This Day On The Street
Continue to site right-arrow
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
Stocks Under $10 with 50-100% upside potential - 14 days FREE!

Bank of America: Buffett Deal Loser

Stocks in this article: BAC GS BRK.B

In other words, rather than putting up $5.0 billion in cash to purchase a stake in Goldman approaching 10%, Berkshire will be handed a roughly 2% stake in Goldman's common shares, without coughing up any cash at all. Based on Goldman's closing share price of $146.11 on Monday, Buffett was "in the money" by $31.11 a share on the Goldman warrant, or $1.353 billion.

That's a pretty nifty return, considering that when Goldman redeemed the $5.0 billion in preferred shares held by Berkshire in March 2011, it paid Berkshire an additional dividend of $1.64 billion, which was "the difference between the carrying value and the redemption value of the preferred stock."

Goldman's shares rose slightly on Tuesday, closing at $146.54, as investors were apparently pleased that the company had limited the potential dilution from Berkshire's warrant.

Berkshire's investment in Goldman at the height of the credit crisis was the type of shrewd move that has enabled Berkshire to do "better when the wind is in our face," according to Buffet's 2012 letter to shareholders.

TheStreet's Antoine Gara on Tuesday explained why the conversion of Buffett's Goldman warrant could be a game change for Wall Street.

Another opportunistic deal for Buffett was Berkshire's $5.0 billion investment in Bank of America preferred shares in September 2011. As part of the investment, Berkshire was handed a warrant allowing it to purchase up to 700 million Bank of America shares by Sept. 2, 2021, at a price of $7.142857 a share. That's a significant amount of potential dilution for Bank of America's common shareholders.

Based on Bank of America's closing price on Tuesday, Berkshire has an unrealized profit of $3.596 billion on the warrant.

Of course, Bank of America's shares may have quite a lot more room to run, even after rising 110% in 2012, and rising another 6% so far this year. So Buffett may be in no hurry for conversion of the Bank of America warrant.

-- Written by Philip van Doorn in Jupiter, Fla.

>Contact by Email.


Philip W. van Doorn is a member of TheStreet's banking and finance team, commenting on industry and regulatory trends. He previously served as the senior analyst for Ratings, responsible for assigning financial strength ratings to banks and savings and loan institutions. Mr. van Doorn previously served as a loan operations officer at Riverside National Bank in Fort Pierce, Fla., and as a credit analyst at the Federal Home Loan Bank of New York, where he monitored banks in New York, New Jersey and Puerto Rico. Mr. van Doorn has additional experience in the mutual fund and computer software industries. He holds a bachelor of science in business administration from Long Island University.
2 of 2

Select the service that is right for you!

Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!


DOW 18,053.71 +23.50 0.13%
S&P 500 2,088.77 +6.89 0.33%
NASDAQ 4,806.8590 +33.3870 0.70%

Brokerage Partners

Rates from

  • Mortgage
  • Credit Cards
  • Auto

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs