What would Buffett do?
As the U.S. Treasury thinks about expanding its capital injection program to include companies such as GE Capital and CIT, it may want to ask itself, what would Warren Buffett do?
Buffett’s Berkshire Hathaway is buying $3 billion of preferred GE shares that carry a 10 percent dividend, and also has the option to buy another $3 billion of GE common stock at $22.25 per share, which is 28 percent higher than the 52-week low of $17.41.
In Goldman, the billionaire investor agreed to buy $5 billion of preferred stock that carries a 10 percent dividend and receive warrants to buy $5 billion of common stock at $115 per share, now 55 percent higher than the 52-week low of $74.
Compare that to what the Treasury has done so far.
In JPMorgan Chase, for instance, the Treasury bought preferred shares worth $25 billion, carrying a dividend of just 5 percent for the first five years and 9 percent after that. It also got warrants for 88.4 million shares at an exercise price of $42.42, which is 45 percent higher than the year’s low of $29.25.
One banker said the election could determine the terms on which the Treasury decides to make more capital injections, with taxpayers likely to get a better deal under Barack Obama.
“Any deal would look more like a Buffett deal than a Paulson deal,” said Dan Alpert, a banker at Westwood Capital in New York.
(Reporting by Paritosh Bansal and Dan Wilchins. Photo credit: Reuters)