Bank of American Buys Stake in Countrywide

Bank of American bought 20,000 shares of Countrywide preferred stock for $2billion.  One would think that Countrywide and its CEO would be delighted. But an interview with Countrywide CEO Angelo Mozilo found him less than enthusiastic.  Why?  This is not ordinary, garden variety preferred stock. First it is convertible into common at $18 when the market price of common is $22 or so; it is in the money.  Second it carries a preferred dividend of 7.25%, huge considering the conversion feature is in the money.  And third, it comes with a boatload of protective covenants.  The covenants will give Bank of American substantial say in how Countrywide will do business.  The hidden secret in modern special preferred stock offerings is that they come with covenants that, in essence, take the company, or at least the value of the company, away from other shareholders.  Mozilo should be sorrowful; he has ceded a substantial amount of control.