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Buffett becomes Bank of America's top shareholder

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08/29/2017 | 11:12pm CEST
FILE PHOTO - Berkshire Hathaway CEO Warren Buffett visits the BNSF booth before the Berkshire Hathaway annual meeting in Omaha

Warren Buffett's Berkshire Hathaway Inc (>> Berkshire Hathaway) has become Bank of America Corp's (>> Bank of America) largest shareholder by exercising its right to acquire 700 million shares at a steep discount, more than tripling an investment it made six years ago.

Warren Buffett's Berkshire Hathaway Inc (>> Berkshire Hathaway) has become Bank of America Corp's (>> Bank of America) largest shareholder by exercising its right to acquire 700 million shares at a steep discount, more than tripling an investment it made six years ago.

Berkshire is now the largest shareholder in the second- and third-largest U.S. banks, with stakes of roughly 6.6 percent in Bank of America and 10 percent in Wells Fargo & Co (>> Wells Fargo), according to Reuters data.

It also has an interest in JPMorgan Chase & Co (>> JP Morgan Chase & Company), the largest U.S. bank, where Todd Combs, one of Buffett's deputy portfolio managers, is a director.

Bank of America on Tuesday said Berkshire exercised warrants to acquire its shares for roughly $7.14 each, well below their closing price of $23.58, down 14 cents from Monday. The announcement was made after U.S. markets closed.

To pay for the shares, Berkshire swapped $5 billion of Bank of America preferred stock it had bought in August 2011.

Its new common shares are worth roughly $16.5 billion, giving Berkshire a roughly $11.5 billion paper profit.

Berkshire owns more than 90 businesses such as the Geico car insurer, Dairy Queen ice cream and the BNSF railroad.

Buffett has run the Omaha, Nebraska-based conglomerate since 1965. The billionaire turns 87 on Wednesday.

The swap was made possible by Bank of America's decision in June to boost its dividend 60 percent, after the Charlotte, North Carolina-based lender passed a Federal Reserve "stress test" of its ability to navigate tough markets.

It also vindicates Buffett's confidence in Bank of America Chief Executive Brian Moynihan, who accepted his money when the bank was only midway through cleaning up balance sheet and litigation issues tied to the U.S. housing and financial crises.

"In 2011, we welcomed Berkshire Hathaway as a shareholder, and we appreciate their continued support now as our largest common shareholder," Moynihan said in a statement on Tuesday.

Berkshire will collect $336 million of annual dividends from Bank of America, more than the $300 million generated by the preferred stock. It also receives close to $800 million of annual dividends from Wells Fargo.

Some of Berkshire's other large equity investments are American Express Co (>> American Express Company), Apple Inc (>> Apple), Coca-Cola Co (>> Coca-Cola Company (The)) and Kraft Heinz Co (>> The Kraft Heinz Company).

(Reporting by Jonathan Stempel in New York; Editing by Dan Grebler)

By Jonathan Stempel

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Financials ($)
Sales 2017 89 324 M
EBIT 2017 33 338 M
Net income 2017 19 450 M
Debt 2017 -
Yield 2017 1,44%
P/E ratio 2017 14,95
P/E ratio 2018 12,54
Capi. / Sales 2017 3,21x
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Capitalization 287 B
Chart BANK OF AMERICA
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Bank of America Technical Analysis Chart | BAC | US0605051046 | 4-Traders
Technical analysis trends BANK OF AMERICA
Short TermMid-TermLong Term
TrendsBullishBullishBullish
Income Statement Evolution
Consensus
Sell
Buy
Mean consensus OUTPERFORM
Number of Analysts 31
Average target price 27,7 $
Spread / Average Target 2,1%
EPS Revisions
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NameTitle
Brian T. Moynihan Chairman, President & Chief Executive Officer
Catherine P. Bessant Co-COO & Chief Technology Officer
Thomas Kell Montag Co-Chief Operating Officer
Paul M. Donofrio Chief Financial Officer
Thomas J. May Independent Director
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