Warren Buffett's Berkshire Hathaway will invest $5 billion in Bank of America, stepping in to shore up the company in the same way he helped prop up Goldman Sachs during the financial crisis.
Bank of America will sell Berkshire 50,000 shares of cumulative perpetual preferred stock with a 6% annual dividend, it said in a statement. Bank of America can buy back the investment at any time by paying Buffett a 5% premium.
Investors have battered Bank of America's stock on fears that the largest US bank by assets has yet to overcome billions of dollars in problem mortgage loans.
In recent weeks, investors have sold shares, worrying that the bank might need to raise outside capital - as much as $50 billion by some estimates - to cope with losses and meet new industry capital rules.
Bank of America shares have lost roughly a third of their value in August, and have lost half their value since the beginning of the year. The shares rose on today's developments.
Buffett called Bank of America chief executive Brian Moynihan this week and offered to make the investment, a Bank of America spokesman said, adding that the deal was negotiated and agreed in a couple of days.
Earlier this month, reports suggested that the bank was planning to cut 3,500 jobs this quarter as part of a wider restructuring that could lead to the loss of thousands more jobs.
It also said it wanted to exit the credit card business in Ireland and the UK. Bank of America owns MNBA here, which employs up to 1,000 people in Carrick-on-Shannon, Co Leitrim.
Buffett is renowned for his strategy of buying stock in undervalued companies and reaping profits as their share prices rise. Bank of America is the largest bank in the US in terms of deposits.
