Berkshire Hathaway buys Bank of America stock, sees $11.7B profit

Tammy Harvey
July 1, 2017

Warren Buffett took a chance on Bank of America and it is about to pay off to the tune of $12 billion dollars. The company increased its dividend payments to 12 cents a share, which will return $336 million a year to Buffett after converting his shares to common stock, according to data from Bloomberg.

The warrants were acquired as part of a deal announced on August 25, 2011, in which Buffett invested $5 billion in preferred stock that paid a 6% annual dividend, almost triple what the yield on the 10-year Treasury note TMUBMUSD10Y, +1.40% was at the time. Well, the preferred stock pays Berkshire 6% on $5 billion, or $300 million per year.

Buffett's common stock shares are now worth about $17 billion, $12 billion more than the purchase price.

Buffett's move underscores his confidence in Brian Moynihan, Bank of America's chief executive.

Bank of America shares rose 0.9% in early trading to $24.53.

Buffett, 86, criticized the Republican plan last month at the annual meeting of his conglomerate, Berkshire Hathaway Inc.

Buffett paid $7 in taxes in 1944, equivalent to approximately $98 today.

Perhaps even more significant from a general shareholder's point of view, Bank of America also announced that its already-generous buyback program would be more than doubled for 2017.

The Warren Buffett-owned company plans to make the purchase at below-market prices through warrants that expire in 2021.

Shares of Bank of America Corp. Berkshire said it will exercise the warrants once that hike is official, instantly making Buffett that $12 billion, or more if the stock continues to go higher. This is the second year in a row that Bank of America has gotten permission to increase both its dividend and buybacks.

-Austen Hufford contributed to this article.

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