Warren Buffett Invests $5 Billion in Bank of America

Posted in Financial News , Investments • August 26, 2011

Bank of America Corp, currently the largest bank in the U.S. by assets, announced on Thursday that it would receive a $5 billion investment from Warren Buffett’s Berkshire Hathaway. The investment announcement had an impact on Bank of America’s shares, which had been dropping on concerns that it might need more capital.

Buffett to Buy Preferred Shares

As a part of the deal between the two major companies, Buffett will buy preferred shares and receive warrants. His investment will guarantee Berkshire $300 million a year in dividends and offer a chance for major returns if the bank’s stock climbs.

In the short time after the deal was announced on Thursday, shares did indeed jump. According to reports, shares climbed a whopping 25.8 percent, but then fell back to 9.4 percent by the market’s close. The final gain was still profitable to Berkshire, which had earned an amazing $3 billion paper profit in one day.

Why Buffett is Investing in BofA

Warren Buffett has long been considered a great investment resource for major companies. While he has been reliable in this sense, experts say he’s not looking to add to his philanthropic credits. Instead, he’s using his investment savvy to turn a hefty profit for his company and investors.

As noted by Robert Reich, public policy professor at the University of California Berkeley, in a Reuters story, “He’s got a lot of shareholders and they depend upon him to maximize the value of their investments.”

The good news is investors in Bank of America, as well as other banks, have benefited from the deal. As of Thursday, BofA, Morgan Stanley, Citigroup and American Express Co. all saw gains.

Experts say Buffett’s investment is really a drop in the bucket compared to the $2.2 trillion in assets Bank of America currently carries, but with growing fears that the bank needed to raise capital to offset liabilities related to subprime mortgages, investors may be able to continue celebrating gains–at least for the time-being.

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  • http://tomxvesely.blogspot.com thomas vesely

    so buffett buys and then announces “i will buy”
    stock rises.akin to shooting fish in a barrel.

  • Santa Fean

    If the shares of BoA go up one dollar WB makes a cool 7 million. WB only believes BoA in the short term. He will sell all of his shares of BoA just like the last time! He bought high and sold low last time and he knows that there is one last play with BoA before the huge losses from Mortgage Securitizations bring BoA down for the final count. Please don’t think you should invest in this horrible bank full of criminals. Criminals you say? Why else are they seeking immunity form all 50 states Attorneys Generals? Bank of America has committed MASSIVE FRAUD against Americans.

  • Pingback: Warren Buffett Invests $5 Billion in Bank of America – Go Banking Rates | Jiveblogger.com


    Hilarious…..Buffet is living in a financial fantasy land that many of us could never comprehend and he like most hollywood celebrities and millionaires forget what it is like to be a middle class and struggle to get by. He supports more taxing then he should volunteer to pay more taxes. I SAY BOYCOTT BERKSHIRE HATHAWAY and any of their companies!

  • thegame

    When a public entity like BofA needs cash it attracts shareholders. The market – supply and demand, drives the value of the shares, so they say. In Buffett case however that is not the case – the rules of the game are different – he puts 5 with guarantees to get back 3. So if BAC dives down as Citi did (belly up a few years ago to never recover) only the little man will pay the full price and loose all of his/her money, Buffett’s risk is much less. Not long ago he did the same “smart” investment with GE and GS and insured the risk of his investment is much less then the little man.

    What SEC does about the rules of the stock market game – for the BIG andthe little man?

    Google “reverse signals” to see the fair ROI Buffett stock picks and compare with other investors using reverse signals trading.

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  • rjw

    Buffett is not so much investing as lending. If you read the terms of the agreement, you will find that, altho there is always a possibility of BH losing a bit, the cushion is pretty huge and I wish I could get such terms on a loan.

  • http://tomxvesely.blogspot.com thomas vesely

    prior to every downturn the boosters emerge.
    announcing “the sky is good”
    whilst offloading……

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