by Daniel Costello

A beleaguered Wall Street titan got a much needed infusion of cash and a huge vote of confidence from Warren Buffett. But it's not like the cash came cheap.

Goldman Sachs, a bank based in New York, structured the deal in two parts. First, Buffett's Berkshire Hathaway Inc. is getting warrants — essentially the option to buy shares at a future date — worth $5 billion of common stock for $115 a share at any time in the next five years. Based on yesterday's closing price, Buffett reaped an instant paper profit of $437 million on the warrants.

More eye-opening is that Buffett is buying $5 billion of "perpetual preferred stock" that pays a 10 percent dividend unless the company buys them back at a premium. The highly unusual arrangement gives permanently gives him TEN times the divided payment investors would get on the common stock today.

 

"We view this as expensive capital by just about any measure,'" Guy Moszkowski, an analyst at Merrill Lynch, wrote in a note to clients. "It's a sign of bad times and there appears no way around that.''

Investors appear to be taking the investment — and its tradeoffs — in stride. The company's stock is up 7.34, or 6%, in late day trading.