Berkshire Hathaway Inc. (BRK.B): The Future of Distressed Deals Like Bank of America Corp (BAC), Goldman Sachs Group, Inc. (GS) & More

More recently, Berkshire Hathaway Inc. (NYSE:BRK.B) made a similar investment in Bank of America Corp (NYSE:BAC).  In 2011, Berkshire bought $5 billion of preferred stock which pays a 6% dividend, in addition to obtaining warrants for 700 million common shares that it can exercise over the next 10 years at a price of $7.14. Bank of America may buy back the preferred shares at any time at a 5% premium.

Bank of America Corp (NYSE:BAC)’s shares are currently trading at $12.72, whereby Berkshire has already realized a paper profit on the warrants in addition to any dividends paid.  Buffett has shown he is not afraid to invest in big banks.  Berkshire has a significant ownership stake in Wells Fargo & Co (NYSE:WFC), currently owning over 439 million shares in the company.

Buffett also stated during the meeting that he and the board were in agreement on a successor to be appointed.  The obvious choice would be Ajit Jain, the Berkshire manager of the lucrative reinsurance businesses.  Buffett heaped Jain with praise during the shareholder’s meeting saying that Berkshire would lose some of its luster if Jain was ever not with the Company.  Whether Jain is his successor or not, Warren’s response to the question from Kass noted that his successor would have access to significant amounts of capital which could be quickly deployed in times of distress.  The practical view is that Buffett’s successor will be one of the very few people in the world who will be in a position to do deals like that.  Thus, the future of distressed deals at Berkshire is assured.

Disclosure: none