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WARREN BUFFETT Invests $5 Billion in Bank of America – NYTimes.com

August 25, 2011

Brian T. Moynihan, left, Bank of America’s chief, and Warren E. Buffett of Berkshire Hathaway

Buffett Invests $5 Billion in Bank of America

AUGUST 25, 2011, 9:22 AMINVESTMENT BANKING

BY BEN PROTESS AND SUSANNE CRAIG

1:04 p.m. | Updated Warren E. Buffett comes to the rescue, again.

On Thursday, Berkshire Hathaway, run by Mr. Buffett, announced plans to invest $5 billion in Bank of America, a vote of confidence for the beleaguered financial firm.

While investors initially cheered the news bidding up bank stocks in trading this morning, the sector settled down in the afternoon as the market digested the deal.

Shares of Bank of America, which spiked more than 25 percent on Thursday, is currently at $7.55, up roughly 8 percent. Citigroup and Morgan Stanley, both up which jumped nearly 10 percent in the morning, gave back much of their early gains, too. JPMorgan Chase was off slightly in the afternoon.

The pullback reflects the continued trepidation about the industry, which is clouded by economic concerns, regulatory uncertainty, and legal liabilities.

Still, the Berkshire investment has helped allay concerns about Bank of America. Shares of the financial firm have been battered of late over fears the company lacks sufficient capital. The stock has fallen by nearly 30 percent since the beginning of August.

“I remain confident that we have the capital and liquidity we need to run our business,” Bank of America chief executive Brian Moynihan said in a statement. “At the same time, I also recognize that a large investment by Warren Buffett is a strong endorsement in our vision and our strategy.”

The Berkshire investment comes at a pivotal time for Bank of America. Its troubled mortgage division has racked up billions of dollars in legal bills, and the financial firm faces a nationwide investigation into its foreclosure practices. Last quarter, Bank of America reported an $8.8 billion loss, owing in large part to a settlement with mortgage investors.

Mr. Moynihan has taken steps to cut costs and improve its capital cushion. He put the European credit card operation up for sale and sold off the Canadian card division, making it clear non-core assets would be on the block.

Last week, the bank announced plans to cut 3,500 jobs. In a memo to employees, Mr. Moynihan said that “we owe it to our customers and our shareholders to remain competitive, efficient and manage our expenses carefully.”

But the embattled chief stopped short of raising capital, reiterating that the financial firm was on solid footing. The assertions did little to soothe investors.

via Buffett Invests $5 Billion in Bank of America – NYTimes.com.

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