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Buffett Likes Diluting All Bank of America Shares, Except His

Stocks in this article: BRK.ABRK.BBACWFC

NEW YORK ( TheStreet) -- Billionaire investor Warren Buffett is standing by his $5 billion investment in Bank of America (BAC) and has no problem with the bank's recently floated plan of issuing common stock and senior debt in order to retire junior debt and preferred stock.

Appearing on CNBC's Squawk Box on Monday morning, Buffett said he believed CEO Brian Moynihan was doing a "terrific job," even though the executive has been criticized for flip-flopping on his decision to issue more equity and possibly diluting common shareholders.

Warren Buffett

Moynihan had repeatedly said the firm does not need to issue more capital.

Buffett said that the flip-flop was understandable. "He Moynihan has got a dynamic problem", he said. "When you have problems to clean up, the problems are bigger and more long-lasting than you think but it is solvable."

Buffett's Berkshire Hathaway (BRK.B) bought $5 billion worth of preferred stock in the bank in August, earning an annual dividend of 6% paid in quarterly installments that is redeemable at a 5% premium at anytime. As a preferred shareholder with a guaranteed dividend and premium, Buffet's investment would be unaffected by any additional issuance of common shares.

Berkshire also received warrants to purchase 700 million common shares at an exercise price of $7.1428 per share, which can be exercised at any time in the 10-year period... or not at all.

Buffett said his investment in Bank of America was a sign of his faith in the bank's ability to resolve problems because the deal had a clause that prevented a re-sale for five years.

"When you put $5 billion and can't touch it for five years, that is a vote of confidence," Buffett said. He said that the investment did not mean investors should necessarily buy the bank's common shares but it was a sign that problems will resolve over the long-term. He added that the bank still had a "terrific" franchise.

Asked about whether he would consider investing in banks in general, Buffett pointed to his successive purchases of Wells Fargo (WFC). He said that if he has the opportunity to buy a good business he would and will not be swayed by daily headlines.

--Written by Shanthi Bharatwaj in New York



>To contact the writer of this article, click here: Shanthi Bharatwaj.

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