Bank of America Corporation (NYSE: BAC) has just scored its saving grace. Berkshire Hathaway Inc. (NYSE: BRK-A) is investing $5 billion in 6% preferred shares and warrants. What makes this different from other bank investments is that Buffett actually approached Brian Moynihan for this one.
BofA is selling 50,000 shares of Cumulative Perpetual Preferred Stock at $100,000 per share to Berkshire Hathaway in a private offering with a 6% dividend payable quarterly. These shares are also redeemable by the company at any time at a 5% premium.
Berkshire Hathaway will also receive warrants to purchase 700,000,000 shares of Bank of America common stock at an exercise price of $7.142857 per share. Mr. Buffett is already profitable on these this morning now. The warrants can be exercised in whole or in part at any time during the 10-year period following the closing date of the transaction.
Brian Moynihan was quoted, “We are building the best franchise in financial services and we have laid out a clear plan to deliver long-term shareholder value. I remain confident that we have the capital and liquidity we need to run our business. At the same time, I also recognize that a large investment by Warren Buffett is a strong endorsement in our vision and our strategy.”
Here is where Buffett takes the claim… “Bank of America is a strong, well-led company, and I called Brian to tell him I wanted to invest in it. I am impressed with the profit-generating abilities of this franchise, and that they are acting aggressively to put their challenges behind them. Bank of America is focused on their customers and on serving them well. That’s what customers want, and that’s the company’s strategy.”
If you recall, Buffett also invested in General Electric Co. (NYSE: GE) and in Goldman Sachs Group Inc. (NYSE: GS) during times of need. The difference is that Buffett got 10% preferred shares then. This is a 6% preferred share.
The big question is simple… Does this mean that Buffett is changing his tune on increasing his Wells Fargo & Co. (NYSE: WFC) super-investment? That is one of his largest holdings.
BofA shares are soaring on the news. Right before the open we have shares up 21% at $8.47 after a $6.99 close. The 52-week range is $6.01 to $15.51.
Buffett may have just put a $1 billion paper gain on the balance sheet of Berkshire Hathaway.
JON C. OGG