Warren Buffett plowed $5 billion into Bank of America during the debt-ceiling crisis of 2011. Here's a look back at one of the most lucrative deals of his career.
Warren Buffett plowed $5 billion into Bank of America during the US debt-ceiling crisis in 2011.
The famed investor and Berkshire Hathaway CEO had the idea to invest while taking a bath.
Buffett’s Berkshire Hathaway counts Bank of America as its number-two holding after Apple.
Warren Buffett’s luck changed this year, allowing him to spend a record sum on stocks and end his deal drought. Here are his 6 highlights of 2022.
Warren Buffett spent a record sum on stocks and made a major acquisition in 2022.
The Berkshire Hathaway CEO tore into bitcoin, adjusted some overseas bets, and gave a surprise gift.
Here are the investing icon’s 6 highlights of 2022.
Warren Buffett’s luck changed in 2022. After years of battling to find bargains and watching Berkshire Hathaway‘s cash stack up, the famed investor seized his chance to put his conglomerate’s mountain of money to work.
Buffett spent a record sum on stocks, executed a major acquisition, and made some striking changes to his overseas bets. He also crowed about four of Berkshire’s key holdings in his yearly letter, trashed bitcoin at the annual shareholders’ meeting, and made a surprise donation to his children’s charities.
Here are Buffett’s 6 highlights from 2022:
The annual letter
Buffett published his famous annual letter to Berkshire shareholders in February.
The investor vented his frustration with Berkshire’s mammoth $144 billion cash pile, blaming a lack of bargains in the stock market. He also celebrated the “Four Giants” among Berkshire’s businesses: insurance, railroads, energy, and its enormous Apple stake.
Moreover, Buffett appeared to respond to criticism of his tax practices by noting Berkshire paid $3.3 billion of federal income tax in 2021 — nearly 1% of all the corporate income taxes collected by the US government that year.
Buffett struck a deal to buy Alleghany for nearly $12 billion in March. Berkshire completed its takeover of the insurer in October, ending a years-long drought on the acquisition front.
The investor showcased his trademark approach to dealmaking, which prizes trust and simplicity. He proposed the merger over dinner with Alleghany’s CEO, who previously ran a Berkshire subsidiary, and the pair formally announced a deal less than two weeks later.
Buffet also refused to budge on the deal terms, and when Alleghany enlisted Goldman Sachs as a financial advisor, he insisted the investment bank’s fee was subtracted from Berkshire’s offer price.
An epic buying spree
Berkshire plowed a net $41 billion into stocks in the first quarter of 2022, setting a new record for its quarterly spending on equities.
Buffett and his team built large stakes in HP, Chevron, Occidental Petroleum, Citigroup, Paramount, and Taiwan Semiconductor in the first nine months of 2022. Berkshire also spent over $5 billion on buybacks and made other sizeable purchases, lifting its spending on stocks and acquisitions for the year to an astounding $70 billion or so.
The annual meeting
Buffett hosted Berkshire’s annual shareholder meeting in his hometown of Omaha, Nebraska in April, after two years of virtual gatherings due to the pandemic.
The investor called out the reckless speculation in the stock market, underlined the grave threat posed by inflation, and declared he wouldn’t pay $25 for all the bitcoin in the world.
Buffett made some big moves in 2022 that deserve special attention. For example, he poured a total of about $30 billion into Chevron and Occidental, propelling the pair of oil-and-gas companies onto the list of Berkshire’s most-valuable holdings.
The investor and his team also revealed in November they had boosted their billion-dollar bets on Japan’s five largest trading houses.
In contrast, they sold BYD shares for the first time in 14 years. Berkshire has now slashed its position in the Chinese electric-vehicle maker by around 22%, and pocketed an estimated $1.2 billion profit from the disposals.
An unexpected gift
Buffett made his usual annual donation of Berkshire stock in June, dividing the $4 billion gift between the Bill & Melinda Gates Foundation and four of his family’s charities.
Unexpectedly, he contributed a further $759 million worth of Berkshire stock to his three children’s foundations for Thanksgiving, saying he was proud of their charitable work and wanted to show his appreciation.
7/7 SLIDES
Warren Buffett struck one of the must lucrative deals of his career when he agreed to inject $5 billion into Bank of America during the US debt-ceiling crisis in 2011.
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Here’s the story of how the billionaire investor and Berkshire Hathaway CEO shored up confidence in of America’s biggest banks and made a fortune in the process.
A bathtub, a call center, and a billion-dollar deal
Buffett was taking a bath in late August 2011, reflecting on his investments in American Express and Geico during difficult periods for both companies, when he had the idea to bet on Bank of America, Fortune reported at the time.
Soon after, the investor picked up the phone and tried to get through to the bank’s CEO, Brian Moynihan. He was initially thwarted by a call-center worker.
“Warren asked to speak to me and of course they don’t transfer everybody who calls the call centers to the CEO’s line,” Moynihan told Bloomberg in 2019.
Buffett eventually got through to Moynihan and proposed an investment in his company. Moynihan replied that Bank of America didn’t need the capital.
“I know, that’s why I’m calling,” Buffett responded, adding that accepting his money would provide stability, a stamp of approval, and a cash cushion.
Moynihan agreed, and the pair signed a deal less than 24 hours after speaking for the first time. Buffett’s cash landed in Bank of America’s account a couple of days later.
Warren gets his warrants
Buffett and Moynihan agreed that Berkshire would invest $5 billion in cash to Bank of America, in return for $5 billion worth of preferred shares, which were redeemable at a 5% premium and paid a 5% annual dividend.
Berkshire also received stock warrants granting it the right to buy 700 million of the bank’s common shares at a price of $7.14 per share. The warrants could be exercised at any point over the next decade.
The deal terms echoed Buffett’s bailouts of Goldman Sachs and General Electric during the 2008 financial crisis. The investor demanded preferred stock and warrants in those deals too.
Buffett outlined his rationale for betting on Bank of America in his 2011 shareholder letter.
“Some huge mistakes were made by prior management,” he said. “Brian Moynihan has made excellent progress in cleaning these up.”
The bank chief was “nurturing a huge and attractive underlying business that will endure long after today’s problems are forgotten,” Buffett continued, adding that Berkshire’s warrants “will likely be of great value before they expire.”
The investor waited to use the warrants until the annual dividends from 700 million common shares exceeded the $300 million in yearly income that Berkshire was receiving from its preferred stock.
He exercised all of the warrants in August 2017, and covered the $5 billion cost of doing so by giving up virtually all of Berkshire’s preferred shares.
The common shares it received were worth over $20 billion at the end of 2017, meaning Berkshire more than tripled its money on paper, even before accounting for the dividends it received.
Berkshire has boosted the position since then to north of 1 billion shares, valued around $35 billion today. Buffett’s company is the the bank’s biggest shareholder with a roughly 13% stake, while Bank of America is Berkshire’s second-largest holding after Apple.
Buffett has been chasing another “eureka” moment ever since.
“I’ve spent a lot of time in the bathtub since and nothing’s come to me,” he quipped at Berkshire’s annual shareholder meeting in 2017.
“Clearly, I either need a new bathtub or we’ve got to get to a different kind of market,” he added.
