It has been a good week for Bank of America (BAC 24.32). Its stock is up 6.6% since last Friday, fueled in part by the news after Wednesday's close that the Federal Reserve approved the bank's capital plan to repurchase $12 billion in common stock and increase its quarterly common stock dividend by 60% to $0.12 per share beginning in the third quarter. BAC is up another 0.9% in pre-market trading after winning a vote of confidence so to speak from none other than Berkshire Hathaway (BRK.A 253,901.00).
Earlier this morning, it was announced that Berkshire Hathaway will exercise its warrants to acquire 700,000,000 shares of Bank of America common stock at the exercise price of $7.142857 when the dividend increase occurs. Berkshire said it expects to use the $5 billion of Bank of America 6% Preferred Stock that it currently owns to pay for the acquisition of the common shares.
Warren Buffett's Berkshire Hathaway provided the $5 billion capital infusion to Bank of America in 2011. The bank itself didn't seek the funding from Warren Buffett, yet it recognized the strategic merit of his backing at the time, albeit at a hefty cost of $300 million in annual dividend payments.
Since that deal closed on September 1, 2011, shares of BAC have risen approximately 235%.
With the exercise of the warrants, which had a 10-year exercise period, Berkshire Hathaway will own roughly 7.0% of BAC's outstanding stock and will collect $84 million in dividend payments each quarter, or $336 million annually, with the new dividend rate.