- Associated Press - Thursday, August 25, 2011

NEW YORK (AP) Warren Buffett’s Berkshire Hathaway Inc. announced Thursday that it would invest $5 billion in Bank of America Corp., giving a much-needed vote of confidence to the beleaguered bank.

The news sent the bank’s stock soaring 9 percent.

“Buffett is Bank of America’s white knight,” said Glenn Schorr, bank analyst at Nomura equity research.

As recently as Tuesday, the bank’s stock had plunged 50 percent from a year ago 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.

Investors’ confidence in the bank took another blow this month as its mortgage headaches got worse. On Aug. 8, American International Group Inc. sued Bank of America for more than $10 billion, saying the bank deceived the insurer by selling it faulty mortgage investments. The bank has already paid a total of $12.7 billion this year to settle similar claims. The AIG lawsuit amplified worries that more investors would sue the bank and drain its coffers.

The slide in the stock intensified, falling as much as 36 percent in just the last month. The sell-off was seen as a major challenge for the bank and its CEO Brian Moynihan, who has been at the helm since January 2010. In an effort to calm investors, the embattled CEO took to the airwaves, giving an interview on CNBC on Aug. 9 and answering questions from shareholders in a conference call on Aug. 10.

It didn’t help. Investors became more impatient with the bank, which is the largest in the U.S. by assets.

Much of the Charlotte, N.C., bank’s problems stem from its 2008 purchase of the country’s largest mortgage lender Countrywide Financial Corp., but it faces a litany of other challenges.

The bank has lost $15.3 billion in the last four quarters. Its revenue fell 34 percent in the first half of the year from the same period a year ago, to $40 billion, after new regulations prevented the bank from collecting fees from checking account overdrafts and credit cards. Half of all American households have an account or do business with Bank of America, making it more exposed than its rivals to weakness in the economy.

Mr. Moynihan has been trying to engineer a turnaround by selling assets, cutting expenses and closing branches. That hasn’t been enough to calm jittery investors, but the Buffett investment should buy him time.