Berkshire Hathaway today announced that it will exercise its warrants for 700 million Bank of America shares.
Bank of America, which is the second largest bank in the country by assets, received permission from the Federal Reserve on June 28 to increase its per-share dividend to 48 cents a year. Warren Buffett is exercising these warrants and swapping its preferred stock into the common stock since Berkshire will receive annual dividends of $336 million from the common stock, which exceeds the $300 million it currently receives on its $5 billion of 6% preferred stock that it purchased in August, 2011. Berkshire will be purchasing the 700 million shares of Bank of America common stock at $7.14 per share, or $5 billion. At Bank of America’s closing price yesterday of $24.32, Berkshire’s investment is valued at $17.0 billion, which results in Berkshire being its largest shareholder with a 7% stake.
Upon the exercise of these warrants, Berkshire will be the largest shareholder of both the second and third largest U.S. banks. Berkshire’s 10% stake in Wells Fargo, which is the third largest bank, is currently valued at $27.9 billion. (The largest U.S. bank by assets is JPMorgan Chase.) Bank of America will be one of Berkshire Hathaway’s five largest common stock investments which also include Wells Fargo, Kraft Heinz, Coca-Cola, and Apple.