Berkshire Hathaway Inc. of Warren Buffett may possibly be Bank of America Corp.’s next biggest shareholder. BofA raised its dividend following positive assessments of being able to manage market stresses.
BofA Increased its Annual Dividend
Starting in the third quarter, BofA increased its annual dividend by 60% making it 48 cents per share. Its last known price per share was at 30 cents.
Buffett was persuaded to prefer the shares of Bank of America Corp. after the announcement.
Berkshire as the largest shareholder
If the plan pushes through, Berkshire would be the biggest shareholder of two of U.S. top banks – BofA and Wells Fargo & Co. Moreover, it is a strong indicator that Buffett has a high confidence in BofA’s executive, Brian Moynihan. The second largest U.S. bank’s CEO worked hard to restore investor’s confidence after a bundle of controversies involving acquisitions it made back in 2009 consisting of Country Wide Financial Corp. and Merrill Lynch.
In the past, Berkshire revealed that it would not execute warrants until 2021. However, recently, Buffett had a second thought.
Buffett’s Perception of BofA
The $76.1 billion-worth investor, Warren Buffett, appeared to be very happy with the way things are turning out for Bank of America and Moynihan’s actions. Analysts even regard the move from Buffett as a further recommendation as he was known to be the most brilliant large-cap stock picker of all time.
As Buffett is somewhat endorsing the bank, it is regarded as another vote of confidence which could further help its stock recover significantly due to series of financial crises.
Federal Reserve’s Stress Tests
Before the announcement of dividend increase, it required the Federal Reserve’s approval. The Fed approved the increase after conducting the necessary “stress tests” of big banks. Such tests reveal the ability of these banks to manage severe economic and market conditions.
Buffett as the Last Resort
Bank of America plus a number of other companies in the past that got into trouble were also helped by Warren Buffett. Hence, such gave the billion-dollar investor a reputation that he can play the role of a lender of last resort during crucial times.
Previously, BofA aided Swiss Reinsurance Co. when it got into trouble. Buffett invested a total of $2.6 billion in the company back then. Moreover, when the recession severely affected USG Corp and Harley-Davidson, Buffett also came to the rescue. When the same scenario also happened to Mars Inc. and Wm. Wrigley Jr. Co. Buffet also helped to get them out of a tight spot.
Right now, the largest shareholder of BofA is Vanguard Group having 652.4 million shares. If the move transpires, Berkshire can become the top shareholder of the bank.
Though there were no immediate responses yet from Berkshire after the bell, Buffett is inclined to believing that the stock can remain steady or even higher. Should BofA pass the second round of annual bank tests, it may confirm Buffett’s move and the exchange may happen anytime soon after that. Shares of BofA have risen by 1.5% immediately.
Today, the stocks of Bank of America Corp. traded at $23.88 today, up by 2.62% compared to its previous close.
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