Warren Buffett made about $13 Billion on Bank of America Deal

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’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.

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.

Source: WSJ
Jr Trader Zornitsa Karadzhova

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