Bank of America Corp. said it will receive a $5 billion investment from Berkshire Hathaway Inc. as doubts built in recent days about the bank's' capital position.
"Bank of America is a strong, well-led company, and I called Brian to tell him I wanted to invest in it," Berkshire Hathaway Chairman and Chief Executive
Warren Buffett said. "I am impressed with the profit-generating abilities of this franchise, and that they are acting aggressively to put their challenges behind them."
Shares surged 26% to $8.76 premarket and had fallen 38% in the past three months.
Under the terms of the deal, Berkshire will get 50,000 preferred shares that carry a dividend of 6% a year and are redeemable at a 5% premium, along with warrants to purchase 700 million Bank of America shares at an exercise price of $7.14 each. The warrants may be exercised in whole or in part in the 10 years following the closing of the deal.
"I remain confident that we have the capital and liquidity we need to run our business," Bank of America CEO Brian Moynihan said. "At the same time, I also recognize that a large investment by Warren Buffett is a strong endorsement in our vision and our strategy."