- Warren Buffett invested $ 5 billion in Bank of America in August 2011, providing the crucial vote of confidence and cash cushion to the struggling lender.
- The famous investor and Berkshire Hathaway CEO had the idea to invest while bathing, and was initially blocked by a call center employee before getting through to Bank of America CEO Brian Moynihan.
- The pair signed an agreement within 24 hours centered on Berkshire receiving preference shares and stock warrants in return for its cash.
- Berkshire exercised warrants in 201
- Bank of America remains Berkshire’s most valuable stake after Apple.
- Visit the Business Insider website for more stories.
Warren Buffett plowed 5 billion. $ In Bank of America during the US sovereign debt crisis in 2011 and created confidence in the loaned lender and beat one of the most lucrative deals of his career.
Here’s the story of how the billionaire investor and Berkshire Hathaway CEO stepped in to help one of America’s largest banks and make a fortune in the process.
A bathtub, a call center and a billion dollar deal
Buffett bathed in late August 2011, reflecting on his investments in American Express and Geico during difficult times for both companies, as he had the idea of betting on Bank of America, Fortune reported.
The investor tried to get through to the bank’s CEO, Brian Moynihan, but was initially blocked by a call center employee.
“Warren asked to speak to me, and of course they do not transfer everyone who calls call centers to the CEO’s line,” Moynihan told David Rubenstein in a Bloomberg interview last year.
Buffett eventually came through to Moynihan and suggested an investment in his company. Moynihan replied that Bank of America did not need the capital.
“I know, that’s why I’re calling,” Buffett replied, adding that accepting his money would provide stability, an approval stamp and a money pad.
Moynihan joined in, and the couple signed an agreement less than 24 hours after speaking for the first time. Buffett’s cash hit Bank of America’s account a few days later.
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Warren received his warrants
Buffett and Moynihan agreed that Berkshire would give $ 5 billion in cash to Bank of America in exchange for $ 5 billion in preferred shares that can be redeemed at a premium of 5% and pay an annual dividend of 5%.
Berkshire also received stock warrants giving it the right to buy 700 million of the bank’s ordinary shares at a price of $ 7.14 per share. Shares. The warrants could be exercised at any time over the next 10 years.
The trading conditions repeated Buffett’s rescue of Goldman Sachs and General Electric during the financial crisis in 2008. The investor also demanded preferred shares and warrants in these cases.
Buffett outlined his rationale for investing in Bank of America in his 2011 shareholder letter.
“Some big mistakes were made by previous management,” he said. “Brian Moynihan has made excellent progress in cleaning these up.”
The bank manager “nurtured a huge and attractive underlying business that will endure long after today’s problems are forgotten,” Buffett continued, adding that Berkshire’s warrants “are likely to be of great value before they expire.”
The investor waited to apply warrants until the dividend of 700 million of the bank’s ordinary shares exceeded $ 300 million in annual income from the preferred stock.
He exercised them all in August 2017, covering the $ 5 billion cost of handing over virtually all of Berkshire’s preferred shares.
Berkshire’s ordinary shares were over DKK 20 billion. Dollars at the end of 2017 – more than tripled the cost of the initial investment, even before they took the dividend.
Buffett has since increased its position to more than 1 billion shares. Berkshire is the bank’s largest shareholder, while Bank of America is the second largest shareholder after Apple.
The investor has since been chasing another “eureka” moment.
“I’ve spent a lot of time in the bathtub since, and nothing has come to me,” he said at Berkshire’s annual shareholders’ meeting in 2017.
“Obviously I either need a new bathtub or we’ll have to get to a different kind of market.”
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