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Warren Buffett Seeks Fed Leeway to Boost Stake in Bank of America Past 10%

Katherine Chiglinsky

(Bloomberg) -- Warren Buffett’s Berkshire Hathaway Inc. is seeking permission from the Federal Reserve to potentially increase its stake in Bank of America Corp. to more than 10%, a level that often triggers a regulatory review. The bank’s shares rallied.

Berkshire, which disclosed in July that it had hit that threshold, filed an application with the Fed in recent weeks making a variety of assurances to show that it will passively invest in the bank, according to a copy of the application provided by the regulator.

Berkshire “may decide to purchase additional shares of common stock of Bank of America based on its evaluation of the investment opportunity presented by such purchases,” the conglomerate wrote in the filing signed by Buffett, without specifying how many shares it might look to purchase.

Buffett struck a deal eight years ago to invest $5 billion in Bank of America for preferred stock and warrants, helping shore up confidence in the lender as it faced losses tied to subprime mortgages. In 2017, the billionaire investor swapped the preferred shares for a $16 billion-plus common-stock holding. Bank of America now ranks as Berkshire’s second-largest equity bet, behind Apple Inc.

Bank of America shares climbed as much as 3.8% after the news of the filing. They were up 2.7% at 1:37 p.m. in New York. The lender is set to report third-quarter results Wednesday.

Buffett’s company said in the Fed filing that it doesn’t have any plans to sell Bank of America’s assets, merge it with any company or make any other significant change in its business strategy and corporate structure.

“We have appreciated Berkshire’s ownership for the past seven-plus years,” Bank of America said in a statement. “Through our success, Berkshire and other long-term shareholders have benefited. We look forward to Berkshire’s support as we continue to drive responsible growth at Bank of America.”

Berkshire said as of July 17 that the holding was 950 million shares, a stake that would be valued at more than $27 billion as of Monday’s close. While Berkshire had been building its stake in Bank of America in recent years, the bank’s stock repurchases also helped push the Omaha, Nebraska-based conglomerate’s stake above the 10% level, according to the July regulatory filing.

U.S. regulators tend to review relationships between investors and banks in which a shareholder could be viewed as having control over a lender. According to proxy statements and quarterly regulatory filings, the only other investor in one of the six largest U.S. banks that tops the 10% threshold is Mitsubishi UFJ Financial Group Inc.’s 24% holding in Morgan Stanley, a remnant of the financial crisis.

With about $200 billion of total equity investments to manage, it’s not the first time Buffett has bumped up against the ownership threshold. In 2016, he ran up against the 10% level with another bank, Wells Fargo & Co, as it repurchased shares. Berkshire applied to the Fed, but later said it would cut its Wells Fargo stake because the central bank said the larger stake would limit Berkshire’s ability to do business with the lender.

With Berkshire’s American Express Co. stake, Buffett agreed in the 1990s to be a passive shareholder and later received approval to increase that investment to as much as 24.99%, a level he has yet to reach.

The rules that determine whether an investor is deemed to have control over a bank may soon change. The Fed has submitted a proposal to clarify the factors and thresholds that determine control.

(Adds BofA comment in seventh paragraph, updates share price in fifth.)

--With assistance from Lananh Nguyen, Daniel Taub and David Scheer.

To contact the reporter on this story: Katherine Chiglinsky in New York at kchiglinsky@bloomberg.net

To contact the editors responsible for this story: Michael J. Moore at mmoore55@bloomberg.net, Dan Reichl

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