Warren Buffett’s Berkshire To Invest in Bank of America
StreetAccount is reporting that Warren Buffett’s Berkshire Hathaway will invest $5 billion in Bank of America.
Here are the nitty-gritty details of the transaction:
- In a private offering, Bank of America reached an agreement to sell 50K shares of Cumulative Perpetual Preferred Stock with a liquidation value of $100,000 per share to Berkshire Hathaway,
Inc.
- The preferred stock has a dividend of 6% per annum, payable in equal quarterly installments, and is redeemable by the company at any time at a 5% premium.
- In conjunction with this agreement, Berkshire Hathaway will also receive warrants to purchase 700M shares of Bank of America common stock at an exercise price of $7.142857 per share.
Bank of America CEO Brian Moynihan said, “We are building the best franchise in financial services and we have laid out a clear plan to deliver long-term shareholder value. 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.”
Mr. Buffett is quoted by StreetAccount as saying, “Bank of America is a strong, well-led company, and I called Brian to tell him I wanted to invest in it. 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.”
Buffett reportedly told CNBC's Rebecca Quick, "This is not 2008." Buffett added that Bank of America "Is certain to be around for the long term."
According to CNBC, Buffett also said that the move is a vote of confidence not only for Bank of America, but also for the United States.
Recall that BAC has been under heavy pressure of late with the shares having been fallen by more than -58% this year. It was reported Tuesday that BAC had been selling for less than the amount of cash the bank had on its books. BAC has since been heavily defended on Wall Street as Dick Bove reversed his call and told investors to buy the stock this week.
Of course, given that BAC has assured us over that past month or so that it is fine and doesn't need to raise any capital, the question of the day is why the bank turned to Buffett at this time.
Bank of America - Last 12 Month
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