How Bank of America Landed a Spot in Warren Buffett's 'Big Four'

How Bank of America Landed a Spot in Warren Buffett's 'Big Four'

How Bank of America Landed a Spot in Warren Buffett's 'Big Four'

Warren Buffett could be very close to trading in his Bank of America preferred shares - and becoming the company's largest shareholder. Well, the preferred stock pays Berkshire 6% on $5 billion, or $300 million per year.

Berkshire said it would exercise its warrants for 700 million common shares of Bank of America following a dividend increase by the lender to 12 cents per share.

Berkshire's move, which would make the company BofA's biggest shareholder, also delivers on expectations that Buffett raised in his annual letter to shareholders.

BofA announced this week that it was raising its annual dividend to 48 cents a share from 30 cents, beginning in the third quarter.

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Mr. Buffett has not talked often about the Bank of America stake.

Berkshire is also the largest shareholder in Wells Fargo, which sends Buffett close to US$800 million of annual dividends. The $12 billion in gains come on top of $1.5 billion it received from preferred stake over the past six years. It seems Buffett would likely take this action as long as he believes Bank of America's stock would remain stable to higher. That initial BAC purchase included 700 million common share warrants, which dictated Buffett could buy the shares at a paltry $7.14 each - less than 1/3 of BAC's Thursday closing price of $24.32.

In August 2011, with many on Wall Street concerned that BofA didn't have sufficient capital and with its shares in a swift retreat - they were down 30 percent in the first three weeks of the month - Buffett stepped forward with a $5 billion investment in the bank's preferred shares.

Buffett insists that Berkshire Hathaway keep a minimum of $20 billion in cash at all times, and it often has a lot more than that. The Oracle of Omaha worked similar deals with other banks as well, including Goldman Sachs.

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