Did Bank of America Pull a Warren Buffett?

1. B of A has said all along that it likes the mortgage product and the business potential that mortgages add to its overall consumer banking franchise. Believe it, because mortgage customers are more likely to have multiple financial services. And B of A has effectively marketed its no fee mortgage for both first mortgages and home equity lines of credit to expand its market share in 2007. Getting a 16% share of CFC is smart investing.

2. B of A has also consistently maintained that it has concerns about how many firms operated their mortgage businesses. Smart thinking, as the pile of failed companies grows every week. However, B of A knows that CFC will be the last independent mortgage company to need a real bailout to avoid failure. What CFC needed now was a confidence building investment to improve the odds that it will survive as a market leader, not a wounded, aging former market leader. The price and yield on this deal are reminiscent of Warren Buffett.

3. CFC now has $2 billion additional capital to weather the likely increase in non performing loans and loan loss reserves that will matriculate over the next six to 9 months. As long as the US economy avoids an outright recession, CFC should be able to successfully manage through the earnings decline that is brewing.

4. CFC shareholders might not be thrilled to see another 16% share of stock float, but that reality is far better than the possibility of a liquidity crunch that could have crippled CFC's day to day operations. The need for an $11.5 billion credit advance from 40 banks in the last week raised eyebrows. If CFC's stock recovers over the next few years, shareholders will be glad B of A was there and will not begrudge B of A for doubling its investment plus the interest carry on its $2 billion.

5. This deal completes a winning triple play for B of A on the investment and acquisition front: China Construction Bank, LaSalle Bank, and now CFC.