Warren Buffett May Soon Be The Largest Shareholder In A 2nd US Megabank

Tyler Durden's picture

Remember when Warren Buffett anecdotally "took a bath" when he decided to effectively rescue Bank of America with a $5 bilion equity injection in 2011? He may be due for another bath any minute.

Warren Buffett, already the largest shareholder in recently disgraced Wells Fargo, could soon become the largest shareholder in another US megabank after Bank of America said it would raise its dividend by 60%, from 30 cents to 48 cents, moments after the Federal Reserve gave it and 32 other SIFI-designated US lenders the greenlight to pursue plans to return capital to shareholders (though it did ask Capital One to resubmit its plan). BAC also announced a buyback plan worth $12 billion.

Buffett said in February’s letter to shareholders that an increase in BAC’s dividend above 44 cents would likely prompt him to swap Berkshire's preferred shares in the second-largest bank into common shares now worth about $16.7 billion, according to Reuters. Doing so would make Buffett the largest shareholder in the US’s second and third largest banks - and more than triple a $5 billion investment made fewer than six years ago.

It would also signal Buffett's confidence in Brian Moynihan, Bank of America's chief executive, who has worked to restore investors' confidence in his Charlotte, North Carolina-based bank after it spent more than $70 billion since the global financial crisis to resolve legal and regulatory matters, largely from its purchases of Countrywide Financial Corp and Merrill Lynch & Co.

"Buffett has said he is very happy with what Moynihan's doing, and it's easy work for him to get more dividends," said Bill Smead, whose $1.16 billion Smead Value fund includes shares in BAC and Wells. "For Bank of America, it would mean a further endorsement by the most spectacular large-cap stock picker of all time."

Buffett, the world’s fourth-richest man with a net worth of $76.1 billion, according to Forbes, bought $5 billion of Bank of America preferred stock with a 6 percent dividend, or $300 million annually, during a fire sale in August 2011 as the bank worried about its capital needs. The purchase included warrants to acquire 700 million common shares at $7.14 each, less than one-third Wednesday's closing price of $23.88.

As Dow Jones Newswires points out, the preferred shares have little downside, so long as Bank of America stays solvent. But they have no upside either. With a change in Berkshire's shares, Mr. Buffett effectively would be saying that he would like to take part in possible gains on Bank of America's stock as well as enjoy a steady dividend. After the exchange, Buffett's firm, Berkshire Hathaway, would own about 7% of BAC's common shares, giving it a significant role in corporate governance issues from compensation to the election of new directors. Bank of America's largest shareholder is Vanguard Group, whose 652.4 million shares give it a 6.6 percent stake, according to Reuters data.

Buffett – America’s de facto private sector “lender of last resort” during the financial crisis - made more than $25 billion of high-yielding investments between 2008 and 2011, in financially troubled lenders like General Electric Co. and Goldman Sachs Group, none of which would have paid out had the Fed not stepped in with a multi-trillion taxpayer funded rescue of the US financial sector.

Buffett’s hard-fought reputation as a benevolent, homespun billionaire would seem to be at odds with the behavior of some of the banks that he effectively controls. Wells Fargo retail bank opened millions of fraudulent customer accounts to try and meet unrealistic sales goals and during a hard fought proxy battle Buffett remained on the side of existing management to the surprise of many. Bank of America has been repeatedly fined and criticized for its treatment of some borrowers in its loan servicing business - believing it easier to kick them out of their homes than to work with customers and adjust the terms of their mortgages.

Still, Buffett is beloved for his folsky ways and his enlightened, liberal outlook, which allows him a softball interview on PBS or any other American media show any time he wants it. It goes without saying that contrary to some contrived views Buffett is far from a socialist, and remains a ruthless capitalist. Maybe he should not so easily be given a pass.

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
BabaLooey's picture

The #1 reason I hate Warren Buffet - He IS the Big Banks, as he OWNS them

THAT...among a slew of other reasons....LOTS

jcaz's picture

LOL- wasn't it just yesterday that Warren was bragging about associating ONLY with companies beyond reproach?

He's tripping over his own bullshit now.....

Joe Davola's picture

I believe he was trying to get in front of the story.

Shylock got nuthin' on him.

NidStyles's picture

This is part of why the Trust busting needs to return.

Unreliable Narrator's picture

Why does the world glorify rent-seekers?

Buffett and Soros make nothing.  Produce nothing.  They don't generate wealth; they merely consolidate the wealth generated by others into their own coffers.  Why do people love this so much?

playit's picture

I'm making over $7k a month working part time. I kept hearing other people tell me how much money they can make online so I decided to look into it. Well, it was all true and has totally changed my life. This is what I do... www.jobproplan.com

Gilnut's picture

Is AssHat Buffet getting on the gravy train?  Major correction in the works and he's expecting another GovCo bailout?  Wouldn't f'n suprise me, these people are all the same.  Wanting something for nothing (and chicks for free).  :)

JRobby's picture

It's a lock, the banks are going to be broken up.

