May 1, 2010 / 4:10 PM / 8 years ago

UPDATE 3-Buffett defends Goldman investment, CEO Blankfein

* Buffett defends $5 billion investment

* Would vote for Blankfein twin if new Goldman CEO needed

* Blankfein says he plans to stick around (Adds Blankfein and Buffett comments, paragraphs 7, 17-18)

By Svea Herbst-Bayliss and Jonathan Stempel

OMAHA, Neb., May 1 (Reuters) - Warren Buffett on Saturday launched a forceful defense of Berkshire Hathaway Inc’s (BRKa.N) (BRKb.N) $5 billion investment in Goldman Sachs Group Inc (GS.N) and the investment bank’s embattled chief executive, Lloyd Blankfein.

Speaking at Berkshire’s annual meeting, Buffett said he did not hold against Goldman the U.S. Securities and Exchange Commission’s civil fraud lawsuit against the bank.

The SEC alleged on April 16 that Goldman hid from investors that securities underlying a risky debt transaction were chosen by Paulson & Co, a hedge fund firm betting they would lose value.

News that investigators have opened a criminal probe involving Goldman has led to more speculation about Blankfein’s hold on his job, but Buffett expressed strong support.

Asked whom he would like to see run Goldman if Blankfein were replaced, Buffett said: “If Lloyd had a twin brother, I would vote for him. I have never given that a thought.”

Charlie Munger, Berkshire’s vice chairman, said there are “plenty” of chief executives he would like to see replaced, but Blankfein is not one of them.

Speaking Friday on PBS’ “Charlie Rose” show, Blankfein said “the firm is guiltless,” and that Goldman would “thrive,” not merely survive.

“Lloyd Blankfein will survive?” Rose asked.

“Well, Lloyd Blankfein will -- yeah, I’ll be here,” Blankfein answered.

“As CEO of Goldman Sachs?”

“That’s my expectation and that’s my duty.”

BIG DIVIDENDS

In September 2008, at the height of the financial crisis, Berkshire obtained $5 billion in Goldman preferred shares, which throw off $500 million in annual dividends, plus warrants to buy an equal amount of common stock. Goldman can buy back the preferreds at 110 percent of face value.

“We love the investment,” Buffett said. “I do not hold against Goldman the fact at all” that the SEC sued. He said it did not fall “within my category” of where reputational issues would call into question the Berkshire investment.

“If it leads to something more serious, then we will look at the situation at that time,” he said.

Goldman has called the SEC charges unfounded, but its shares have lost nearly $23 billion in market value since the lawsuit was filed, falling to about $76.5 billion.

    Blankfein and other Goldman executives underwent a long grilling on Tuesday at a U.S. Senate hearing.

    Goldman, meanwhile, has also seen its reputation among the general public take a beating.

    Referencing Blankfein’s much-criticized comment last year that Goldman was doing “God’s work,” Buffett said: “I would bet that was delivered as a throwaway line ... but he’s gotten killed.”

    TICK, TICK, TICK

    Noting Berkshire’s own bond insurance business, Buffett said he would not care who was on the other side of transactions in deciding when to enter a contract.

    “I don’t care if John Paulson is shorting these bonds,” he said. Referring to Federal Reserve Chairman Ben Bernanke, he added: “If they told me Ben Bernanke was on the other side of this trade, it wouldn’t make a difference to me.”

    Buffett also speculated that the federal government is telling Goldman not to exercise its call option, which he said actually makes the investment look better for Berkshire.

    “Our preferreds are paying $15 a second, so as we sit here, ‘Tick, tick, tick, tick,’ that’s $15 every second,” he said. “Recent developments have probably delayed the calling of our preferred for some time, so ‘tick, tick, tick’ will go on.”

    Legal experts said it is too soon to assess whether prosecutors will find enough evidence to file criminal charges. Many said it is unlikely, citing the higher burden of proof in criminal cases.

    Asked whether Goldman should have disclosed that it had received a “Wells notice” from the SEC indicating possible civil charges, Buffett said not all such notices are material, and that the larger the company, the less likely they will be.

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