Bank of America [1] will be getting a new investor soon, according to a press release—and that investor’s name is Warren Buffet, Chairman and CEO of Berkshire Hathaway. [2]
The company, who’s 2011, $5 billion deal on preferred stock with Bank of America, also included warrants to purchase 700 million shares of common stock. Buffet shared in a letter to his stockholders that he intends on capitalizing on these warrants.
Bank of America’s stock currently trades at $24.88, as of July 10, 2017; however, Berkshire Hathaway’s warrants allow the company to purchase Bank of America stock at $7.14 per share. With Bank of America recently increasing their dividends to $0.12 per share in response to The Fed [3]'s stress test results [4]last month, 700 million shares amounts to nearly $336 million in dividend payouts over the course of the year.
This isn’t the first time Berkshire Hathaway has invested in a bank. They’ve held American Express since the 60s, and also have positions in Well Fargo, U.S. Bancorp, and Bank of New York Mellon.
The bank stands to benefit from the long-term investment that Buffet is known for, particularly from the vote of confidence that such an investment holds in the market. Bank of America’s stock has been struggling since the housing bubble burst, when it had peaked at around $55 a share. By 2009, the stock was as low as $5 per share. Since that time, Bank of America has been struggling with legal expenses, elevated operating costs as a result of industry mandated regulations, and loan charge-offs. It is estimated that the bank has incurred expenses of close to $200 billion. Since the 2009, the bank’s stock has slowly been climbing back, but still remains 46.6 percent lower than its highest point.a
Berkshire Hathaway’s investment in Bank of America will make the conglomerate the bank’s largest shareholder.