Buffett Plans to Hold BofA Warrants Until Close to 2021 Maturity

Warren Buffett, who got 10-year Bank of America Corp. (BAC) warrants as part of a $5 billion investment in 2011, said he plans to hold them until near their expiration before converting the contracts to common stock.

“We’ll exercise them probably the last month, which would be eight years or so from now,” Buffett, 83, told CNBC in an interview broadcast today. “There’s no reason to exercise them sooner. There would be if there were a high dividend on the common or something, so it’s conceivable. But basically we love the position of being an owner.”

Buffett’s Omaha, Nebraska-based Berkshire Hathaway Inc. (BRK/A) took a $5 billion preferred stake in Bank of America, with an annual dividend of 6 percent, after the lender’s stock fell more than 45 percent amid losses on mortgages. The warrants allow Berkshire to buy 700 million shares of the Charlotte, North Carolina-based bank for $7.14 each. The stock closed at $14.61 yesterday and has a quarterly dividend of a penny a share.

Bank of America Chief Executive Officer Brian T. Moynihan, 53, who joined Buffett in the interview, said he plans on retiring more expensive capital before exercising an option to redeem the preferred stake for $5.25 billion.

“We’re trying to get 8 percent, 9 percent instruments out” of the capital structure first, before dealing with Buffett’s preferred investment, Moynihan said. “There will be some day that we’ll talk about this, but that’s far out there.”

Bank of America is the second-largest U.S. bank by assets.

To contact the reporter on this story: Marci Jacobs in New York at Mjacobs63@bloomberg.net

To contact the editor responsible for this story: Dan Kraut at dkraut2@bloomberg.net

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