NEW YORK: Warren Buffett's Berkshire Hathaway will invest $5 billion in Bank of America, stepping in to shore up the company in the same way he helped prop up Goldman Sachs during the financial crisis.
Bank of America shares rose 20 percent in pre-market trading on the news.
Bank of America will sell Berkshire 50,000 shares of cumulative perpetual preferred stock with a 6 percent annual dividend, it said in a statement on Thursday. Bank of America can buy back the investment at any time by paying Buffett a 5 percent premium.
Investors have battered Bank of America's stock on fears that the largest U.S. bank by assets has yet to overcome billions of dollars in problem mortgage loans.
In recent weeks, investors have sold shares, worrying that the bank might need to raise outside capital -- as much as $50 billion by some estimates -- to cope with losses and meet new industry capital rules.
Bank of America shares have lost roughly a third of their value in August, and have lost half their value since the beginning of the year.
Buffett called Bank of America Chief Executive Brian Moynihan this week and offered to make the investment, a Bank of America spokesman said, adding that the deal was negotiated and consummated in a couple of days. ' Reuters
Bank of America shares rose 20 percent in pre-market trading on the news.
Bank of America will sell Berkshire 50,000 shares of cumulative perpetual preferred stock with a 6 percent annual dividend, it said in a statement on Thursday. Bank of America can buy back the investment at any time by paying Buffett a 5 percent premium.
Investors have battered Bank of America's stock on fears that the largest U.S. bank by assets has yet to overcome billions of dollars in problem mortgage loans.
In recent weeks, investors have sold shares, worrying that the bank might need to raise outside capital -- as much as $50 billion by some estimates -- to cope with losses and meet new industry capital rules.
Bank of America shares have lost roughly a third of their value in August, and have lost half their value since the beginning of the year.
Buffett called Bank of America Chief Executive Brian Moynihan this week and offered to make the investment, a Bank of America spokesman said, adding that the deal was negotiated and consummated in a couple of days. ' Reuters
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