BofA and Buffett amend deal


Under the new terms - which require shareholder approval - Bank of America (BAC) is prohibited from redeeming the $2.9B in preferred stock issued to Berkshire (BRK.A, BRK.B) for five years and the stock will continue to pay a 6% dividend. The dividends, however, will no longer be cumulative, meaning the bank won't be penalized if forced to skip a payment.

In exchange, BofA will be able to count the $2.9B as Tier 1 capital - a good deal for the bank which faces ever-more-stringent capital requirements.

Buffett originally invested $5B in BofA in 2011, acquiring the preferred stock along with warrants struck at $7.14 and expiring in 2021 allowing the purchase of 700M shares - thus far a home run.

Regulatory filing

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Comments (16)
  • Deja Vu
    , contributor
    Comments (1825) | Send Message
     
    Nice deal. Did Buffett get extra access to the books in return for this deal?
    3 Mar 2014, 07:50 AM Reply Like
  • Clayton Rulli
    , contributor
    Comments (3424) | Send Message
     
    hey guys lets pay buffet a fatty 6% dividend but everyone else .2%
    3 Mar 2014, 07:56 AM Reply Like
  • Ruffdog
    , contributor
    Comments (3677) | Send Message
     
    As a stockholder I will be voting against the deal.
    3 Mar 2014, 08:06 AM Reply Like
  • Ralph P
    , contributor
    Comments (14) | Send Message
     
    Why would you vote against this. What's done is done, BAC needed credibility and Buffet gave them this a when they needed it the most. This new arrangement is actually to Buffets disadvantage seeing he stands to lose some dividend payments. On the flip side it allows the bank to classify the money received as capital which helps their bank account look better. We will all benefit from this move as it places BAC in a better cash position which will in turn drive the stock price higher.... Buffet wins and we win as well, I like it.
    3 Mar 2014, 09:07 AM Reply Like
  • rdullom
    , contributor
    Comments (17) | Send Message
     
    Do stockholders actually have a vote on this matter?
    3 Mar 2014, 08:19 AM Reply Like
  • benitus
    , contributor
    Comments (3473) | Send Message
     
    Buffet wasn't being kind or benevolent to BAC, as he must be too embarrassed about ripping off the share-holders of BAC, given the fact that his BAC shares are now worth almost 150% of what he paid for them. As Ralph said, this can only be good for BAC, which will drive its shares higher and everyone benefits.
    3 Mar 2014, 09:50 AM Reply Like
  • augustom
    , contributor
    Comments (714) | Send Message
     
    I do not think he would feel embarrassed he gave BAC the same deal he offered GS and others before. BAC took the deal because it needed and on its own recognizance.
    The changes give Buffet more time before redemption and BAC a more affordable interest payment, remember that Buffet could just keep the 10% dividend for a couple more years.
    3 Mar 2014, 10:12 AM Reply Like
  • J Mintzmyer
    , contributor
    Comments (8847) | Send Message
     
    Yall are sitting around and whining, but remember that BAC shares were available for as cheap as $5.50 during this time. You'd have nearly a 3x return if you had invested then. I personally bought Jan14 $10 calls for 70c, which brought a 900% return. Unfortunately for myself, I sold these options for under a 2x, but my point is that the arguments about Buffett 'ripping off' BAC shareholders are just plain asinine.
    3 Mar 2014, 12:01 PM Reply Like
  • benitus
    , contributor
    Comments (3473) | Send Message
     
    J Mint.....if I may make a minor correction and if I'm not wrong, BAC shares were going around $8 (+/-) at the time when the deal was struck with Buffet. But the slide wasn't abated & it went below $5 at one point. I don't know of other deals that he struck but they would all be the same, taking advantage of the situation with every company in trouble to strike deals that would normally be unthinkable, so even if BAC had staved off disaster and benefited from this deal, Buffet still profited from the rip-off terms. BTW, I do take exception to being labeled as "asinine", which is both devoid of good manners required of an intelligent conversation as well as unbecoming of educated professionals, because everyone is entitled to his opinion, even if it may seem stupid, ridiculous or wrong. Have a wonderful day. I hope you're making money from the market pull-back, as I am. Thank you and God bless.
    3 Mar 2014, 12:33 PM Reply Like
  • sheldond
    , contributor
    Comments (1456) | Send Message
     
    I'm still holding my cheap shares and wouldn't mind holding till 2021.

     

    D
    3 Mar 2014, 12:50 PM Reply Like
  • fredak
    , contributor
    Comments (29) | Send Message
     
    The realistic chance of BAC skipping a noncumulative interest to Buffett is close to zero. If the interest payment is skipped, and it gets out in the public, think what the depositors will do. They will withdraw their money. Don't be standing near the front door. Not paying the would be a major sign of serious trouble. Buffett is safe.
    3 Mar 2014, 10:08 AM Reply Like
  • fredak
    , contributor
    Comments (29) | Send Message
     
    Incidentally, Buffett copied Paulson on his "bailout" of the banks. Paulson loaned $25B to the big boys at 8% and a ton of warrants, and forced them all to take it. Paulson told the bankers take the deal or he would declare their bank to be capital inadequate and he would replace senior management. At least Buffett didn't have to make any threats
    3 Mar 2014, 04:06 PM Reply Like
  • benitus
    , contributor
    Comments (3473) | Send Message
     
    fredak.....Buffet was never in any position to make threats but Paulson was. He swooped in on a helpless bank which was struggling for survival and dictated terms that would normally not be accepted, so what choice did BAC have, when they're having serious problems finding the funds they needed to stave off bankruptcy? If I'm absolutely broke and I've got payments to make, with no one willing to take my calls, and a loan-shark comes up to me with the funds I needed for 30% interest a month, I would've no choice but to take the deal, if I've got a plan to repay and if I'm desperate enough. In case anyone takes offence with my humble analogy, Buffet is not and never will be a loan-shark, but if he was seriously intent on helping BAC, he would've provided the funds with very soft terms, as a personal gesture, instead of doing strictly business. He's a vulture, like most money-bags are, which is how he got to be so loaded in the first place. We can't fault the man but we can certainly disagree with his ethics. Live long and prosper, my friend.
    4 Mar 2014, 09:29 AM Reply Like
  • Sean Erickson
    , contributor
    Comments (299) | Send Message
     
    6% interest and some equity participation if the company does well are not exactly loan shark terms.
    4 Mar 2014, 09:54 AM Reply Like
  • benitus
    , contributor
    Comments (3473) | Send Message
     
    Sean.....if you're referring to my comments, please be reminded that I was using an analogy with myself to illustrate a point. At no time, am I suggesting anything that borders on "loan shark terms" as you put it. I would appreciate it if you can kindly refrain from any veiled attempt to "put words into my mouth" or, allege or impute any untruths to me, to keep such discourse pleasant and not distasteful.
    4 Mar 2014, 10:00 AM Reply Like
  • Unconventional
    , contributor
    Comments (3) | Send Message
     
    The equity participation is now worth as much ($5b) as the original investment. He's getting a 6% coupon on $5b w a $5b kicker, just because of his name. Thanks Mr Buffett!!
    6 Mar 2014, 02:36 AM Reply Like
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