When in trouble, it's good to have friends in high places.
It's especially nice when that friend is Warren Buffett, the legendary billionaire investor and chairman of Berkshire Hathaway.
Case in point: Buffett is coming to the rescue of embattled Bank of America, investing $5 billion into the troubled company.
Berkshire Hathaway has agreed to buy 50,000 preferred shares that will pay a 6 percent annual dividend. Bank of America has the option to buy back the shares at any time for a 5 percent premium, DealBook reports.
Buffett reportedly approached Bank of America yesterday morning about the deal.
Here's what CEO Brian Moynihan had to say in a statement:
“I remain confident that we have the capital and liquidity we need to run our business. At the same time, I also recognize that a large investment by Warren Buffett is a strong endorsement in our vision and our strategy.”
And here's what Buffett said in his statement this morning:
“Bank of America is a strong, well-led company, and I called Brian 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. Bank of America is focused on their customers and on serving them well. That’s what customers want, and that’s the company’s strategy.”
Bank has been in free fall since last week, amid fears that it lacks sufficient capital. The Buffett move is sure to allay at least some of those fears.
It's not the first time Buffett has come to the rescue of a blue chip U.S. financial institution.
He pumped $5 billion into Goldman Sachs during the darkest days of the global economic crisis — with a juicy 10 percent dividend.
Buffett also gave GE a $3 billion infusion when its shares tumbled, again with a 10 percent annual payout.