Berkshire Hathaway to Become Bank of America’s Largest Shareholder After its Announcement Today

    Author Grace ChangPosted on Categories Insurance, FinancialTags , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , ,
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    Multinational conglomerate investment company Berkshire Hathaway (NYSE:$BRK.A) has just announced that it will be buying 700 million shares of Bank of America’s (NYSE:$BAC) stock — putting Berkshire Hathaway to be the bank’s majority shareholder. Berkshire Hathaway, founded and lead by Warren Buffett himself, had gotten the rights to purchase the 700 million shares back in 2011 when the company bought $5 billion worth of Bank of America’s stock.

    By exercising these rights to purchase, Berkshire Hathaway will be quite nicely rewarded today. The rights allow the investment company to buy the stocks at $7.14 per share, less than half of the stock’s most recent closing price of $24.68. Berkshire Hathaway said that it will be exchanging the preferred shares for the common stock, following the terms of the deal made in 2011.

    From this, Berkshire Hathaway is set to gain about $12 billion in profit — another success for the company’s streak of stock transactions that ended up in big profits. Besides the $12 billion, Berkshire Hathaway stands to make even more profit from Bank of America’s dividends after its recent 60% raise to quarterly dividends to be $0.12 per share. This means that about $336 million in dividend payouts will be granted to Berkshire Hathaway annually.

    The purchase is also beneficial to Bank of America — mainly in gaining the confidence of investors. Having Buffet, a famous investor that many in the business look towards for advice, as a major shareholder will definitely be good for the bank’s stocks. Buffet is known for investing long term in stocks he believes are worth it. Through Berkshire Hathaway, Buffet has been a major shareholder for American Express (NYSE:$AXP) since the 1960s. He has also held onto his large stake in Wells Fargo (NYSE:$WFC) despite the bank’s recent scandals regarding fraudulent banking accounts.

    Overall, both shareholders of Berkshire Hathaway and Bank of America should be pleased with today’s news as the purchase will be beneficial for both companies.

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    Author Grace Chang
    About the author: Grace is currently studying at UBC to achieve her BA in Computer Science. She is due to graduate in 2020. As a content creator, Grace has written financial analysis, stock market news, and informational investing articles. She also worked as an editor with her university publication 'UBC Undergraduate Journal of Art History'.