Buffett pays $5 billion to buy into BofA

CHARLOTTE, N.C. —Bank of America Corp. said Thursday that investor Warren Buffett is buying preferred shares in the company worth $5 billion.

The investment comes after a roller-coaster month in which the bank's shares fell Tuesday to nearly $6. They closed Thursday at $7.65.

Buffett, who is buying Bank of America shares through his Berkshire Hathaway Inc. investment conglomerate, has offered similar lifelines to distressed companies in the past. During the 2008 financial crisis, he took stakes in Goldman Sachs and General Electric in exchange for lucrative dividend payments.

A source familiar with the situation said Buffett called Bank of America chief executive Brian Moynihan on Wednesday morning and offered to invest in the bank. Moynihan said the company didn't need any more capital and Buffett responded that was why he wanted to buy into the company, an indication that he thought it was a sound investment, the source said. The deal was then worked out in less than 24 hours.

"Bank of America is a strong, well-led company, and I called Brian to tell him I wanted to invest in it," Buffett 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."

Moynihan said in a statement that he remains confident that the nation's biggest bank has the capital and cash on hand that it needs.

"At the same time, I also recognize that a large investment by Warren Buffett is a strong endorsement in our vision and our strategy," he said.

Moynihan was in New York when he took Buffett's call. Buffett was in Omaha, Berkshire Hathaway's home base. Charlotte businessman C.D. "Dick" Spangler, one of the bank's largest individual shareholders, said Buffett's investment is a vote of confidence in Moynihan and his team.

"Having Warren Buffett join the Bank of America ship is like having a whole squadron of Navy SEALs supporting you," Spangler said.

In the deal announced Thursday, Bank of America is selling 50,000 shares of preferred stock with a liquidation value of $100,000 a share to Berkshire Hathaway in a private offering. The stock has a dividend of 6 percent a year and can be redeemed by Bank of America at any time at a 5 percent premium.

In addition, Berkshire Hathaway will also receive warrants to buy 700 million shares of Bank of America common stock at an exercise price of a little more than $7.14 a share. The warrants may be exercised any time during a 10-year period. Bank of America receives $5 billion in cash for issuing the preferred shares and warrants.

If Buffett were to exercise the warrants it would cause Bank of America to issue new shares, diluting the holdings of existing stockholders.