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Bank of America: Buffett Deal Loser

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.

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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 TheStreet.com 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.
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