Bank of America’s stock had plunged 52 percent in the past year on concerns over the bank's mortgage problems and worries that it would have to sell large amounts of stock to shore up its balance sheet. Warren Buffett's Berkshire Hathaway announced today that it would invest $5 billion in Bank of America Corp., giving a much-needed vote of confidence in the struggling bank.
Much of BofA's problem stems from the 2008 purchase of Countrywide Financial Corp., then the largest U.S. mortgage lender. Bank of America has been under heavy pressure from investors for selling them securities based on bad mortgages that later lost value.
Bank of America has paid a total of $12.7 billion earlier this year to settle claims that it sold investors faulty mortgage investments. Investors have become worried that the bank would have to pay out even more to settle future claims.
Investors' confidence in the bank took another blow this month as its mortgage headaches got even worse. On Aug. 8, American International Group Inc. sued Bank of America for more than $10 billion, saying the bank deceived AIG by selling it overvalued mortgage-backed securities.
Berkshire also holds investments in several other banks. One of Berkshire's biggest stock investments is a 16 percent stake in Wells Fargo. Buffet also holds stakes in US Bancorp, M&T Bank Corp. and the Bank of New York Mellon Co.
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