Buffett's Berkshire to Become Bank of America's Biggest Holder

Posted July 01, 2017

The 700 million-share stake in the bank will make Berkshire the largest shareholder in Bank of America, exceeding mutual fund giant Vanguard.

Buffett bought US$5bn worth of BoA preferred stock with warrants attached in 2011.

But wait, you might say, the Oracle of Omaha will no longer get his $300 million a year in annual interest payments - so that may take some of the shine of the deal.

Berkshire is sitting on a roughly US$12 billion paper profit, because Bank of America's stock price is more than triple the US$7.14 exercise price for the warrants.

Buffett's move underscores his confidence in Brian Moynihan, Bank of America's chief executive.

The Fed has ok'd Bank of America's dividend hike, and that clears the way for Berkshire to purchase 700 million common shares.

Mr. Buffett, Berkshire's chairman and CEO, amassed stakes in a number of lenders and financial-services companies, sometimes at cut-rate prices around the financial crisis.

It was made possible by Bank of America's June 28 decision to boost its quarterly dividend to 12 cents per share from 7.5 cents, after passing the Federal Reserve's latest "stress test" of its capacity to weather hard markets.

In recent years, Buffett had indicated that Berkshire would probably exercise its Bank of America warrants shortly before they expired in 2021. Berkshire's other bank holdings as of March 31 included Wells Fargo, Bank of New York Mellon Corp., American Express Co., Goldman Sachs Group Inc., M&T Bank Corp. and U.S. Bancorp.

In a February letter to investors Buffett laid out his thinking for the conversion, which will make him the company's biggest shareholder.

Bank of America is up 7.93% this year and now trades at $24.36.

-Austen Hufford contributed to this article.