Bank of America dips into Warren Buffett's Berkshire for $5-billion bailout
26 Aug 2011
Legendary investor Warren Buffett yesterday invested $5 billion in Bank of America (BofA) to bolster one of the largest banks in the US, after losses tied to sub prime mortgages depleted its capital and the slow growth in the world's largest economy dampened prospects.
The bailout of BoFA by Warren Buffet, who is now dubbed by many as "lender of the last resort," is similar to his $5 billion investment in Goldman Sachs in 2008 to restore investor confidence that had been shattered by Wall Street titans, who were blamed by many economists for being responsible for the global economic crisis.
Buffett's investment firm Berkshire Hathaway will acquire BofA's 50,000 shares of Cumulative Perpetual Preferred Stock for $5 billion in a private offering, which carry a quarterly dividend of 6 per cent per annum and are redeemable by the bank at any time at a 5 per cent premium.
Omaha, Nebraska-based Berkshire Hathaway will also receive 10-year warrants allowing it to purchase 700 million shares of BofA's common stock at $7.14 per share.
"We are building the best franchise in financial services and we have laid out a clear plan to deliver long-term shareholder value," said the Charlotte, North Carolina-based bank's CEO, Brian Moynihan. "I remain confident that we have the capital and liquidity we need to run our business. At the same time, I also recognise that a large investment by Warren Buffett is a strong endorsement in our vision and our strategy."
"Bank of America is a strong, well-led company, and I called Brian to tell him I wanted to invest in it," said Warren Buffett. "I am impressed with the profit-generating abilities of this franchise, and that they are acting aggressively to put their challenges behind them. Bank of America is focused on their customers and on serving them well. That's what customers want, and that's the company's strategy."
