Warren Buffett Scores $12b Profit on Bank of America Investment

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Warren Buffett is set to become the largest shareholder in the Bank of America due to his quick investment of $12 billion when into the bank during its struggling period, six years back.

 

According to his Berkshire Hathaway said, i will exercise warrants in Bank of America that will make it acquire 700 million common shares in the bank at an exercise price of $7.14 each, or about $5 billion.

 

Shares for Bank of America closed at $24.32 a share on Thursday and thus the stake is worth more than $17 billion.

 

This has given a quick $12 billion paper profit for the Oracle of Omaha.

 

After passing the second of two yearly stress tests by the Federal Reserve, Bank of America revealed on Wednesday that it would hike its annual dividend to 48 cents a share – a 60 percent increase.

 

This was all Berkshire needed to consider exercising those warrants instead of waiting just before their expiration in 2021.

 

Recall that in 2011, Berkshire decided to invest $5 billion in preferred shares of Bank of America – then battling with several legal issues in the wake of the subprime mortgage crisis.

The preferred shares pay a 6 percent annual dividend, or $300 million. At a dividend of 44 cents, the common shares would pay the same. At 48 cents, Berkshire would get $336 million yearly.

 

Reports say a move to exercise the warrants would be seen as bullish for Bank of America shares, meaning it has confidence on Buffett to have an upward momentum.

 

They rose 1 percent in premarket trading on Friday to $24.58 and were already up 7 percent on the week.

 

According to the Bank of America, it would make the dividend increase official “beginning in the third quarter of 2017” and that period starts Monday.

 

Berkshire noted it will exercise the warrants once that hike is official, thus making Buffett that $12 billion, or more if the stock keep soaring.

 

According to FactSet, the Buffett-led conglomerate will thus emerge as the bank’s biggest shareholder, trumping Vanguard at 6.6 percent, that is about 652 million shares.

Warren Buffett is set to become the largest shareholder in the Bank of America due to his quick investment of $12 billion when into the bank during its struggling period, six years back.

 

According to his Berkshire Hathaway said, i will exercise warrants in Bank of America that will make it acquire 700 million common shares in the bank at an exercise price of $7.14 each, or about $5 billion.

 

Shares for Bank of America closed at $24.32 a share on Thursday and thus the stake is worth more than $17 billion.

 

This has given a quick $12 billion paper profit for the Oracle of Omaha.

 

After passing the second of two yearly stress tests by the Federal Reserve, Bank of America revealed on Wednesday that it would hike its annual dividend to 48 cents a share – a 60 percent increase.

 

This was all Berkshire needed to consider exercising those warrants instead of waiting just before their expiration in 2021.

 

Recall that in 2011, Berkshire decided to invest $5 billion in preferred shares of Bank of America – then battling with several legal issues in the wake of the subprime mortgage crisis.

 

The preferred shares pay a 6 percent annual dividend, or $300 million. At a dividend of 44 cents, the common shares would pay the same. At 48 cents, Berkshire would get $336 million yearly.

 

Reports say a move to exercise the warrants would be seen as bullish for Bank of America shares, meaning it has confidence on Buffett to have an upward momentum.

They rose 1 percent in premarket trading on Friday to $24.58 and were already up 7 percent on the week.

 

According to the Bank of America, it would make the dividend increase official “beginning in the third quarter of 2017” and that period starts Monday.

 

Berkshire noted it will exercise the warrants once that hike is official, thus making Buffett that $12 billion, or more if the stock keep soaring.

 

According to FactSet, the Buffett-led conglomerate will thus emerge as the bank’s biggest shareholder, trumping Vanguard at 6.6 percent, that is about 652 million shares.

 

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