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ytm,

You wrote, Interesting move indeed. Going to take a look now at pfd shares and debt.

http://finance.yahoo.com/news/Warren-Buffett-to-invest-5-rb-...


I would like to add that at first glance Buffett appears to be crazy to be willing to pay BAC par on a 6% coupon. However, Buffett is a lot shrewder than that. Buffett received preferred shares with a par value of $5B and Buffett paid $5B in cash.

But Buffett also received warrants on 700,000,000 (700 million) shares with a strike price of $7.142857/share. I estimate the time-value of those warrants to currently be worth about $3.80/share (minimum) RIGHT NOW, TODAY. That's an effective discount of $2.66B if he had a buyer lined up for the warrants in advance.

Assuming the warrants are worth what I say they are, Buffett effectively paid $2.34B for those preferreds. His effective yield on his purchase price will actually be 12.8%.

Was this a shrewd move on Buffett's part? H*ll yes.

Was it a smart move by Moynihan? That's debatable. Personally I think he gave Buffett way too big a discount (too many warrants). It makes me wonder if Moynihan knew the real value of this deal to Buffett?

- Joel
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