In a deal hatched in less than 24 hours, Warren Buffett is injecting $5 billion into Bank of America, providing a jolt of confidence to the ailing company while landing the famed investor $300 million in annual dividend payments.

The bank's shares rose more than 9 percent to $7.65 on the news Thursday, after surging as much as 25 percent in early trading. It was the latest stop in a wild ride for a stock that threatened to fall below $6 on Tuesday and is still down nearly 43 percent for the year.

The investment gives Bank of America the stamp of approval from one of the world's richest men at a time when chief executive Brian Moynihan is struggling to assure investors his company has enough capital to absorb losses and meet new international standards.

"Having Warren Buffett join the Bank of America ship is like having a whole squadron of Navy SEALS supporting you," said Charlotte businessman C.D. Spangler, one of the bank's largest individual shareholders.

Other investors, however, said the bank's leaders still have a long way to go to restore their reputation in the market.

"They have to obviously address the mortgage issue to create earnings momentum, demonstrate they can grow the business, and management still has to demonstrate they are credible," said Jon Finger, a partner in the Houston investment firm Finger Interests Ltd., a major Bank of America investor.

Buffett, who is buying into Bank of America through his Berkshire Hathaway investment conglomerate, has offered similar lifelines to distressed companies in the past. During the 2008 financial crisis, he invested in Goldman Sachs and General Electric.

Besides receiving dividend payments in the Bank of America deal, Berkshire Hathaway has the right to take a large stake in the company at a potentially lucrative price. That provision would dilute the holdings of current shareholders, who have already seen the value of their investment plunge while receiving a quarterly dividend of only a penny per share.

Sources familiar with the situation said Buffett called Moynihan on Wednesday morning and offered to invest in the bank. Moynihan said the company didn't need any more capital. Buffett said he wanted to make the investment anyway, and the two sides began working on the deal into the night.

Bank of America's board voted Thursday morning to approve it. Moynihan informed top executives in a 6:30 a.m. conference call, about 2 1/2 hours before the bank issued a news release, the sources said.

Buffett told CNBC that he got the idea for the capital infusion while in the bathtub on Wednesday morning. He hadn't talked to Moynihan before and didn't have his phone number. An assistant set up the call.

Moynihan was in New York when he took Buffett's call. Buffett was in Omaha, Neb., Berkshire Hathaway's home base.

"Bank of America is a strong, well-led company, and I called Brian to tell him I wanted to invest in it," Buffett said in a statement. "I am impressed with the profit-generating abilities of this franchise, and that they are acting aggressively to put their challenges behind them."

Good news at bad time

The "Buffett bump" in the stock price was a boost for executive and employee morale at a time when the company is cutting 3,500 jobs ahead of a broader efficiency initiative that aims to streamline and improve the way the company works. The initiative, known as Project New BAC, could also potentially eliminate more than 10,000 of the company's 288,000 jobs starting this fall.

Moynihan said in a statement he remains confident that the nation's biggest bank has the capital and cash on hand that it needs.

"At the same time, I also recognize that a large investment by Warren Buffett is a strong endorsement in our vision and our strategy," he said.

Bank of America spokesman Jerry Dubrowski said the bank's regulators had no role in the transaction.

Buffett has been critical of Moynihan's predecessor, Ken Lewis, saying he paid too much for Merrill Lynch in a deal struck in 2008 as Lehman Brothers Holdings filed for bankruptcy. "He paid a crazy price, in my view," Buffett said in remarks to the Financial Crisis Inquiry Commission. "He could have bought it the next day for nothing, because Merrill was going to go when Lehman went."

In Thursday's deal, Bank of America is selling 50,000 shares of preferred stock with a value of $100,000 per share to Berkshire Hathaway in a private offering. The stock has a dividend of 6 percent per year and can be redeemed by Bank of America at any time at a 5 percent premium.

In addition, Berkshire Hathaway will also receive warrants that allow for the purchase of 700 million shares of Bank of America common stock at a price of $7.14 per share. The warrants may be used at any time during a 10-year period following the closing of the transaction. Bank of America receives $5 billion in cash for issuing the preferred shares and warrants. The transaction is expected to close early next month.

If Buffett were to trigger the warrants it would cause Bank of America to issue new shares, diluting the holdings of existing stockholders. After issuing new stock to absorb losses and fortify its balance sheet in recent years, the bank's share count has increased to 10.1 billion from 4.5 billion at the beginning of 2008. That means earnings are spread over more than twice as many shares.

Buffett told CNBC that it's "very likely" Berkshire Hathaway will exercise all of the warrants over the 10 years. If Buffett does so, Berkshire would own about 6.5 percent of Bank of America's common stock. Buffet made a profit on paper Thursday of $355 million from the warrants.

The deal prohibits Buffett from raising his total stake in the bank above 14.9 percent, according to an 8-K form the bank filed Thursday.

Moynihan fared better than Goldman Sachs and General Electric did during the 2008 financial crisis. In both cases, the companies agreed to issue preferred shares to Berkshire with a dividend of 10 percent that could be paid back at a 10 percent premium. Goldman received a $5 billion investment in September 2008, while General Electric scored $3 billion in October 2008. Goldman Sachs paid back Buffett's investment in April; GE has yet to do so.

Courtship with Wachovia

The investment is Buffett's latest tie to a Charlotte bank.

Wachovia executives sought out Buffett as an investor in September 2008 as the Charlotte bank struggled under the weight of its deteriorating mortgage portfolio. But Buffett backed off when he felt the potential investment became too pricey. Later, Wachovia's fortunes reversed, and the bank was bought by Wells Fargo. Buffett is Wells' biggest investor, owning 7 percent of the San Francisco-based bank's common stock, according to Wells Fargo's latest proxy filing this spring.

Nancy Bush, contributing editor to SNL financial, said the move was a good deal for both sides.

"Warren Buffett is the ultimate value investor," she said. "He just obviously saw a deal that was too good to pass up. It gives him a smart investment, and it gives Bank of America sort of a shot in the arm of confidence when they needed it."

Bush said the deal will allow potential investors in the bank's common stock to look beyond "today's issue" of the bank's mortgage woes and toward its long-term potential, adding that "this company has just been subject to some really extreme rumor-mongering and high-frequency trading."

The deal could also prompt other private-equity investors to seek a stake in other banks, boosting the broader financial sector.

"It's a very strange time right now for banks generally," Bush said. "... As we kind of get through this mini-crisis that we've had in the last few weeks, there's going to be obviously very smart investors who start looking at the banks more positively. Not everyone is subject to the hype."

Spangler, the Charlotte investor, bought $100 million worth of stock in Bank of America predecessor NCNB in 1991 in a move that was seen as a vote of confidence during a rough patch for the company. Buffett's move probably signals his faith in the company's prospects and his ability to make money on the deal, Spangler said.

"I don't think people make investments other than for the prospect of a satisfactory return," he said.