Billionaire investor Warren Buffett has ploughed $5bn (£3bn) into beleaguered US bank Bank of America as it struggles to convince the market of its financial health.
The move is reminiscent of his investments to shore up Goldman Sachs and General Electric during the financial crisis, and prompted a more than 12 per cent rebound in BofA’s share price.
Buffett and Bank of America said he made an unsolicited call to the bank on Wednesday morning, offering to make an investment.
Even though the bank has said it did not need to raise capital, investors widely believed Bank of America needed more money and to show it could raise funds easily.
The deal proved again that Buffett has become something of a lender of last resort to the financial system, as he did with Goldman and also GE.
Buffett's role in aiding the economy and the financial system has become symbolically important given the lack of policy options left for the US government and the Federal Reserve to stimulate demand.
"This proves to the market that if the bank needs additional capital, which we don't believe they do, but if they needed to calm the market by raising capital, they could do it within 30 minutes with a quick call to Uncle Warren," said Sean Egan, managing principal of Egan-Jones Ratings.
Buffett's Berkshire Hathaway will in many ways make out even better financially than Bank of America did in the deal.
Berkshire had a position in the bank that he sold in the fourth quarter of 2010 when the stock had an average price of $12.24.
The warrants to buy 700 million shares of common stock he gets in this deal are priced at just over $7.14 per share, with an unusually long 10-year exercise period.
One long-term Berkshire shareholder said the warrants were the best part of the deal by far.
"He could well make a 100 percent return on his investment in a few years," said James Armstrong, president of Henry H. Armstrong Associates. "It's amazing how much a little hug from Buffett is worth these days."