Shares climb as Buffett ploughs $5bn into Bank of America

Billionaire investor Warren Buffett has agreed a deal which will see his firm Berkshire Hathaway invest $5bn in Bank of America.

The bank's share price has tumbled this year as investors fret over the health of the bank, but the stock rose 17% in early US trading today following news of the deal.

There had been fears BofA would need to go to public markets to raise capital, with shares halving in value as a result.

However, today Buffett gave his support to the bank, backing its strategy and labelling it a "strong, well-led company."

The deal sees the Bank of America selling 50,000 shares of cumulative perpetual preferred stock with a liquidation value of $100,000 per share to Berkshire Hathaway in a private offering.

The stock has a dividend of 6%, and can be redeemed by the company at any time at a 5% premium.

Bank of America chief executive Brian Moynihan said the deal proved the group's strategy is paying off.

"We are building the best franchise in financial services and we have laid out a clear plan to deliver long-term shareholder value," he said.

"I remain confident we have the capital and liquidity we need to run our business. At the same time, I also recognise a large investment by Warren Buffett is a strong endorsement in our vision and our strategy."

The deal boosted shares, with the S&P 500 opening up 9 points at 1,187, and the Dow ahead by 62.2 points, at 11,382.

Other bank shares also jumped on the news: Citigroup rose 8% to $30.71, Wells Fargo rose 5% to $25.70 and JPMorgan Chase rose 4.9% to $37.58.

The stronger US opening helped the FTSE erase earlier losses, the leading UK index trading roughly flat at 5,207.