Warren Buffett’s Berkshire Hathaway said it will make a $5 billion investment in Bank of America.
The news sent Bank of America shares sharply higher (+17.17%), and also pushed up U.S. stocks.
Berkshire Hathaway said Bank of America would sell it 50,000 preferred shares at $100,000 a piece. The preferred stock has a dividend of 6 percent and is redeemable at a 5 percent premium.
Buffett’ conglomerate also invested in the investment bank Goldman Sachs during the financial crisis.
“It’ definitely confidence-inspiring for sure. The rate he’ getting is not as generous as the one that GE and Goldman Sachs paid, which says a lot,” said Jack Kaplan, managing director and portfolio manager of Carret Asset. “It’ not surprising that Bank of America needed this investment given the news that’ been swirling around, but the premium is not a crisis-level premium.”
Buffett said Thursday he had called CEO Brian Moynihan to ask about investing because he considered Bank of America to be a strong company with good leadership.
The bank has struggled under the weight of toxic mortgages from its 2008 purchase of Countrywide Financial. In recent weeks, as Bank of America’ stock declined, Moynihan insisted the bank doesn’t need to raise capital.
Moynihan said the company still has the capital and liquidity it needs. But he also said he realizes that an investment from Buffett represents a strong endorsement.