Buffett's BofA Profit: $13 Billion -- WSJ
August 30 2017 - 03:03AM
Dow Jones News
By Rachel Louise Ensign
This article is being republished as part of our daily
reproduction of WSJ.com articles that also appeared in the U.S.
print edition of The Wall Street Journal (August 30, 2017).
Warren Buffett's Berkshire Hathaway Inc. officially became the
biggest shareholder of Bank of America Corp. on Tuesday, notching
billions in gains on the bank's recovery from the financial
crisis.
Bank of America said Berkshire exercised warrants to buy 700
million of its shares at below-market prices, a deal that ties back
to a crisis-era investment. The move makes the famous stock
picker's firm the largest shareholder of the second and third
largest U.S. banks -- the third being Wells Fargo & Co. --
while also providing a vote of confidence for Bank of America
stock.
"Berkshire is going to keep every share for a very long time,"
Mr. Buffett said in an email to the Journal Tuesday.
Berkshire's exercise of the warrants, along with dividends the
company has received on Bank of America preferred stock, brings its
paper gain on its investment in the bank to around $13 billion.
Berkshire bought preferred shares in the bank in 2011 when the
lender sorely needed to shore up investor sentiment. Bank of
America's share price was slumping as investors grew worried about
potentially billions of dollars in legal claims and fines related
to the crisis.
Mr. Buffett helped change the market's perception with the
investment and by calling the bank "well led."
The $5 billion deal also included warrants for Berkshire to buy
700 million shares of Bank of America common stock for $7.14
apiece.
At the time, the strike price was slightly above where Bank of
America's shares were trading. Now, it is now far below the current
price of $23.58 a share.
"In 2011, we welcomed Berkshire Hathaway as a shareholder, and
we appreciate their continued support now as our largest common
shareholder, " Bank of America Chief Executive Officer Brian
Moynihan said in a statement.
The terms of the initial investment were expensive for Bank of
America. The preferred stock paid a chunky 6% annual dividend, or
$300 million a year.
Mr. Buffett said earlier this year that Berkshire planned to
make the switch in its Bank of America stake if the bank could
increase its annual dividend to 44 cents a share from 30 cents a
share. That is because a common-stock dividend of 44 cents would
pay Berkshire more than the $300 million that the preferred stake
provides annually.
In June, the Charlotte, N.C., bank received permission from the
Federal Reserve as a part of the annual "stress test" process to
boost its per-share dividend to 48 cents a year.
Nicole Friedman contributed to this article.
Write to Rachel Louise Ensign at rachel.ensign@wsj.com
(END) Dow Jones Newswires
August 30, 2017 02:48 ET (06:48 GMT)
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