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August 25, 2011 in Business, Nation/World
Buffett invests $5 billion in Bank of America
Warren Buffett holds an ice cream bar made by Berkshire-owned Dairy Queen in May 2011 prior to the shareholders meeting.
(Full-size photo)
NEW YORK — Warren Buffett is coming to the rescue of another fallen giant.
Buffett’s Berkshire Hathaway announced today that it would invest $5 billion in Bank of America Corp., giving a much-needed vote of confidence in the struggling bank.
The bank’s stock had plunged 52 percent in the past year on concerns over the bank’s mortgage problems and worries that it would have to sell large amounts of stock to shore up its balance sheet.
Investors’ confidence in the bank took another blow this month as its mortgage headaches got even worse. On Aug. 8, American International Group Inc. sued Bank of America for more than $10 billion, saying the bank deceived AIG by selling it overvalued mortgage-backed securities.
Much of the Charlotte, N.C. bank’s problems stem from its 2008 purchase of Countrywide Financial Corp., the country’s largest mortgage lender. Bank of America has been under heavy pressure from investors for selling them securities based on mortgages that later lost value.
The bank paid a total of $12.7 billion earlier this year to settle claims that it sold investors faulty mortgage investments. Investors have become worried that the bank would have to pay out even more to settle future claims.
Buffett, one of the most successful and respected investors of all time, has lent his credibility to several other icons of American business at times when investors’ confidence in them was waning. His investments have usually proven to be both prescient and profitable.
Buffett pumped $5 billion into Goldman Sachs Group Inc. at the height of the 2008 financial crisis, helping to reverse a crisis of confidence in the investment bank and the U.S. banking system in general. He also invested $3 billion in General Electric Co.
Those investments, which paid annual dividends of 10 percent, wound up being lucrative. Berkshire made $2 billion from the Goldman investment alone. Unlike the Bank of America deal, those companies approached Berkshire seeking financial help and the stamp of approval that came with the endorsement of the legendary investor.
Buffett said in a statement Thursday he called Bank of America’s CEO Moynihan to ask about investing because he considered the bank a strong, well-led company.
Berkshire will receive a dividend of 6 percent on his investment in Bank of America. Berkshire will get 50,000 preferred shares and warrants to purchase 700 million shares of common stock at $7.14 per share. Buffett can exercise the warrants at any time in the next 10 years. If he does, it would make him the banks largest shareholder with a stake of 7 percent.
An hour after the deal was announced, Buffett had already made a profit on paper of $500 million on the stock warrants thanks to a surge in Bank of America’s stock price. After closing at $6.99 Wednesday, the stock jumped 87 cents or 12 percent to $7.86 Thursday. Bank of America’s stock traded as high as $15 in January, before its mortgage woes worsened.
Buffett’s investment in Bank of America sent the stocks of other banks higher too. Citigroup Inc. rose 2.7 percent and Morgan Stanley rose 3.4 percent.
Berkshire also holds investments in several other banks. One of Berkshire’s biggest stock investments is a 16 percent stake in Wells Fargo & Co. Berkshire also holds stakes in US Bancorp, M&T Bank Corp. and the Bank of New York Mellon Co.
© Copyright 2011 Associated Press. All rights reserved. This material may not be published, broadcast, rewritten, or redistributed.
Seven firms or nonprofits win Agora Awards 
hawken on August 25 at 10:01 a.m.
Here’s the poster child of liberals, Buffet. Liberals who demonize the banks, Buffet putting $5 Billion into one of the largest banks in the world. Liberal hypocrisy at it’s worst.
No wonder. Buffet has Obama, the bailout king on his team, along with Jeffrey Immelts. No worries. They are too big to fail.
Buffet is not stupid. As I have previously demonstrated, Buffet is first and foremost for his bottom line. Which, is to his credit and the benefit of his stockholders. I have no issue with that.
Buffet’s call to raise taxes on the rich gets him free publicity and puts him in good standing with Obama and company.
Liberals don’t see this and consistently cite Buffet as the authority to raise taxes. All the while, Buffet knows that taxes will not be raised in the foreseeable future. Buffet has duped Obama and the left quite effectively.
There is no way the government will let BofA fail. More taxpayer, stimulus dollars will come their way, again, under Obama, when things get worse.
Buffet has put $5 Billion into a sure bet. Good move.
Dazzeetrader11 on August 25 at 10:15 a.m.
Invest in B of A> Obviously they will be around and prosperous!! He’s a cagey old man who is all about himself. He likes his persona and he shapes it quite well. I don’t think he duped Obama. Obama is just like him. I’d bet there a sweet investment from the WH as I type this………or even before.
The Presidents do come out very very rich. Obama has no finanacial worries….and never will. He’ll preach about how the rich people are awful..all the while he’s trying to be one. All blow and no show as my Dad used to say.
DickAdams on August 25 at 10:41 a.m.
