Bank deal will earn Buf­fett’s firm $12B

Northwest Arkansas Democrat-Gazette - - BUSINESS & FARM -

OMAHA, Neb. — War­ren Buf­fett’s bet on Bank of Amer­ica Corp. is about to pay off with a roughly $12 bil­lion wind­fall.

The bil­lion­aire plans to ex­er­cise war­rants ob­tained six years ago from Bank of Amer­ica while its shares were tum­bling amid multi­bil­lion-dol­lar in­ves­ti­ga­tions tied to the hous­ing melt­down. The cash in­fu­sion helped the bank put to rest doubts about whether it had enough cap­i­tal, and its shares have more than tripled since then.

In the 2011 deal, Buf­fett’s Berk­shire Hath­away Inc. in­vested $5 bil­lion in Bank of Amer­ica in ex­change for pre­ferred stock and the right to buy 700 mil­lion com­mon shares, a stake now worth $17 bil­lion. Berk­shire said in a state­ment Fri­day that it would con­vert its pre­ferred shares into com­mon stock once the Char­lotte, N.C.-based bank in­creases its div­i­dend, now planned for the be­gin­ning of the third quar­ter.

Buf­fett laid out his think­ing for the con­ver­sion, which will make him the com­pany’s big­gest share­holder, in a Fe­bru­ary let­ter to in­vestors, say­ing the de­ci­sion would come down to sim­ple math: The pre­ferred in­vest­ment pays $300 mil­lion a year in div­i­dends, so it makes sense to con­vert that into com­mon stock if those shares be­gan earn­ing more.

After re­ceiv­ing Fed­eral Re­serve ap­proval of its cap­i­tal plan, Bank of Amer­ica said on Wed­nes­day that it planned to in­crease its div­i­dend 60 per­cent to 12 cents a quar­ter. By con­vert­ing the pre­ferred stake into com­mon shares, Berk­shire’s pay­out will rise to $336 mil­lion a year. The $12 bil­lion in gains comes on top of more than $1.5 bil­lion in div­i­dends from the pre­ferred stake over the past six years.

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