Fed now in the syndicated loan business

I want to backtrack to an event from yesterday. The Wall Street Journal (aka Fox News = Faux News) reported that Warren Buffett was eyeballing Countrywide Financial (CFC) as a potential acquisition citing “investors speculating on what Buffett might do with his company's $47 billion in cash.” The story was based solely on what “speculators” apparently think Buffett could (key word) do with his huge $50-billion cache of cash—in their dreams. Later yesterday, Buffett told a commentator on CNBC USA that talk about a Countrywide takeover was pure “speculation.” It’s humorous to watch how speculators use Buffett’s name for its own convenience. On one hand he’s a drooling old man that needs to be fed by boy scouts any time he says something sobering about financial markets. Yet, he’s the greatest value investor ever to wear pants when these morons need to cite one of his investment moves (like his recent purchase of railroad stocks) as being proof positive for the entire universe….So let me get this straight; Citigroup (C), J.P. Morgan Chase (JPM), Wachovia (WB) and Bank of America (BAC) each said they borrowed $500 million from the Federal Reserve's discount window. That’s $2-billion in total (I was always good at math). Furthermore, I guess in a show of support and solidarity, according to the Wall Street Journal (Fox News) the banks all agreed that while they have ‘substantial liquidity and the capacity to borrow money elsewhere on more favorable terms, the companies believe it is important at this time to take a leadership role in demonstrating the potential value of the Fed's primary credit facility and to encourage its use by other financial institutions.’ Sweet guys. You know it’s a momentous occasion when a bunch of guys who would sooner eat their young than help an elderly woman across a busy Manhattan street are performing a task out of concern for others (or are they?). But what's this I spy? Bank of America is making a “substantial investment" in Countrywide Financial? That was how Bob Pisani of CNBC USA announced the news tonight as he sat in for the vacationing Larry Kudlow's Goldilocks Cheerleading Hour; almost giddy like a little girl. Was that $2-billion that’s being invested (loaned)? Where else did I hear of that nice round number? Oh yea, that’s exactly how much those four big U.S. banks borrowed from the Fed’s discount window. No, could it be? Naaaww. Okay, admitedly, I may be sounding a bit conspiratorial. Even still, it would be a stretch to call this an “investment,” as in “equity investment” like Bob Pisani so emphatically proclaimed. Sure the private placement of $2-billion worth of convertible preferred stock is convertible into stock (with certain restrictions), but at $18 per share?? I'm still unclear as to the structure of this deal, but initially its my understanding that its been priced a bit over 3-dollars in the money ($21 - $18). But it seems to me that Bank America is also now exposed to potentially seeing that premium slice-off part of its initial PAR value if shares begin to dip below CFC's closing price of approximately $21/share. If so, this is a sweetheat loan that also entails some equity risk, attached with an obligation of paying Bank of America (and probably the other three banks) a rate of 7.25-percent. I could be wrong about the structure of this deal, but this is my initial take. Nevertheless, a 7.25-percent rate is far lower than Countrywide Credit could have otherwise raised on its own at this juncture after exhausting its $11-billion line of credit last week. In fact, I know of an A2 rated bank that today announced a junior subordinated debt offering that will have to pay approximately 8-percent to raise a currently undisclosed amount. That’s a debt offering structured as a “Capital Trust Preferred.” This issuer, though I'm not enthusiastic about its prospects is at least not on most short lists of impending bankruptcies like that of Countrywide Financial (CFC) (see Merrill Lynch report). Why the sweetheart deal Bank of America (and Citigroup, JP Morgan and Wachovia)?