Warren Buffett became the biggest shareholder of Bank of America

American billionaire Warren Buffett’s Berkshire Hathaway group has officially become the top shareholder in Bank of America after exercising its right to buy 700 million shares at a discount. 

Buffett had received the warrants in 2011 after investing $5 billion in the bank, which was suffering at the time from the fallout from the global financial crisis. 

The move makes the famous stock picker’s firm the largest shareholder of the second and third largest U.S. banks, the third being Wells Fargo & Co. while also providing a vote of confidence for Bank of America stock.

Buffett's original investment in the company came with such favorable terms because it acted as a vote of confidence in Brian Moynihan, the bank's then-new CEO, at a time when Bank of America was still trying to put the financial crisis behind it. 

“Berkshire is going to keep every share for a very long time,” Buffett said in an email to the Journal Tuesday.

Berkshire’s exercise of the warrants, along with dividends the company has received on Bank of America preferred stock, brings its paper gain on its investment in the bank to around $13 billion.

Converting the preferred shares to common stock means Buffett is now the largest shareholder in Bank of America, holding about 6.6% of the company. Shares of the bank are currently trading for about $23.71 a share, which means Buffett's original investment is up 232.07% since 2011.

Buffett had preempted the conversion of shares by saying he would do so as soon as the stock price was high enough to make holding common stock more attractive than the dividend payments from the preferred shares. After passing a stress test in June, the company was allowed to increase its dividend to 12 cents a share, which puts payments from 700 million shares around $336 million annually. Bank of America is up 5.05% so far this year.

In 2007 and 2008, as the financial crisis raged, Bank of America was regarded as a diseased company. The old management team, which had built the bank through bold acquisitions, made an ill-fated decision to buy Countrywide Financial. The deal almost toppled Bank of America. Countrywide, which Bank of America thought would help it dominate the nation’s mortgage business, was deeply enmeshed in the subprime mortgage fiasco.