Billionaire investor Warren Buffett made headlines on Thursday when his company, Berkshire Hathaway, announced that it would invest $5 billion in Bank of America. And according to CNN, warrants related to the deal earned Buffett $357 million on Thursday alone. Nice work if you can get it.
In exchange for the Buffett brand name and $5 billion, the Charlotte, N.C. financial institution granted Warren Buffett the option to buy up to 700 million of its shares any time in the next 10 years for $7.14. [Thursday] those warrants would've reaped the Omaha investor a nine-figure profit.
Now, if Bank of America shares fall and stay down (the bank's stock had fallen more than 50 percent this year before Berkshire Hathaway's investment), things could turn out differently for Buffett.
As part of the deal, Bank of America agreed to pay Berkshire $300 million a year for 10 years — a 6 percent annual dividend — on its $5 billion in preferred shares.
The announcement of the deal sent Bank of America's stock up as much as 26 percent on Thursday before it settled back down.
"The question is whether Bank of America gave too many of those warrants away to get Warren Buffett to put the $5 billion preferred investment in the company. In the end that will be the question," Marty Mosby, a managing director at Guggenheim Securities, told CNN.
Bank of America recently announced that it would be cutting 3,500 jobs on top of the 2,500 it has already cut this year. And as many as 10,000 more layoffs could be on the horizon. In June, Bank of America agreed to pay $8.5 billion to investors including Pimco, BlackRock and the Federal Reserve Bank of New York to settle claims about mortgage backed securities. Since then, insurance giant American International Group has filed a lawsuit against the bank over the same securities.
Bank of America is the nation's largest bank employer, with approximately 287,000 workers.