Warren Buffett has the American public hoodwinked. Buffett who, collected taxpayer stimulus money, also made a deal with GE when he purchased $10. billion worth of the company`s stock, and paying him a 10% dividend. What does Obama do recently, but appoint the CEO of GE to chair a pseudo jobs creator. GE recently moved the medical biz to China dis-replacing their American workers. The Sacramento Bee newspaper exposed the crook Buffett for collecting stimulus money but most newspapers in the country looked the other way. Its no wonder MSM are is being flushed down the toilet. How many newspapers filed for bankruptcy? Many. They brought it on themselves. And as far as Obama is concerned, did he help out Buffett for services rendered?
maria on August 25 at 10:59 a.m.
I see the 3 Musketeers are here already. Lol.
maria on August 25 at 11:00 a.m.
Dazee, was your daddy talkin’ ‘bout you?
maria on August 25 at 11:03 a.m.
I happen to admire the President. I just ordered my new 2012 bumper sticker and yard signs. Don’t change horses in the middle of the stream, as W used to say.
Diana on August 25 at 11:57 a.m.
Bagger wrote something about liberals demonizing the banks and hypocrisy.
We don’t demonize banks. I keep my money in a bank and stop by there about once a week.
We tend demonize to the bankers who created the global financial crisis and then got away with it. We demonize them because lots of really nice people lost their jobs, their homes and their retirements through no fault of their own.
liberal_in_right_wing_land on August 25 at 12:03 p.m.
I demonize banks. Anyone who keeps their money in anyplace besides a credit union must love throwing money down the toilet.
If everyone moved their money into credit unions we never would have to worry about “to big to fail” again.
jddavis on August 25 at 12:49 p.m.
Obviously Buffet sees the 52% drop in stock as a sign that BofA is undervalued. Clearly a good investment if he can exercise purchase rights on 700M shares ANYTIME in the next 10 years, at today’s price of $7.14 per share.
Not of fan of his politics, but this guy knows what he is doing with purchasing stocks.
Dazzeetrader11 on August 25 at 1:01 p.m.
Looks like maria and Diana need to go eat the rest of that acre of alphafa they split last time. Ahhh such bliss……
The_Seer on August 25 at 1:05 p.m.
What? Hawken hasn’t hijacked this thread with his unmanly whining about his windy, repetitive, unoriginal, copy and pasted posts that get flagged and removed?
johnclarke on August 25 at 1:11 p.m.
Hilarious. People like Buffett and Soros *drink* are way better at the whole “free market” thing than the all the Cons stacked end to end. Note how they survived the Con inspired financial crash. The big difference is they are essentially giving away their fortunes, and along with backing moral causes this makes them the enemies of all Cons.
Cons would be wise to follow Buffett’s investments. By the way, Buffett demonstrated good will and courage by shoring up the markets with his focused investments. What have the Cons done? Nada. No jobs, no help for the market. Selfish pigs, every one of them.
johnclarke on August 25 at 1:20 p.m.
Dick Adams, can you show me some evidence that Warren Buffett collected stimulus funds? Also, what does this article have to do with Obama, China and GE ?
hawken on August 25 at 1:44 p.m.
Buffet invests $5 Billion in big banks, who liberals love to demonize (big banks), BofA, and the the market heads South, DOW down 171.
No worries.
Obama will bail Buffet and BofA out of this coming mess. They are too big to fail. Plus, Buffet is Obama’s friend.
Housing prices also going down.
Coming up…. Bernanke, QE3, more printing. Are you ready for more inflation? Inflation steals money right out of your checking and pass book, savings account.
Diana on August 25 at 1:53 p.m.
There it is, The_Seer. Human infomercial economics 101 hawken posted essentially the same thing earlier.
Scoutster on August 25 at 2:49 p.m.
For the top 1%, everything’s on sale.
misjustice on August 25 at 3:08 p.m.
Bbbbbut what about the free market? What part of this denotes free?
A rich liberal bails out a failing bank that couldn’t make it even after stealing peoples houses, savings,retirement funds, and takin’ our tax dollars?????
Drink!
; )
DickAdams on August 25 at 3:16 p.m.
Hey John Clarke, as usual you don`t read. I pointed out one source of the taxpayer stimulus money and who exposed the crook Buffett who collected the loot and was the first to point it out to the public. Your other question was to stupid to try and spoon feed you as it was obviously over your head and you wouldn`t understand. And jddavis, Madoff did almost the same kind of hoodwinking as Buffett, in plain view for 30 years. Obviously, Uncle Sam was blind folded as our government SEC watch dog which supposedly protects the citizens. Its the same pattern of the reckless spending habits of the federal government who many times looks the other way along with the political pimps we elect..Both parties.
Diana on August 25 at 3:35 p.m.
MisJustice, are you also talking about s-s-Soros?
Cheers!
JayNW on August 25 at 3:39 p.m.
DickAdams, “What does Obama do recently, but appoint the CEO of GE to chair a pseudo jobs creator. GE recently moved the medical biz to China dis-replacing their American workers.”
