Shareholders are commonly able to have private meetings with executives of companies, but it’s quite noteworthy when Warren Buffett is able to have a private dinner with Brian Moynihan, the current chief executive officer of Bank of America.
Both Moynihan in Buffett met on August 6 at the Happy Hollow Club in Omaha, Nebraska, where Buffett is currently a member. The topics of discussion on the menu: the banking sector, the economy and most likely Warren Buffett’s $5 billion investment in Bank of America. It’s said that Buffett treated for this dinner and put it on his club account.
It’s no secret that Buffett is very bullish on the banking center, and this is especially true for the institutions with a strong deposit base, such as Bank of America. Buffett has increased his positions in US Bank and Wells Fargo, and he is also made very large profits for his stakes in General Electric and Goldman Sachs that he picked up during the financial crisis.
The shares of Bank of America have risen by over 100% since Buffett took out a stake in the company back in August 2011. That’s why Buffett wanted to thank Moynihan for his now $5.27 billion profit on paper for Berkshire Hathaway. This happened in just two years.
Berkshire also receives a dividend of 6%. This equates to $300 million a year, basically for loaning money to Bank of America by purchasing preferred shares. What’s even more lucrative for Berkshire Hathaway is that it has warrants that allow the company to purchase $5 billion worth of Bank of America’s common stock at $7.14 per share.
Now that the stock is currently trading at $14.36 per share, we see that there is a paper profit of over $5 billion.
At this time, we have no indication when Berkshire Hathaway will look to exit the 10 year deal. The $300 million annual dividend is quite costly for Bank of America; they also must pay a 5% premium to Berkshire Hathaway in order to buy them out prior to the deal ending. In similar situations, both General Electric and Goldman Sachs decided to buy out Berkshire Hathaway in less than three years.