Warren Buffett's Berkshire Hathaway said it will swap its preferred shares in Bank of America into common shares worth about $17 billion.
This will make Berkshire the biggest shareholder of lender.
Berkshire said it would exercise its warrants for 700 million common shares of Bank of America following a dividend increase by the lender to 12 cents per share.
The second-largest US bank boosted its annual dividend this week to 48 cents per share from 30 cents, beginning in the third quarter.
The move came after its plan to return capital was approved by the Federal Reserve under its annual "stress test" programme.
Buffett had bought $5 billion of Bank of America preferred stock with a 6% dividend, or $300m annually, in August 2011, when investors worried about the bank's capital needs.
The purchase included warrants to acquire 700 million common shares at $7.14 each, less than one-third of Thursday's closing price of $24.32.
If Omaha-based Berkshire made the swap now, it would have a paper profit of about $12 billion and begin collecting $336m of annual dividends, on top of roughly $1.7 billion of dividends already paid.
Buffett's move underscores his confidence in Brian Moynihan, Bank of America's chief executive.
Moynihan has worked to restore investors' confidence in his Charlotte, North Carolina-based bank after it spent over $70 billion since the global financial crisis to resolve legal and regulatory matters, largely from its purchases of Countrywide Financial Corp and Merrill Lynch & Co.
Berkshire, which is also Wells Fargo & Co's biggest shareholder, said it expected to use the preferred shares to fund the acquisition.
Vanguard Group, which is currently Bank of America's biggest shareholder, holds a 6.6% stake, or about 652 million shares in the company.
