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Warren Buffett's Investment In Bank Of America Is Doing Just Fine

18.05.12

As if an afterthought, Ovide mentions that "Buffett's warrants may be exercised in whole or in part in the 10 years following the closing of the deal, so he can afford to be very patient with Bank of America's stock price. But Buffett already is waiting out his other crisis investments, too." Ovide finishes up the article by mentioning that Buffett is down 25% to date on his Goldman Sachs ( GS ) warrants.

The best way to analyze articles like these are by asking two questions-first, what does this really mean for Warren Buffett and shareholders of Berkshire Hathaway ( BRK.A )? And secondly, what can we, as everyday potential investors, take away from it?

First of all, from a Berkshire perspective, the deal with Bank of America has, and will continue to, mint money for Berkshire shareholders. To date, Buffett has not bought one single common share of BAC stock. When Buffett made his August investment, Bank of America created a special classification of preferred shares, and issued Berkshire 50,000 shares of this preferred BAC stock, valuated at $100,000 per share, which constitutes the $5 billion investment in Bank of America that most of the headlines blare. The terms of these preferred shares for Buffett is that Bank of America will pay Berkshire Hathaway 6% annually, or $300 million per year in interest, indefinitely until Bank of America decides to return the $5 billion to Berkshire, at which point it will have to pay an additional 5% premium, or $250 million, to Berkshire as part of the closing terms of the deal.

Source: Seeking Alpha