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Goldman Sachs to receive $5bn Buffett investment

(Agencies)
Updated: 2008-09-24 07:26

NEW YORK  - Goldman Sachs Group Inc on Tuesday said it will receive a US$5 billion investment from Warren Buffett's Berkshire Hathaway Inc, a vote of confidence for the Wall Street bank from perhaps the world's best-known investor.

Investor Warren Buffett laughs during a news conference in Madrid May 21, 2008. [Agencies]

Berkshire will buy US$5 billion of perpetual preferred stock that carries a 10 percent dividend. It also will receive warrants to buy US$5 billion of common stock at US$115 per share, exercisable within five years.

Goldman also said it plans to sell at least US$2.5 billion of common stock. It announced the offerings after earlier this week announcing it would become a bank holding company, enabling it to accept deposits, and killing the investment banking model that has dominated Wall Street for decades.

"This is a marriage of two incredibly intelligent, attractive partners," said Michael Holland, a money manager at Holland & Co in New York. "Buffett is saying about the top management of Goldman Sachs that they're distinct and different from their competitors. and it's a vote of confidence which is gold plated. You don't get better than this."

Shares of Goldman rose US$10.65, or 8.5 percent, to US$135.70 in after-hours trading following the announcement. They rose US$4.27, or 3.5 percent, to US$125.05 in regular trading.

"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 was not immediately available for further comment, according to Debbie Bosanek, who works in his Omaha, Nebraska office.

Lloyd Blankfein, Goldman's chief executive, in a statement said Buffett's investment is "a strong validation of our client franchise and future prospects. This investment will further bolster our strong capitalization and liquidity position."

The investment is Buffett's second major purchase in less than a week. On Thursday, his MidAmerican Energy Holdings Co affiliate agreed to buy power supplier Constellation Energy Group Inc for US$4.7 billion. Constellation took that bid over a higher offer led by French energy giant Electricite de France SA.