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Warren Buffett’s Berkshire Hathaway is now the biggest owner of two of the world’s largest banks: Bank of America and Wells Fargo.
On Wednesday, the Federal Reserve cleared the way for Buffett to become Bank of America‘s largest shareholder.
It passed all the big banks on their so-called stress tests, giving them permission to use their capital for things beyond buffering against disaster, including share buybacks and dividend payments.
Bank of America raised its dividend to $0.12 a common share.
That made it compelling for Berkshire to convert its preferred shares into common stock, giving it shareholder ownership, and earning as much as $12 billion in profit. Berkshire announced on Friday that it would exercise its warrants to buy 700 million common shares of Bank of America, the third-largest US bank by market cap, instead of waiting until just before their expiry in 2021.
In a statement, the bank said it welcomed Buffett’s decision.
With $2.19 trillion in assets, Bank of America ranked ninth in the world, according to an S&P Global Market Intelligence ranking released in April.
Buffett’s initial investment in the bank dating back to 2011 was a thumbs-up of sorts to CEO Brian Moynihan, who had recently taken the helm. It was also a bet that the bank would recover from the fallout of toxic mortgage securities.
He acquired $5 billion of Bank of America preferred stock with a 6% dividend, or $300 million annually, in August 2011, at a time when investors worried about the bank’s capital needs, Reuters reported.
The conglomerate said last July that it owned more than 10% of Wells Fargo, which on Friday amounted to nearly 537 million shares, according to Bloomberg. It’s the second-largest bank in the US by market capitalization and was the 10th largest in the world by assets, according to S&P.