Investing During Debt Crisis Bank of America

(October 8, 2019) The Berkshire investment comes at a pivotal time for Bank of America during the debt crisis of 2011. 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.

Mr. Moynihan, CEO of Bank of America at that time, 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.

Warren Buffett called Mr. Moynihan to discuss a potential deal. At first, Bank of America’s chief was skeptical, saying the bank didn’t need a capital injection. But Mr. Buffett emphasized it would be a long-term investment, not a short-term fix. Over the course of the day and multiple calls, they hammered out the investment, finalizing the details late on Wednesday.

Under the terms of the deal, Berkshire will buy $5 billion of preferred stock that pay a 6 percent annual dividend, and receive warrants for 700 million shares that it can exercise over the next 10 years. Bank of America has the option to buy back the preferred shares at any time for a 5 percent premium.

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