Wednesday, February 26, 2014

Bank of America, Buffett reach stock deal

Warren Buffett is helping out Bank of America again -- and benefiting in the process.

The Charlotte-based bank has said it has reached a deal with the billionaire investor's company that will help the bank meet its capital requirements.

Buffett's company, Berkshire Hathaway, invested $5 billion into Bank of America in 2011, offering a lifeline as the company was ailing. At the time, the bank's stock was sinking to around $6 a share during the financial crisis.

In its latest deal with Berkshire Hathaway, Bank of America plans to count preferred shares with a carrying value of $2.9 billion as so-called Tier 1 capital, which measures how well a bank can absorb losses. Regulators closely watch banks' capital levels to evaluate their health.

Bank of America meets regulatory capital requirements already. The bank ended 2013 with $132 billion in Tier 1 common capital. It's 10 percent Tier 1 ratio exceeded the 8.5 percent minimum regulators will require in 2019.

Under the deal, Berkshire Hathaway also will give up a dividend provision that gives the right to recover any missed payments.

Berkshire Hathaway also benefits from the deal, as the bank would agree to wait at least five years before redeeming the preferred stock.

The plan needs approval from the bank's shareholders in May.

Bank of America disclosed the proposal in a filing this week with the Securities and Exchange Commission.