayette.
That value rose in the hours after the preferred share sale was announced publicly, as Bank of America’s share price jumped. By the close of trading, the warrants were worth $3.5 billion, Wilson said. Bank of America’s shares rose to $7.65 from $6.99 the day before, but traded as high as $8.79 in Thursday’s session.
The fact that Bank of America was willing to give away these warrants to sweeten the deal for Buffett’s Berkshire Hathaway signals how keen the bank was for Buffett’s money, analysts said.
“It’s very nice of Mr. Buffett to throw $5 billion into this but we’re talking about hundreds of billions” in potential losses related to mortgage litigation, said Christopher Whalen, a managing director at Institutional Risk Analytics who analyzes bank stocks.
“It doesn’t really move the needle as far as my concern,” he said. “If Warren had written a check for $50 billion, I might have paid attention.”
Warrants are essentially options, offering an investor the right to purchase a security within a designated period of time at a particular price.
In the case of Bank of America, it gave Buffett the right to buy 700 million shares for $7.142857 apiece any time over the next 10 years.
Buffett will benefit in the short term. In the long term, Bank of America will still be a lousy, failed business.
- Warren Buffett Bailed on Bank of America Before (blogs.wsj.com)