Bank of America Corp.'s share price spiked 17% Thursday morning on news that Warren Buffet's Berkshire Hathaway is investing $5 billion in the company.
Among residential lenders B of A ranks second. It is the nation's largest home servicer with just under $2 billion of mortgage servicing rights.
B of A announced early Thursday that Berkshire Hathaway agreed to buy 700 million shares of B of A stock at $7.14 per share. As part of the transaction, Berkshire Hathaway will also purchase 50,000 shares of B of A preferred stock that pays an annual dividend 6%.
In a news release, Buffett said that he recently called B of A CEO Brian Moynihan and said he wanted to invest because he believes it “is a strong, well-led company.”
He added that “I am impressed with the profit-generating abilities of this franchise, and that they are acting aggressively to put their challenges behind them.”
B of A's shares have lost more than half their value in recent months on concerns that the company would need to raise additional capital to deal with losses on souring loans. The stock was up more than 18% Thursday morning to just over $8.20.
