Under the guise of Mr. nice guy

Buffett spars with DC over $1B+ ResCap debt

By JOSH KOSMAN

There appears to be a cool breeze blowing across what once was a warm Warren Buffett-President Obama friendship.

Exhibit A is the unusually hostile tack Buffett took with the Obama administration this week when he asked a judge to allow an independent probe of the deals worked out between the government-owned Ally Financial and its bankrupt ResCap unit.

The deals had been OK’d by Obama’s Treasury Department.

But Buffett’s request was tossed aside yesterday when Bankruptcy Judge Martin Glenn ruled in favor of a competing request — from ResCap’s creditors’ committee.

The committee wants to look at the deals. Buffett presumably believes that fellow unsecured committee members, like monoline insurers who have reached settlements with ResCap, are biased and wanted a second probe.

ResCap seeks to release Ally from claims.

“The fact [Judge Glenn] approved the committee today was quite bad for Buffett,” a source close to the case said.

“I would have to imagine the probability of him getting an independent examiner just fell.”

A second source close to the case said, “The judge just basically told Buffett to take a hike.”

Buffett’s Berkshire Hathaway owns $900 million in ResCap secured debt, of which it will get paid at face value, plus $500 million of unsecured debt that is now likely worth less than 10 cents on the dollar.

Buffett likely paid between 20 and 50 cents on the dollar for those bonds, the source said.

The Oracle of Omaha’s objection went against his typical style.

He makes a point of not buying companies in hostile bids, and is also not known for challenging bankruptcies.

“What he was trying to do was get more ammunition for a lawsuit,” the second source said. “I do not think the fight is over.”

Buffett, too, in his objection did not complain about the sale of assets to Fortress Investment Group, leading two sources to believe he was not interested in buying ResCap.

Still, there is likely more at play than Ally and ResCap, the first source said.

Buffett, who has been cozying up to the administration, wants it to add amendments to the Dodd-Frank Act that would protect non-financial firms like Berkshire from having to post collateral on its derivatives.

Yet government regulators are not budging from their move to require such collateral, the source said.

Buffett’s objection to the government-owned ResCap bankruptcy may indicate that he is through being warm and fuzzy.

Buffett in 2010 spoke out against new derivatives rules that would impact his firm.

“If we were found to be dangerous to the financial system by the Treasury Department or some commission” we would be required to post collateral on our contracts, Buffett reportedly said, adding that Berkshire was not a danger, since at the time it had 250 derivative contracts while other firms possessed a million contracts.

Posting collateral could cost Berkshire several billion dollars, the source said.

For those who may not remember Ally bank is the successor to GMAC.