Berkshire to become Bank of America's top shareholder after share swap

01 July, 2017, 00:55 | Author: Valerie Burke
  • J. Kempin via Getty Images
Warren Buffett chairman and CEO of Berkshire Hathaway has expressed his support of a single-payer health care system

Friday's move was largely expected after Buffett said in his company's annual report this year it would make sense if the bank's annual dividend rose above 44 cents per share. Buffett's Berkshire Hathaway is buying 700 million shares in Bank of America, making Buffett the largest shareholder in two of the nation's largest banks. The preferred shares paid $300 million annually in dividends.

The move, which would yield an immediate gain of about $12.1 billion, was prompted by the Federal Reserve's decision this week to let Bank of America increase its yearly dividend to 48 cents a share, Berkshire said in a statement.

The billionaire will exercise several warrants obtained six years ago that were a vote of confidence in the bank while its shares were tumbling during probes from the housing meltdown of 2007-2008.

The second-largest United States bank boosted its annual dividend this week to 48 cents per share from 30 cents, beginning in the third quarter.

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

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Berkshire Hathaway says the higher dividend makes the share purchase a good idea.

It was made possible by Bank of America's June 28 decision to boost its quarterly dividend to 12 cents per share from 7.5 cents, after passing the Federal Reserve's latest "stress test" of its capacity to weather hard markets. (AAPL) and Bank of America Corp.

Before his February letter, Mr. Buffett had said he would wait to exercise the warrants, which expire in 2021. The Oracle of Omaha worked similar deals with other banks as well, including Goldman Sachs.

At Bank of America's current share price, the stake would hand Berkshire a tidy $11.7 billion profit, at least on paper. Bank of America has said it expects the increase beginning in the third quarter.

-Austen Hufford contributed to this article.

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