| NEW YORK
NEW YORK Warren Buffett's Berkshire Hathaway
Inc (BRKa.N) (BRKb.N) will invest $5 billion in Goldman Sachs
Group Inc (GS.N), 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 percent after the announcement,
while Standard & Poor's 500 futures SPc1 gained 15 points.
Goldman also announced plans to sell $2.5 billion of common
Buffett is adding Goldman to a portfolio of investments at
Berkshire that includes large stakes in a handful of major U.S.
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 percent from their record set last Oct 31.
"Goldman Sachs is an exceptional institution," Buffett said
in a statement. "It has an unrivaled global franchise, a proven
and deep management team and the intellectual and financial
capital to continue its track record of outperformance."
Buffett is the second-richest American according to Forbes
magazine, and built Berkshire into a $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 Buffett's "longstanding 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 capitalization and liquidity position."
SECOND BIG INVESTMENT IN WEEK
Berkshire will buy $5 billion of Goldman perpetual
preferred stock that carries a 10 percent dividend.
It also will receive warrants to buy $5 billion of common
stock, or 43.5 million shares, at $115 per share, within five
years, which could give it a roughly 9 percent stake in
Goldman. Last week, Goldman said it averaged 448.3 million
common shares in the quarter ended Aug 29.
On Sunday, Goldman and rival Morgan Stanley (MS.N) said
they would become bank holding companies, enabling them to
accept deposits and killing the investment bank model that
dominated Wall Street for decades.
The following day, Morgan Stanley (MS.N) said it would sell
up to a 20 percent equity stake, worth as much as $8.5 billion,
to Japan's largest bank, Mitsubishi UFJ Financial Group Inc
Goldman and Morgan Stanley announced the investments barely
a week after upheavals at the two other major Wall Street
investment banks. Merrill Lynch & Co Inc MER.N agreed to sell
itself to Bank of America Corp (BAC.N), while Lehman Brothers
Holdings Inc LEHMQ.PK filed for bankruptcy protection.
"Clearly they are saying that Goldman is not only going to
be a survivor, but that it is going to prosper in this new
world," said Tim Ghriskey, chief investment officer of Solaris
Asset Management in Bedford Hills, New York.
Berkshire as of June 30 disclosed stakes in six major U.S.
financial services companies: American Express Co (AXP.N), Bank
of America, M&T Bank Corp (MTB.N), SunTrust Banks Inc (STI.N),
U.S. Bancorp (USB.N) and Wells Fargo & Co (WFC.N).
A person familiar with Goldman's thinking said the company
is not likely to announce deals with these banks.
U.S. Bancorp spokesman Steve Dale and Wells Fargo
spokeswoman Julia Tunis Bernard declined to comment. The other
companies did not immediately return calls seeking comment.
Goldman said on Sunday it intends to expand its deposit
base by buying deposits from other banks, including those in
Goldman's bank unit had about $25 billion in assets and $23
billion in deposits, tiny in comparison to its total assets of
$1.1 trillion at the end of August.
The investment is 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 CEG.N for $4.7 billion. Constellation took that bid
over a higher offer led by France's Electricite de France SA
Despite his disdain for investment banking excess, Buffett
has publicly praised Goldman investment banker Byron Trott, who
helped arrange Berkshire's $4.5 billion purchase in March of a
majority stake in industrial conglomerate Marmon Holdings Inc
from Chicago's Pritzker family.
Goldman also provided financing for Mars Inc's planned $23
billion acquisition of chewing gum maker Wm Wrigley Jr Co
WWY.N. Berkshire committed $6.5 billion to that transaction.
Wrigley shareholders will vote on the merger on Sept 25.
When Buffett was 10 years old his father brought him to
visit former Goldman Sachs head Sidney Weinberg. And as a young
broker Buffett worked with Gus Levy, who later ran Goldman in
the 1970s as senior partner.
Buffett's most famous foray into Wall Street came in 1991,
when he became interim chairman at Salomon Inc to help it clean
house following a Treasury market scandal. Salomon was a major
Berkshire investment, but not one of Buffett's best.
"I don't know if it's a statement on all the financials or
the market," said Marshall Sonenshine, chairman of Sonenshine
Partners in New York, referring to the Goldman investment. "He
sees Goldman Sachs as a good value where it's currently priced.
Remember, he invested in Salomon Brothers in the past, and that
wasn't a sign that Salomon was going to start doing well."
Buffett may have reason to believe a Goldman investment
will fare better, said Anton Schutz, a portfolio manager at
Mendon Capital Advisors in Rochester, New York.
"The valuation is great, and with what the government's
doing to unfreeze debt markets, it's a great time to be
buying," he said.
Shares of Goldman rose $10.10 to $135.15 in after-hours
trading following the announcement, after closing up $4.27, or
3.5 percent, to $125.05 in regular trading.
(Additional reporting by Megan Davies, Joseph A. Giannone
and Dan Wilchins in New York, Jim Finkle in Boston and Jessica
Hall in Philadelphia; editing by Carol Bishopric)