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Buffett to Invest $5 Billion in Bank of America

Story updated with detailed information.

  • Berkshire Hathaway invests $5 Billion In Bank of America
  • Warren Buffet calls Bank of America a "strong, well-led company"
  • Shares up 23% at $8.58 in premarket trading

NEW YORK ( TheStreet) - Billionaire investor Warren Buffett's Berkshire Hathaway (BRK-B) is pumping $5 billion in Bank of America (BAC - Get Report), sending shares of the troubled banking giant up 23% in early trading Thursday.

Bank of America announced that it has reached an agreement to sell 50,000 cumulative preferred stock with a liquidation value of $100,000 per share to Berkshire Hathaway in a private offering. The shares will have annual dividend of 6 %, payable in equal quarterly investments and is redeemable at any time at a 5% premium.

Berkshire also receives warrants to purchase 700 million shares at an exercise price of $7.1428 per share, which can be exercised at any time in the 10-year period following the closing date of the transaction.

That puts the total purchase price for the warrants and preferred stock at $ 5 billion in cash.

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

Bank of America's shares have been under attack in the recent weeks as investors worried that it might have to raise more capital. Buffett's investment is a vote of confidence, and a surprise considering the outfit sold its position in Bank of America in the fourth quarter of 2010.

Buffett made similar investments in Goldman Sachs (GS) and GE (GE) in the height of the financial crisis in 2008, though he roundly rejected Lehman Brothers when it sought an investment from his firm, before it eventually filed for bankruptcy.

"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 CEO 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."

--Written by Shanthi Bharatwaj in New York

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Disclosure: TheStreet's editorial policy prohibits staff editors and reporters from holding positions in any individual stocks.

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