Warren Buffett has a strong cash pile. That’s well known. And that’s why whenever a large corporation suffers financial difficulties, they turn to Berkshire Hathaway Inc. (NYSE:BRK.A) (NYSE:BRK.B). It gives Warren Buffett an opportunity to negotiate better terms of the deal. And a similar deal has given Buffett more than 100% return in just two years.
Warren Buffett’s bet on Bank of America
Recently Warren Buffett had a private dinner with Bank of America Corp (NYSE:BAC) CEO Brian Moynihan at Happy Hollow Club in Omaha, where the Oracle of Omaha is a member. People familiar with the special dinner told Kayla Tausche of CNBC that the two legends discussed the banking sector, the U.S. economy and the state of Berkshire Hathaway Inc. (NYSE:BRK.A) (NYSE:BRK.B)’s $5 billion investment in Bank of America.
In August 2011, Warren Buffett invested $5 billion in Bank of America Corp (NYSE:BAC). The banking giant’s stock has soared more than 100% since then, giving Warren Buffett $5.27 billion in net paper profit in just two years. Warren Buffett had loaned that sum to Bank of America by purchasing preferred shares of the company. Bank of America Corp. (NYSE:BAC) pays Berkshire Hathaway Inc. (NYSE:BRK.A) (NYSE:BRK.B) a 6% annual dividend ($300 million). Moreover, Warren Buffett’s firm received warrants that allowed it to purchase Bank of America stock at $7.14 a share. The stock now trades at around $14.36.
The deal is for 10-years, and the dividend of $300 million is definitely a costly affair for Brian Moynihan’s bank. If Bank of America Corp (NYSE:BAC) decides to buy Berkshire Hathaway Inc. (NYSE:BRK.A) (NYSE:BRK.B)’s stake out before the contract is over, it will have to pay a 5% premium to Warren Buffett.
Buffett has been bullish on banking sector. According to Berkshire Hathaway Inc. (NYSE:BRK.A) (NYSE:BRK.B)’s latest 13F filing, Buffett boosted his stakes in U.S. Bancorp (NYSE:USB) and Wells Fargo & Co. (NYSE:WFC). Meanwhile, he cut holdings in Mondelez International Inc (NASDAQ:MDLZ) by 92% and in Kraft Foods Group Inc (NASDAQ:KRFT) by 88%.
Class-B shares of Berkshire Hathaway Inc. (NYSE:BRK.A) (NYSE:BRK.B) were down 0.25% to $114.95, and Bank of America Corp. (NYSE:BAC) shares skidded 1.18% to $14.25 at 12:54 PM EDT.
