Today's Coming Crisis Movie

Thursday, August 25, 2011

Buffett pumps $5B into Bank of America: Is another major banking crisis looming?

Berkshire Hathaway will invest $5 billion US into America's biggest lender, a vote of confidence in the U.S. economy by one of the world's richest investors.

Bank of America will sell preferred stock paying an annual dividend of six per cent to Warren Buffett's company. Berkshire Hathaway also has an option to buy 700 million warrants for $7.14 a share.

The move buoyed financial shares, almost all of which moved higher on the New York Stock Exchange. Bank of America shares gained almost 20 per cent to $8.27.

The move came a day after Bank of America was heavily sold off after investors worried that the largest U.S. lender would have to come to market with new shares to raise money to pay off yet another round of bad losses related to subprime mortgages.

Buffett made a similar bet on investment bank Goldman Sachs in 2008 that worked out very well for him. His $5 billion investment was finally repaid this year, but Buffett got a 10 per cent dividend yield for his vote of confidence while he owned the stake. more