Warren Buffett, through Berkshire Hathaway, agreed to prop up beleaguered Bank of America by purchasing $5 billion in preferred stock.  With this investment, BRK now holds stakes in six financial companies.  As of 6/30, BRK held large positions in 3 financial companies - American Express, Wells Fargo and US Bancorp - and smaller stakes in the BNY Mellon and the M&T Bank Corp.

Of course, Mr. Buffett’s most notable bets on the finance sector of late came from his big capital injections into Goldman Sachs and General Electric during the financial crisis - he bought $5bn worth of perpetual preferred shares in Goldman, and $3bn in G.E.  Those 2 deals closely resemble his new investment in Bank of America;

In the announcement, Mr. Buffett described Bank of America as a “strong, well-led company” and said he made a direct call to CEO Brian Moynihan to express his interest in making an investment.  HE added, “I am impressed with the profit-generating abilities of this franchise, and that they are acting aggressively to put their challenges behind them.”

Terms of the Deal.   call for Bank of America to sell 50,000 shares of cumulative perpetual 6% preferred stock with a liquidation value of $100,000 a share to Berkshire Hathaway in a private offering.  The preferred stock is redeemable by the company at any time at a 5% premium. 

Additionally, BRK will receive warrants to purchase 700 million shares of Bank of America common stock at an exercise price of $7.14 a share.  The aggregate purchase price to be received by Bank of America for the preferred stock and warrants is $5 billion in cash. 

Response by Bank of America CEO Brian Moynihan :   “We are building the best franchise in financial services and we have laid out a clear plan to deliver long-term shareholder value.  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.”   [Dealbook, MarketWatch, 8/25/11]