Just as Warren Buffett rode to the rescue of Goldman Sachs at the height of the financial crisis, so too is he riding to the rescue of Bank of America.

Bank of America has announced that the sage of Omaha's Berkshire Hathaway has agreed to invest $5 billion in preferred stock that carries a souped-up 6 percent annual dividend. Buffett also gets warrants to buy 700 million common shares at $7.14 each. The deal already looks savvy, as the stock has exploded on the news, no doubt prompting some shorts to cover. Buffett is already in the money on the warrants. Given that these are cumulative perpetual preferred shares, the proceeds count toward Tier 1 capital (albeit on a restricted basis), which is the real news here.

Bank of America has answered its critics in a big way. This should go a long way toward reassuring anyone with short-term worries about the bank's capital adequacy. But this is not a panacea. "White Knights" at this level are excruciatingly expensive. Six percent per annum is not cheap. But it's cheaper than what Goldman Sachs paid. Recall that when Buffett invested $5 billion Goldman Sachs' preferred shares, the interest rate was 10 percent. That translated into $1.4 million per day.

The investment virtually guarantees that common shareholders will not be getting a hike anytime soon, not that people thought that was likely. It's fair to say that Bank of America will try to pay off this loan as soon as possible. When that will be is anyone's guess.

For more:

- here's the release

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