Buffett's Berkshire Hathaway (BRK.A - Get Report) has announced today that they will invest $5 billion in Bank of America (BAC - Get Report) to help the bank deal with losses related to subprime mortgages. This move is seen many market players as a vote of confidence in the battered banking giant. It's also similar to what Buffett did with Goldman Sachs Group (GS - Get Report) back in September 2008 during the credit crisis when he took a $5 billion stake in the investment bank. Keep in mind that after Buffett stepped into Goldman, the stock fell 58%.
Berkshire has agreed to buy 50,000 preferred shares that will pay a 6% annual dividend. Bank of America has the option to buy back the shares at any time for a 5% premium. Bank of America shares were initially up over 20% as the stock printed a daily high this morning at $8.80 a share. Since that opening pop, the stock has now pulled back to below $8 a share.
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