NEW YORK (TheStreet) -- Once again, Warren Buffett is putting his money where his mouth his by expressing his confidence in the U.S. economy and investing $5 billion in Bank of America (BAC) - Get Report.
According to reports, for $5 billion, Buffett will receive 50,000 preferred shares of Bank of America. This stock will carry a 6% annual dividend. In addition, Buffett will receive warrants which allow him to purchase 700 million shares of BAC at approximately $7.14 a piece. These warrants can be exercised at any time over the next 10 years.
This is not the first time that Warren Buffett has come to the aid of a struggling giant in their time of need. On the contrary, in the depths of the U.S. financial crisis, the Oracle of Omaha offered a helping hand to
. Like the Bank of America deal, the investor provided Goldman with $5 billion in return for a combination of preferred shares and warrants.
At the time of the deal, doubts plagued the sputtering institution. However, as we witnessed, Goldman would eventually find its footing and earn the crown as king of Wall Street. Doubts surrounding Buffett's bet would eventually be cast aside as the billionaire investor watched his profits grow.
In the opening quarter of 2011, Goldman Sachs received approval to repurchase Berkshire's preferred shares for $5.65 billion. Although these shares and their welcomed dividend are gone, Buffett, continues to hold onto his GS warrants, which allow the investor to purchase $5 billion worth of Goldman common stock at $115 per share. The warrants are slated to expire in 2013.
Goldman is not the only firm to receive a major crisis-era investment from the famed investor. Days following his Goldman bet, Buffett chose to provide
with a blessing in the form of a $3 billion investment. For this price, Buffett received both preferred shares of GE boasting an ample dividend, and the option to purchase $3 billion in GE common shares at $22.25 at any time over the next five years.
Like Goldman, Jeff Immelt, CEO of the U.S.-based conglomerate, has expressed his intention to repurchase Buffett's preferred shares in the near future.
Looking ahead, it will be interesting to see how the markets respond to Buffett's newest investment. Already, upon news of the decision, shares of Bank of America have taken off. Although they have retreated a bit from their initial highs, during late morning trading shares of troubled institution were seeing nearly 20% gains.
Ultimately, it remains unclear as to whether Buffett's investment will be enough to save Bank of America. However, as evidenced by his previous deals, a blessing from the Oracle of Omaha can be wildly beneficial during periods of daunting uncertainty.
Written by Don Dion in Williamstown, Mass.
At the time of publication, Dion Money Management did not own any stocks mentioned.