It's a lock, the banks wil continue to get bigger and bigger with the next round of failures (there will be failures)

 

Only Warren knows for sure......................insider info makes one look liks an oracle.

mtl4's picture

This is a dead giveaway something serious is likely expected in the future, same reason he bought into the Canadian lender too.

Joe Davola's picture

Yeah, he doesn't tend to take any positions where there's any risk of adversity, and by adversity I mean him not making a killing.

doctor10's picture

Good luck Uncle B!!

that whole "crypto-currency" business is hot market right now-not because crypto is so good-but banking is so bad!!

Its really 19th century product and service which required multiple 20th century wars to retain its primacy 100 years beyond its "sell-by dates" and is now done for.

Insurrexion's picture

No one gives a fuck about Warren Buffett.

AlexCharting's picture

Buffet is kinda ruining the "Jews run the banks" theories common on ZH. 

venturen's picture

Buffet has confidence the FED will rescue/reward the MEGA BANKS....obviously he isn't an idiot. We need to destroy the FED and break up the mega banks! 

Gordon_Gekko's picture

Only a public guillotining of all these banksters will be a satisfactory punishment and serve as a warning to and future wannabe banksters.

Intelligence_Insulter's picture

The savy investor that bought out all the local papers in america because it is such a good business model. 

This guy is just like his son, a ghost farmer of the government tit pretending to be a capitalist.

Gordon_Gekko's picture

Buffet is a BANKSTER, what a surprise. This HYPOCRYTICAL son of a bitch deserves to be guillotined.

csmith's picture

"...none of which would have paid out had the Fed not stepped in with a multi-trillion taxpayer funded rescue of the US financial sector."

 

All you need to know about Uncle Warren.

WTFUD's picture

The Vulture, picking at the dying carcass of a fire-sale of US misery.

Free Cramer!

JB Say's picture

Yep. He is a statist with access to Bailouts. Too Connected To Fail.

The Gray Man's picture

People who make money simply by moving money around are crooks, witches, devils. They created the system and are now exploiting it.

Crypto-World-Order's picture

Uh, its been that way since the beginning. 

Chris88's picture

Really?  How else would you propose pricing and allocating capital oh holier than thou?  

TheObsoleteMan's picture

Someone please explain how this is not a violation of anti-trust law? So Walgreens can't buy Rite Aid, but it is ok for Buffy to own majority equity shares in the #2 and #3 bank? This guy has to have dirt on people at the SEC. No one else could get away with this.

Singelguy's picture

He is not majority shareholder of either bank. He will be just the largest single shareholder. He will only have about 7% of the stock, a far cry from a 51% majority. Big difference. More importantly I don't believe his block is large enough to give him "de juri" control of either bank.

Chris88's picture

US banks are effectively the most fragmented industry on Earth.  Not to mention antitrust laws are bullshit to begin with.

LawsofPhysics's picture

Warren knows that the best way to become too big to fail and steal from EVERYONE is to become a bank...

 

"Full Faith and Credit"

shovelhead's picture

Apparently, the only people charmed by his folksy ways are reporters who have never done business with his piratical crews.

Selling bullshit is the business model.

Bill of Rights's picture

Bailout Buffet...Im not surprised.

NickPeeMe's picture

Why not? you are already advocating for less taxes on the rich. You are just like a hostage that has taken sides with his captures. You would defend them with your own life. It is fucking pathetic.

Chris88's picture

How much more do you want to steal?

Bill of Rights's picture

Go suck a big dick loser...Im advocating it. Mr two weeks and three days homo  acting as if he knows me...

baldknobber's picture

" Oh please Uncle Sam , don't kill Salomon Bros, I promise I will clean it up, and when I'm done I'm getting out of this dirty banking business forever   cross my heart "  Uncle Warren 

Herdee's picture

And Home Capital in Toronto.

tostaky06's picture

Maybe that's why he was against Bitcoin ... Nice job dude ... 

Aw Yeah's picture

Buffett the Vampire Squid Saviour

VangelV's picture

Buffett is one of the best allocators of resources in the business.  The problem is that he is not very moral and makes decisions on the basis of the government meddling in such a way that it creates profits for businesses by preventing market competition.  His entire strategy is based on a rejection of the principles that his father, Howard Buffett, stood for.  The irony is that Howard, a man of principle and one of the greatest Americans in the last century, is considered a kook by many in the financial sector while the son is celebrated for his relativism and pragmatism.  

Catahoula's picture

Front running and greed keep the bastard alive. He'd shoot his mother for a 25% profit and go on CNBC to toot his own horn....... and the other equities he owns. 

pitz's picture

Wow just in time for the banks to get smoked due to higher long-term interest rates. 

Last of the Middle Class's picture

You're very wealthy! Single payor is just what you need!  OMFG, what a lying anti-competition piece of shit!