Bank of America, which is the second largest bank in the country by assets, received permission from the Federal Reserve on June 28 to increase its per-share dividend to 48 cents a year. Warren Buffett is exercising these warrants and swapping its preferred stock into the common stock since Berkshire will receive annual dividends of $336 million from the common stock, which exceeds the $300 million it currently receives on its $5 billion of 6% preferred stock that it purchased in August, 2011.
Berkshire will be purchasing the 700 million shares of Bank of America common stock at $7.14 per share, or $5 billion. At Bank of America’s closing price yesterday of $24.32, Berkshire’s investment is valued at $17.0 billion, which results in Berkshire being its largest shareholder with a 7% stake.
Upon the exercise of these warrants, Berkshire will be the largest shareholder of both the second and third largest U.S. banks. Berkshire’s 10% stake in Wells Fargo (NYSE:WFC), which is the third largest bank, is currently valued at $27.9 billion.
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