Bank of America loses crisis-era backer after Kuwait sells US$3 billion stake

First, it was Warren Buffett. Now, another key Bank of America (BOA) investor that stood by it since the worst days of the 2008 financial crisis is chopping down its stake.

Kuwait Investment Authority (KIA), the trillion US dollar sovereign fund of the oil-rich Gulf state, sold a US$3.1 billion stake in the second-largest US bank, according to sources with knowledge of the matter. Shares in the unregistered block trade were priced at US$47.95 apiece, the bottom of a range marketed by Goldman Sachs, the sources said, asking not to be identified discussing the private deal.

The wealth fund’s backing goes back to January 2008 when it injected US$2 billion into the troubled Merrill Lynch, then reeling from losses tied to subprime mortgages. That made it one of Merrill Lynch’s largest backers at the time, and the fund converted its preferred stock into common shares.

Later that year, amid a worsening global financial crisis, Bank of America agreed to buy Merrill Lynch.

KIA’s decision to offload the stock comes amid a wider pullback from some financial-services investments. For Bank of America, the move follows a retreat by Buffett, another white knight from its crisis years, who has been shrinking a much larger holding in the bank.

Buffett’s Berkshire Hathaway, once the bank’s biggest and most prominent backer, began whittling that stake last year, disclosing almost daily sales until it dropped below a 10 per cent threshold requiring quick updates. Berkshire held about 632 million shares at the end of March, its most recent filing shows, down from 1.03 billion a year ago.

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Since the US Federal Reserve began its rate-hike cycle in early 2022, Bank of America has been the worst performer among the half-dozen biggest US banks. The firm has returned 24 per cent in that period, while the next-worst bank produced 78 per cent.

The sale handled by Goldman represented a 1.5 per cent discount to Monday’s (Jul 7) closing price. The stock fell as low as US$46.76 after Bloomberg News reported the transaction on Tuesday, and traded at US$47.21 at 1.47 pm in New York.

Representatives for Bank of America and Goldman Sachs declined to comment. A spokesperson for KIA said that it does not comment on investment activities.

The deal marks the sovereign fund’s second divestment of a financial firm in a week. KIA sold a US$3.4 billion stake in Hong Kong-based insurer AIA Group, Bloomberg News reported on Friday.

Berkshire lost its crown as Bank of America’s top shareholder earlier this year, according to a regulatory filing in May. Vanguard Group is now the lender’s largest shareholder. BLOOMBERG