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Buffett buys $5 billion Bank of America stake

Billionaire investor Warren Buffett will take a $5 billion stake in Bank of America in a private offering.

A statement sent to Business Wire today says Buffett’s Berkshire Hathaway will purchase 50,000 shares of cumulative perpetual preferred stock with a liquidation value of $100,000 per share.

A dividend of 6 per cent per year will be paid on the stock and is redeemable by the bank at any time at a 5 per cent premium.

In addition, Berkshire Hathaway will also get warrants to buy 700,000,000 shares of Bank of America’s common stock at about $7.14 per share as part of the deal.

Buffett, the chairman and chief executive of Berkshire Hathaway, says: “Bank of America is a strong, well-led company and I called Brian [Moynihan, the chief executive of BofA] to tell him I wanted to invest in it.

“I am impressed with the profit-generating abilities of this franchise, and that they are acting aggressively to put their challenges behind them.”

Last month, BofA posted its largest quarterly loss after finalising a multi-billion dollar settlement linked to sub-prime mortgages.

The bank’s results showed a $8.8 billion net loss in the second quarter, with the majority of this accounted for by an agreement to settle claims with investors in Countrywide residential mortgage-backed securities.

On June 29, 22 investors in 530 Countrywide bonds were granted a $8.5 billion settlement, while the bank said another $5.3 billion would be needed to cover claims from government-sponsored enterprises and private investors.

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