Berkshire Hathaway Invests $5 Billion in Bank of America

A pedestrian walks by a Bank of America branch office on January 21, 2011 in San Francisco, California. During 2010, U.S. banks increased their lending, although most of the credit was extended to large- and medium-sized businesses. Justin Sullivan/Getty Images

NEW YORK—Warren Buffett’s investment company has given $5 billion to Bank of America, sending its shares soaring on Thursday, Aug. 25.

The nation’s biggest bank by assets has been hammered by analysts and investors in recent weeks, due to losses from its legacy residential mortgages obtained after the acquisition of Countrywide Financial in 2008.

Berkshire Hathaway’s investment in Bank of America is similar to the $5 billion the company invested in Goldman Sachs Group Inc. in 2008.

In return, Buffett has obtained extremely favorable terms on the preferred shares of Bank of America, including a 6 percent annual dividend.

The shares also have clauses, which require Bank of America to pay a 5 percent premium on redemption of the shares.

Buffett’s investment is a vote of confidence for the company. But the fact that Bank of America needed the money in the first place could be a sign of worry for investors, who have bid the company’s shares lower on continued losses on its legacy mortgage portfolios.

Brian T. Moynihan, Bank of America’s CEO, said 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.”