Sep 24 2008
Buffett aid to Goldman Sach
The gloomy atmosphere enveloping the Wall Street finally saw some glimmer of hope with the world’s prominent stock picker Warren Buffett deciding to back Goldman Sach. The faith of investors had been considerably shaken when the investment company model took a beating on Wall Street. Since then the companies were finding it very difficult to get investors to back them in raising cash. This investment of $5 billion by Warren Buffett which will be channelized through his company Berkshire Hathaway has provided a major impetus to Goldman Sach and was also evident from the leap that the shares of the company registered in the market.
But this deal for Goldman Sach has come with a heavy price. Berkshire Hathaway Inc which is led by the veteran investor will end up buying almost $5 billion of Goldman’s preferred shares which would come with a 10% dividend. In addition to this the company would get ownership of warrants which would allow it to buy $5 billion of the firm’s common stocks during any time in the next five years. These stocks would be priced at $115 a share. These stocks of Goldman would sit in Buffett’s impressive portfolio along with other major US commercial banks. This move is expected to inject confidence in the troubled US financial market. In addition to this boost got from Buffett, Goldman also plans to sell about $2 billion worth of its common stocks to the public in quest of additional funds.
Warren Buffett went on to describe Goldman Sach as an exceptional institution. With its fanned global presence along with a proven management team the firm has an impressive track record to its name. Goldman Sach see’s this aid from Buffett as a strong validation of their client franchise and its future prospects. Until now Warren Buffett had refrained from investing in investment firms as he considered the working of these firms to be complex and too large to manage and run efficiently and took this decision also only when Goldman Sach along with Morgan Stanley decided to give up the tag of being investment banks and became bank holding companies.