New York: Legendary investor Warren Buffett will pump in USD 5 billion into battered Bank of America in return for substantial stake in the banking major. (Agencies)
Buffett-led Berkshire Hathaway would snap up preferred stocks as well as warrants issued by Bank of America (BofA). The latest move would quell rumours of the Wall Street major becoming a takeover target.
"Bank of America is a strong, well-led company... I am impressed with the profit-generating abilities of this franchise and that they are acting aggressively to put their challenges behind them," Berkshire Hathaway Chairman and CEO Warren Buffett said.
Shares of BofA soared 17 per cent to USD 8.19 in initial trading on the New York Stock Exchange.
Buffett noted that he had called for BofA Chief Brian Moynihan to tell about making an investment in the entity.
The aggregate purchase price to be received by BofA for the preferred stock and warrants is USD 5 billion in cash, said the banking major, in which Indian billionaire Mukesh Ambani is one of the directors.
Bank of America has been bogged down by expenses related to sub-prime mortgage and its shares have taken a severe beating in recent weeks, amid concerns about its liquidity position. The entity recently announced about 3,500 job cuts.
Rumours were also rife that rivals, including JPMorgan, might be looking at possible BofA buyout.
Well known for his investing ways, Buffett had made huge investments during the financial meltdown. He had pumped in USD 5 billion into Goldman Sachs, during its crisis period, and the investment carried a dividend of 10 per cent. Goldman Sachs recently paid back this money.
Similarly, Buffett had invested USD 3 billion in conglomerate General Electric.
BofA has reached an agreement to sell 50,000 shares of Cumulative Perpetual Preferred Stock with a liquidation value of USD 100,000 per share to Berkshire Hathaway in a private offering, the statement said.
"The preferred stock has a dividend of six per cent per annum, payable in equal quarterly installments, and is redeemable by the company at any time at a five per cent premium," the banking major said.
Further, Berkshire Hathaway would receive warrants to purchase 700 million shares of BofA common stock at an exercise price of USD 7.142857 per share.
"I remain confident 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," Moynihan said.
New York: Legendary investor Warren Buffett will pump in USD 5 billion into battered Bank of America in return for substantial stake in the banking major.