How many people know that GE paid absolutely $0 in taxes the last few years? They move American Jobs to Communist China, pay no taxes- and are the biggest $$ contributor to Obama. Yet its all the conservative values thats ruining America??
And one last thing, to anyone, left or right, R or D- who continue to call people names are only demeaning their own argument. So many of you just come on here acting like a bunch of little bratty kids. if you want to debate, act like an adult and actually talk about the issues instead of resorting to constant name calling.
maria on August 25 at 3:40 p.m.
Ms J. Drinks on the house at our hotel room tonight! I’ll have my cell. ; )
johnclarke on August 25 at 3:47 p.m.
“Buffett who, collected taxpayer stimulus money,”
Hey, Dick. Is there something about your quote above I just don’t get?
“Your other question was to stupid to try and spoon feed you as it was obviously over your head and you wouldn`t understand.”
Ah-hem. Okie Dokie, obviously out of my class here the SR today.
Diana on August 25 at 3:48 p.m.
Attention, baggers: President Obama did not write the tax code.
That is all.
DickAdams on August 25 at 3:55 p.m.
JayNW, I posted almost verbatim the same as you did re the GE CEO appointment, GE going to China and last but not least, GE paying zero federal taxes on another pathetic MSM story. Did I mention that when Buffett purchased $10. billion worth of GE stock he cut a deal with GE to receive 10% dividends. More than twice as much as other stockholders, notwithstanding Buffett`s power as a major stockholder.
DickAdams on August 25 at 3:56 p.m.
Diana, why didn`t Obama change the tax code when he had his chance with Pelosi and Reid running congress?
misjustice on August 25 at 4:08 p.m.
Because President Barack Hussein Obama is really a Republican’t… Republican’t Lite, I’ll grant you. But a Republican’t, none the less…
Look at his policies; no hyper-leftie worth their protest banners would have been as moderate as Obama has been. I know a Liberal when I see one, and he ain’t it.
Just sayin’…
Diana on August 25 at 4:12 p.m.
I don’t know, DickAdams. Maybe he was too busy dealing with the economy that was bankrupted under Bush.
You could send him an email and ask.
Wizard_Of_Oz on August 25 at 5:04 p.m.
Buffet has more money than most countries do. I say if you dont follow the gorilla you wont get the banana.
liberal_in_right_wing_land on August 25 at 6:38 p.m.
DickAdams, you do know that even though he had the majority in both houses he did not have the supermajority that you need to get anything passed. You do know also that any republican can filibuster any bill to make sure it never gets a vote, which the republicans in senate did.
DickAdams on August 25 at 8:02 p.m.
liberal in right wing, Yes I do know what your saying re 60%, but there was no attempt whatsoever to change the tax code. In view of no change, it proves to me what I`ve been saying right along, both parties with their career politicians need to be given the boot. Many posters have a typical one track mind and try to put all the blame on one party or the other. I`m an independent and cannot stand either party because of crooked political pimps, as I said, of both parties.
greenlibertarian on August 25 at 8:31 p.m.
Well we know Buffet’s given away 8.3 BILLION dollars in charitable giving over the past 5 years or so, and yes, he took the tax break for doing so.
Have the similarly financially situated Koch Brothers that make their money off of oil and armaments been so generous?
misjustice on August 25 at 9:52 p.m.
And Dixie Cups and toilet paper, too, green…in case you didn’t know; they are diversified.
jddavis on August 25 at 10:14 p.m.
Dick—please explain the Madoff / Buffett similarities; I don’t see where you are coming from.
Dazzeetrader11 on August 26 at 12:48 a.m.
Bailing out the banks or a big bank wouldn’t get Obama elected. So he did the next best thing: Have a friend do it for you! Nice and still liberal manipulation of the currency and payoffs to friends. Things just got worse. Obama’s behind it.
I do hope the Dems wake up to what this guy really is and vote him out. R’s will for sure. Most are patriots.
Obam’s staying on his vaca…and Michelle spent ten million in vaca’s this year. I ‘d do it too if the end was near…which it should be for these two.
JBlim on August 26 at 5:59 a.m.
BofA is TBTF. Buffet gets his money back no matter who’s in the White House.
mdriftmeyer on August 26 at 5:02 p.m.
Most people don’t truly grasp what Buffet and Berkshire-Hathaway is doing by buying a big seat at traditional institutions who screwed up the global economy:
Buffet’s leverage will be felt with the change of lobbying away from taxing the wealthy [a position he’s vigorously supported in public] to lobbying in favor of taxing the wealthy.
Berkshire Subsidiaries: http://www.berkshirehathaway.com/subs/sublinks.html
Heavy investments in BNSF Rails, now Bank of America, plus Goldman Sachs and many more will put Warren in a position to forcibly steering the direction of lobbying to undo a lot of insane policies Bush 2.0 introduced and a few Clinton signed off on before he left office.