It's Official: Warren Buffett Made About $13 Billion on Bank of America Deal

By Rachel Louise Ensign Features Dow Jones Newswires

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.

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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 is going to keep every share for a very long time," Mr. Buffett said in an email to the Journal Tuesday.

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.

Mr. Buffett helped change the market's perception with the investment and by calling the bank "well led."

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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.

The terms of the initial investment were expensive for Bank of America. The preferred stock paid a chunky 6% annual dividend, or $300 million a year.

Mr. Buffett said earlier this year that Berkshire planned to make the switch in its Bank of America stake if the bank could increase its annual dividend to 44 cents a share from 30 cents a share. That is because a common-stock dividend of 44 cents would pay Berkshire more than the $300 million that the preferred stake provides annually.

In June, the Charlotte, N.C., bank received permission from the Federal Reserve as a part of the annual "stress test" process to boost its per-share dividend to 48 cents a year.

Nicole Friedman contributed to this article.

Write to Rachel Louise Ensign at rachel.ensign@wsj.com

(END) Dow Jones Newswires

August 29, 2017 17:53 ET (21:53 GMT)