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Warren Buffett invests $5bn in Bank of America

Bank of America shares surge 25% as Berkshire Hathaway injects much needed vote of confidence

Warren Buffett handed Bank of America a much needed vote of confidence on Thursday by agreeing to invest bn (£3.1bn).

Shares in Bank of America surged by almost 25% in early trading, to .62, after Berkshire Hathaway, the conglomerate run by Buffett, announced the deal.

It comes after rumours swept the markets that the bank will be forced to make massive write-downs on the value of its housing debts and government bonds.

Brian Moynihan, Bank of America’s chief executive, said the investment was “a strong endorsement in our vision and our strategy”. Buffett, who will receive preference shares paying 6% per annum, said he was impressed by Bank of America’s “profit-generating” capabilities, and contacted Moynihan on Wednesday morning to suggest the deal.

“Bank of America is a strong, well-led company, and I called Brian to tell him I wanted to invest in it,” said Buffett, who has been dubbed the “Sage of Omaha” after building up a fortune estimated this year at bn.

As well as the preference shares, Berkshire will receive warrants to purchase 700m shares of Bank of America common stock at an exercise price of .142857 per share.

The deal is similar to the bn investment which Buffett made in Goldman Sachs in September 2008, at the height of the financial crisis. On that occasion, before US interest rates were slashed, Buffett agreed a 10% dividend.

Bank of America has aggressively rejected claims this week that it is in trouble. Earlier this week, the bank told staff that claims it needed to raise 0bn of fresh capital were “just wrong … based on uninformed and artificial assumptions”. © Guardian News & Media Limited 2011 | Use of this content is subject to our Terms & Conditions | More Feeds