Is Warren Buffett About to Become Bank of America's Biggest Shareholder?

Is Warren Buffett About to Become Bank of America's Biggest Shareholder?

Berkshire has warrants to buy 700 million common shares of Bank of America at $7.14 each, or about $5 billion.

Exercising the warrants will also give Berkshire a 6.6% stake in BoA, which puts it just ahead of the Vanguard Guard that before the warrant issue held 6.6% of the bank.

The Fed has ok'd Bank of America's dividend hike, and that clears the way for Berkshire to purchase 700 million common shares. Buffett had said he would convert if the dividend rose above $0.44. (NYSE:BRK.B) continues to bet on a turnaround in the USA financial sector, with an upcoming move making it the largest shareholder in one of the biggest US banks.

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By converting the preferred stock into common shares, Berkshire's payout will rise to $336 million a year. With Bank of America trading up 0.3% at $24.40 today, that's a nice $12 billion profit.

And on Friday, June 30, Berkshire announced it would - as promised - swap $5 billion in preferred Bank of America stock for 700 million of the Charlotte, N.C. -based lender's common shares, worth about $17.1 billion. Buffett bought his shares for around $7.14 in 2011.

BAC lifted its annualized dividend payout to 48 cents per share from 30 cents per share on Wednesday, following positive results from regulators' so-called stress tests conducted on all USA banks.

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Warren Buffett took a chance on Bank of America and it is about to pay off to the tune of $12 billion dollars.

The terms, though, were expensive for Bank of America. He earns about $300 million annually just for holding the stake.

In recent years, Buffett had indicated that Berkshire would probably exercise its Bank of America warrants shortly before they expired in 2021.

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Bank of America said it would make the dividend increase official "beginning in the third quarter of 2017". The 57-year-old lawyer has worked to restore the bank's relationships with shareholders after years of large mortgage fines and losses stemming from the bank's crisis-era purchases of Countrywide and Merrill Lynch.

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