Berkshire Hathaway buys Bank of America stock, sees $11.7B profit

Reuters     
       Berkshire Hathaway CEO Warren Buffett said income inequality is a major problem in the U.S

For the second year in a row, the Fed approved Bank of America's plan to raise dividends after it proved it had enough surplus capital to withstand market turmoil and avoid another financial crisis. (NYSE:BRK.B) continues to bet on a turnaround in the USA financial sector, with an upcoming move making it the largest shareholder in one of the biggest US banks.

Back out the $5 billion he invested in August 2011 and you're left with a $12 billion profit - and that doesn't even count the $1.8 billion in interest payments the bank made to Buffett over the years. However, Buffett didn't simply buy Bank of America stock. (BRK.A, BRK.B) Friday noted Bank of America Corp.'s (BAC) announcement on June 28 that it plans to increase its quarterly dividend to $0.12 per share. The 700 million-share stake in the bank will make Berkshire the largest shareholder in Bank of America, exceeding mutual fund giant Vanguard. At 48 cents, Berkshire would get $336 million annually. It seems Buffett would likely take this action as long as he believes Bank of America's stock would remain stable to higher.

Buffett insists that Berkshire Hathaway keep a minimum of $20 billion in cash at all times, and it often has a lot more than that.

In recent years, Buffett had indicated that Berkshire would probably exercise its Bank of America warrants shortly before they expired in 2021.




Bank of America shares are up about 83% over the past 12 months in large part because of a big rally right after the November election.

In a February letter to investors Buffett laid out his thinking for the conversion, which will make him the company's biggest shareholder. Bank of America has said it expects the increase beginning in the third quarter.

The dividend and buyback boosts are positive for Bank of America Chairman and CEO Brian Moynihan.

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