26th August 2011
The billionaire investor's company Berkshire Hathaway, has already stepped in to help Goldman Sachs and General Electric during the credit crisis. Both of those deals came with a 10% divide
This is Money reported that news of the investment sent BoA's stock market value up 25%, before easing to settle 10 per cent up at $7.71 in late trading. Buffett said: ‘I am impressed with the profit-generating abilities of this franchise.'
Before Buffett's announcement the bank's shares had fallen 48% this year and 39% in the last three months.
Buffett has agreed to buy 50,000 preferred Bank of America shares that will pay a 6% annual dividend. The bank has the option to buy back the shares at any time for a 5% premium.
Howard Wheeldon, BGC senior strategist, said: ‘This is a smart move by Buffett. There has been a lot of hype about BoA recently. It has a very stable deposit base and people all too easily forget that.'
Across the Guardian comment boards several readers expressed concern over the long-term health of the bank, and whether Buffett's investment was enough.
However a few believe that a further round of quantitative easing was likely securing Buffett's investment.
Voltaire21 writes: Talk about a safe investment BoA would be bailed out if needed, so now Buffett can inject capital at extornotiante rates like he did at GS. Its good to have money in a bear market. However said that there was a whole host of secret bailouts that the public got to know about is probably right.
However a lot of readers expressed the same sentiment as Guardian website reader davemaclurg who writes: "At last, someone with big bucks bailing out one of the errant banks instead of banks looking to government and uliimately the less-well-off taxpayer. As skintnick says, why not do it properly instead of propping up failure."