In 2011, Warren Buffett’s Berkshire Hathaway invested $ 5 billion in Bank of America in exchange for preferred shares and the right to buy 700 million ordinary shares, now worth 17 billion dollars.
Billionaire Buffett plans to execute warrants obtained six years ago in a vote of confidence to Bank of America (BofA) when its shares fell during multi-million dollar investigations linked to the housing crisis. The cash injection helped the bank dispel doubts about whether it had enough capital, and its shares have more than tripled since then.
Berkshire said in a statement that it would convert its preferred shares into common shares once the Charlotte, North Carolina-based bank raises its dividends, now planned for early in the third quarter.
Buffett explained his justification for the conversion, which will make him the company’s largest shareholder, in a February letter to investors, in which he explained by converting preferred stock into common stock, the Berkshire dividend will rise to $ 336 million annually.
After receiving Federal Reserve approval for its capital plan, Bank of America said on June 28 that it planned to increase dividends by 60 percent to 12 cents per quarter. The $ 12 billion increase adds up to more than $ 1.5 billion in dividends from the preferred share in the last six years.
The episode underscored Buffett’s role as a financial bailiff and resembles the confidence-building investments he made at Goldman Sachs and General Electric during the 2008 crisis.