Oops! Bank of America’s stock price just broke into the embarrassing sub-$5 stock basement. Somewhere in Omaha, are alarm bells going off? Yes, Bank of America’s stock swoon is dragging down America’s wisest investor, Warren Buffett, who now is about $1.5 billion underwater on his BofA common-stock warrants.
Buffett threw a lifeline to Bank of America this summer with a $5 billion confidence-boosting investment. Don’t worry about Buffett, though. He is guaranteed a profit on his BofA investment. The banking giant must repay Buffett’s $5 billion, plus a 5% premium, at any time. Plus, the world’s third-richest man will rake in dividends of $300 million a year from BofA, and he won’t give up those payouts no matter what sub-basement BofA shares tumble into.
But Buffett’s cherry atop his BofA sundae was warrants that allow him to buy 700 million Bank of America shares at a strike price of about $7.14 a share. $7.14 a share. Ouch. BofA shares are now at $4.94. (The stock traded as high as $8.80 the day Buffett’s investment was announced.)
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.
Find out more at http://blogs.wsj.com/deals/2011/12/19/warren-buffett-is-1-5-billion-underwater-on-his-bank-of-america-stock/?mod=WSJBlog
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