On Thursday, Bank of America’s dream came true via a bailout by billionaire investor Warren Buffett to the tune of $5 billion dollars. “Bank of America is a strong, well-led company, and I called Brian to tell him I wanted to invest in it,” Buffett, the CEO of Berkshire Hathaway, said in a statement. “I am impressed with the profit-generating abilities of this franchise, and that they are acting aggressively to put their challenges behind them.”
The new investment by Warren Buffett is reminiscent of his decision to sink $5 billion into Goldman Sachs in September 2008 during the U.S. financial crisis. That investment paid off for Buffett and stemmed the bleeding from Goldman Sachs.
Buffett has agreed to purchase 50,000 shares of Bank of America’s preferred stock with a hefty dividend of 6% paid annually. Buffets company, Berkshire Hathaway, will also receive warrants to purchase 700 millions shares of Bank of America.
The news of Buffett’s impending investment has sent shares of Bank of America’s stock through the roof-24.61% higher to $8.71- ahead of Thursday’s opening bell on Wall Street. Bank of America’s shares sank this week to the lows seen in 2008/2009 as widespread fears abound, concerning the nation’s largest bank’s exposure to mortgage liabilities. Bank of America has been slammed by its disastrous investment in Countrywide Financial just prior to the financial collapse in 2008.
According to Buffett, Bank of America is a worthy investment and a company dedicated to serving its customers well. Buffet states he believes that the leadership at Bank of America is strong. “We are building the best franchise in financial services and we have laid out a clear plan to deliver long-term shareholder value,” said Bank of America Chief Executive Officer Brian Moynihan. “I remain confident that we have the capital and liquidity we need to run our business. At the same time, I also recognize that a large investment by Warren Buffett is a strong endorsement in our vision and our strategy.”