Published September 25, 2008

Buffett plunks down US$5b for Goldman

Some in Street see it as a gold-plated vote of confidence

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(NEW YORK) Warren Buffett's Berkshire Hathaway Inc will invest US$5 billion in Goldman Sachs Group Inc, in a major boost for the Wall Street bank from perhaps the world's best- known investor.

'It's a vote of confidence which is gold plated,' said Michael Holland, a money manager at Holland & Co in New York. 'You don't get better than this.'

Shares of Goldman rose 8.1 per cent after the announcement, while Standard & Poor's 500 futures SPc1 gained 15 points.

Goldman also announced plans to sell 40.65 million shares at US$123 each. Goldman, which managed its own offering, said it has an option to sell an additional 6.10 million shares to handle excess demand.

Mr Buffett is adding Goldman to a portfolio of investments at Berkshire that includes large stakes in a handful of major US commercial banks.

Mr Buffett also said that he would consider buying some units from American International Group Inc (AIG), the insurer bailed out by the US government.

Mr Buffett said he expressed interest in buying parts of AIG over the Sept 13-14 weekend, when regulators and financial industry executives were holding emergency talks on problems that included the fate of Lehman Brothers Holdings Inc, which filed for bankruptcy protection on Sept 15.



On Sunday, Goldman won Federal Reserve approval to become a bank holding company, giving it easier access to financing and adding to speculation it might buy another bank.

This came after many investors questioned its business model amid this month's market turmoil, causing shares to fall 50 per cent from their record set last Oct 31.

'Goldman Sachs is an exceptional institution,' Mr Buffett said in a statement. 'It has an unrivalled global franchise, a proven and deep management team and the intellectual and financial capital to continue its track record of outperformance.'

Mr Buffett is the second- richest American according to Forbes magazine, and built Berkshire into a US$199 billion conglomerate by investing in undervalued companies with strong management.

He was not available for immediate comment, according to Debbie Bosanek, who works in his Omaha, Nebraska office.

Lloyd Blankfein, Goldman's chief executive, in a statement noted Mr Buffett's 'long-standing relationship' with the company, and called the investment 'a strong validation of our client franchise and future prospects. This investment will further bolster our strong capitalisation and liquidity position'.

Berkshire will buy US$5 billion of Goldman perpetual preferred stock that carries a 10 per cent dividend.

It also will receive warrants to buy US$5 billion of common stock, or 43.5 million shares, at US$115 per share, within five years, which could give it a roughly 9 per cent stake in Goldman. Last week, Goldman said it averaged 448.3 million common shares in the quarter ended Aug 29.

Goldman said on Sunday it intends to expand its deposit base by buying deposits from other banks, including those in distress.

The investment is Mr Buffett's second major purchase in a week. On Thursday, Berkshire's MidAmerican Energy Holdings Co affiliate agreed to buy power supplier Constellation Energy Group Inc for US$4.7 billion.

Despite his disdain for investment banking excess, Mr Buffett has publicly praised Goldman investment banker Byron Trott, who helped arrange Berkshire's US$4.5 billion purchase in March of a majority stake in industrial conglomerate Marmon Holdings Inc from Chicago's Pritzker family. -- Reuters