08/25/2011 12:12 EDT | Updated 10/25/2011 05:12 EDT

Warren Buffett's Berkshire Hathaway To Invest $5 Billion In Bank Of America


Warren Buffett's Berkshire Hathaway plans to buy $5 billion worth of preferred shares of Bank of America, according to CNBC. The troubled bank's stock soared 25 percent on the news.

Berkshire Hathaway will buy 50,000 shares at $100,000 per share, according to Business Insider. Shares of BofA, the value of which has been halved since the start of the year, are currently trading on the market at only $8.31 as of 9:42AM.

This week, Bank of America, the country's largest bank by assets, countered claims by Business Insider's Henry Blodget that the company could be facing a capital hole of $200 billion. In a statement, BofA accused Blodget of making "'exaggerated and unwarranted claims,' which is what the SEC stated publicly when he was permanently banned from the securities industry in 2003."

Bank of America also tackled what they called "baseless" rumors of a merger with JPMorgan. The company says a merger of the two financial giants wouldn't "make practical sense."

As Reuters notes, Buffett's company made a similar move to help Goldman Sachs during the financial crisis.

From the Associated Press:

Buffett said Thursday he had called 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 Corp. In recent weeks, CEO Brian Moynihan has insisted the bank doesn't need to raise capital.

Moynihan says 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.

Bank of America’s press release, via the Wall Street Journal:

Bank of America Corporation announced today that it reached an agreement to sell 50,000 shares of Cumulative Perpetual Preferred Stock with a liquidation value of $100,000 per share to Berkshire Hathaway, Inc. in a private offering.The preferred stock has a dividend of 6 percent per annum, payable in equal quarterly installments, and is redeemable by the company at any time at a 5 percent premium.

In conjunction with this agreement, Berkshire Hathaway will also receive warrants to purchase 700,000,000 shares of Bank of America common stock at an exercise price of $7.142857 per share. The warrants may be exercised in whole or in part at any time, and from time to time, during the 10-year period following the closing date of the transaction. The aggregate purchase price to be received by Bank of America for the preferred stock and warrants is $5 billion in cash.

“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.”

“Bank of America is a strong, well-led company, and I called Brian to tell him I wanted to invest in it,” said Berkshire Hathaway Chairman and Chief Executive Officer Warren Buffett. “I am impressed with the profit-generating abilities ofthis 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.”