Warren Buffett In the Money on Bank of America, For Now

NEW YORK (TheStreet) -- Shares of Bank of America(BAC) were shooting up more than 7% at the open Thursday after it met expectations and showed a better-than-expected improvement in its capital levels.

The stock is now trading at about $7.25, which means that billionaire investor Warren Buffett is in the money on his warrants again. The question is will he choose to exercise it?

Buffett's Berkshire Hathaway(BRK-B) invested $5 billion in Bank of America preferred shares last year and also received warrants to purchase 700 million common shares at a strike price of $7.14.

With the stock tanking to $5 by the end of 2011, Buffett followers were quick to point out that the investor was deep out of the money on his warrants.

But the Wizard of Omaha was certainly not sweating it. After all, he has 10 years to exercise his warrants and in the meantime earns a sweet $300 million each year just from his preferred stake.

"We agreed to hold it for at least five years, so what I'm thinking about is where Bank of America will be in five years, and nothing in the last 24 hours or 48 hours has changed my views on that," Buffett told Reuters in October, when asked if he was concerned about the falling stock price.

The big question is will the rally in Bank of America last? Analysts have on their first take noted that the bank just barely broke even in the fourth quarter, once all the one-time items were excluded.

Still, Bank of America's Tier 1 Common Capital ratio of 9.86% was higher than what most analysts were expecting. "Bear thesis of big capital raise declines," Morgan Stanley analyst Betsy Graseck noted in a report. The analyst says Bank of America's ability to reduce expenses will be key to the stock in 2012.

Other positives included a solid reduction in headcount of 9,000, improving net interest margins and better-than-expected improvements in credit quality.

--Written by Shanthi Bharatwaj in New York

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