Buffett Helps Goldman
Confidence is a scarce commodity these days, and even Goldman Sachs has to pay through the nose for it.
Berkshire Hathaway's $5 billion investment in Goldman may put the firm on a sounder footing, but Warren Buffett once again got a sweet deal.
Characteristically, Mr. Buffett's investment gives him an attractive income stream, downside protection and the strong chance of big gains.
Berkshire is buying $5 billion of perpetual preferred stock with a juicy 10% coupon, as well as warrants that give it the right to buy $5 billion of common stock at any time in the next five years for $115 -- 8% below Goldman's closing stock price Tuesday.
The deal's high cost signals Goldman's need, but the stock could get a boost from Mr. Buffett's very involvement. After all, this is his first big financial-sector bet since the credit crunch began. And he has bought into a top-tier banking franchise, rather than bottom-fishing for distressed assets.
Goldman also plans to sell at least $2.5 billion of common stock to the public. That should net Goldman a minimum $7.5 billion in fresh capital immediately.
Is that enough to tide Goldman through a time when its highly leveraged business model has fallen out of favor? The infusion stamped with Mr. Buffett's brand certainly helps. But equally important is Goldman's transformation into a bank holding company, allowing it to access new sources of funding. It now has more firepower if it wants to buy a deposit-rich bank.
Goldman is Wall Street's best deal maker, but in its weakened state, it clearly met its match.
Peter Eavis / Liam Denning |
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