Berkshire Hathaway Inc. (BRK.B) To Soon Become Largest BAC Shareholder

Berkshire Hathaway Inc. (BRK.B) To Soon Become Largest BAC Shareholder

In February, Mr. Buffett said in his annual letter to shareholders that Berkshire planned to make the switch in its Bank of America stake if the bank could increase its annual dividend to 44 cents a share.

This all goes back to Berkshire's 2011 deal to invest $5 billion in preferred shares of Bank of America, which at the time was struggling with numerous legal issues in the wake of the subprime mortgage crisis.

But if Buffett were to swap his preferred shares for those 700 million shares of common shares, he would be looking at higher dividends of $336 million a year. The purchase of common stock at a discount means a profit, on paper, of $11.7 billion.

Berkshire said it would exercise its warrants for 700 million common shares of Bank of America following a dividend increase by the lender to 12 cents per share. That would make Berkshire the largest shareholder, according to FactSet, just above the 652.4 million shares, or 6.6% stake, owned by The Vanguard Group.

Shares of the bank were trading Friday morning at around $24.36.

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

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Buffett insists that Berkshire Hathaway keep a minimum of $20 billion in cash at all times, and it often has a lot more than that.

The move came after Bank of America's decision Wednesday to raise its annual dividend by 60% to 12 cents a quarter.

Consideration will be the $5B of Bank of America preferred shares now held by Berkshire.

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.

Bank of America shares are up about 83% over the past 12 months in large part because of a big rally right after the November election.

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