With 1 move this week, Berkshire Hathaway made a paper profit of $12 billion while becoming the largest shareholder of Bank Of America
August 2011, in the aftermath of financial crisis, when Bank of America was still coping with legal struggles and national investments into its foreclosure practices, Berkshire Hathaway agreed to purchase Bank’s preferred stocks, which paid a 6% dividend (300 million annually )
Most importantly, the investment came with warrants giving BH the right to swap its preffered Bank Stock for 700 million shares of common stock at a price of $7.14 each.
Back in 2011 august, when Bank of America shares were traded below $7 that may seem like a reasonable deal from the standpoint of bank of America shareholders.
But on Friday morning, stock was at $24.5. Buffets firm said that it would indeed exercise the warrants.
BH will officially exercise its warrants on Monday, when Bank of America is boosting its dividend rate from 44 to 48 cents.
After the swap is completed, BH will get $336 million annually , which is more than $300 million.
Therefore, BH spent $ 5 billion on Bank of America stock that’s now worth over $17 billion. That’s a paperprofit of over $12 billion at the same time his company will collect 10s of billions more in dividends.
Kashvi Gandhi 