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Warren Buffett has made a career out of casting himself as a common man — a folksy octogenarian from Omaha who also is the richest man on earth.
The billionaire everyman never misses an opportunity to sow his optimistic seeds about stock ownership and America’s future, while professing his profound desire to pay more taxes.
Yet when it comes to investing his own billions, this common man has little time for common stocks, but plenty of time for special deals that save him taxes and almost always put him ahead of mere mortal shareholders.
Such was the case this past week, as Buffett once again rode to the rescue of an ailing financial institution with a $5 billion preferred-stock investment in Bank of America.
Within minutes of the announcement of the deal on Thursday, the financial press was trumpeting it as a bullish bet on America’s biggest bank. Yet a read of the fine print on the deal shows quite the opposite to be the case.
The carefully crafted investment is a boon to Buffett. Not only is his 6 percent annual dividend highly tax efficient, but the 700 million warrants Buffett gets to buy Bank America shares have a strike price just pennies above where they traded before the deal was announced.
All in all, the package offers an upside for Buffett far beyond the deals he cut with GE and Goldman Sachs at the height of the financial crisis in 2008.
Seen in that light, it makes one wonder why BofA was so quick to cut a deal that gives away so much for seemingly so little.
Yes, rather than a bullish bet on BofA, what Buffett is bullish on is the power of his own fairy dust to persuade less brilliant investors to buy the common stock of a company that he would only buy preferred shares in. Leveraging the power of his imprimatur to great advantage has become Buffett’s best investment strategy ever.
Of course, Buffett has a plan B — his full faith that under the Obama administration and beyond, Bank of America will not be allowed to fail. At worst, he is betting that the government stands ready to extend a lifeline to bondholders and protect the dividend payout on his preferred shares.
Do Buffett’s summer phone conversations with the White House and his ready supply of one-liners to President Obama about the need to raise taxes on the super-rich give him added confidence in this belief? Did Bank of America CEO Brian Moynahan get a nudge from the administration to cut the deal with Buffett? We will probably never know.
What we do know is that America’s biggest bank was forced this past week to take $5 billion dollars from Buffett at a rate higher than what even Italy and Spain currently have to pay, and that even then Bank of America had to throw in a sweetener in the form of 700 million warrants — or 7 percent of the company.
That is not a good thing for any American who is not named Buffett. The Oracle gets credit for working the press, the president and much of corporate America to his great advantage. But it’s important to remember that what’s good for Warren Buffett isn’t necessarily good for America.