Buffett's Berkshire Hathaway (BRK.A) has announced today that they will invest $5 billion in Bank of America (BAC) 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) 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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