The Oracle of Omaha, Warren Buffett, is soon going to pocket $12 billion off of an investment he made six years ago. Buffett’s financial expertise is admired around the world. Yet again, he has displayed his genius by generating revenue equivalent to 2.4 times a $5 billion investment.
Here is the timeline of events that led to his gain:
Bank of America’s stocks were at a three week low and they dropped by 30%. Wall Street thought the bank wouldn’t survive the recovery phase post the financial crisis due to a lack of adequate capital.
Warren Buffet saw an opportunity and seized it. He purchased $5 billion worth of preferred shares with a dividend of 6% annually, i.e., $300 million a year. Seeing that Buffet was going to undertake a huge amount of risk, the shares came with warrants for 700 million shares of the company, at a price of $6 per share down from $7.14 per share.
On Thursday, Bank of America stocks closed at $24.32, which is a little over 3 times the value at which Warren acquired the shares.
Now, Buffett will take his $5 billion preference shares and exercise the warrants at $7.19 per share, leaving him with $17 billion. Deducting $5 billion as the amount of the investment, he’s left with $12 billion in profits. What’s more? This amount does not include the $1.8 billion that Buffett received as interest on the preferred shares.
However, this wasn’t Warren Buffet’s plan all along. Initially, his plan was to convert the warrants to equity in 2021 when the option expired. The financial wizard realized an opportunity and grabbed it, proving to the world again: once an oracle, always an oracle!
Megha Shah for TechFunnel.com