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Warren Buffett Gives Goldman Sachs Unexpected $5B Vote of Confidence

Tuesday, 23 Sep 2008 | 6:19 PM ET

In a surprise return to Wall Street, Warren Buffett's Berkshire Hathaway has a deal to invest at least $5 billion in Goldman Sachs.

Up until now, he has rejected all pleas to come to Wall Street's aid during the current crisis.

Goldman revealed the vote of confidence from the man generally considered the world's greatest investor late this afternoon in a news release.

Berkshire will buy $5 billion in preferred Goldman stock with a dividend of 10 percent. It will also get warrants to buy another $5 billion in common stock over five years.

Buffett has avoided Wall Street since he came to Salomon Brothers' aid as a hands-on manager when it was hit by a trading scandal in 1991. He had bought a $700 million stake in the company four years before.

He eventually turned a profit on the investment, but it was a long and difficult experience for him, making tonight's news especially unexpected.

In a brief off-camera telephone conversation tonight, Buffett told CNBC's Becky Quick he loves the terms of the deal and he loves Goldman.

(It's important to note that Buffett got a much better deal than any individual investor could hope for.)

Even so, Becky tells me she's "stunned" by this development, and I am too. Neither of us can believe it just now.

Becky jokes she would have predicted that Buffett would buy a stake in Pepsi, arch-rival of his beloved Coca-Cola, before he put money into a Wall Street firm again.

She expects to speak extensively with Buffett live on the air tomorrow (Wednesday) morning just after 8a ET on Squawk Box.

They'll cover the Goldman investment as well as everything else that's happening in the financial world right now, including his support of the administration's increasingly controversial bailout plan.

While Buffett came to New York to help run Salomon years ago, its inconceivable that he would leave Omaha this time around to pitch in at Goldman's executive suite.

Buffett is quoted in the release with some very positive comments about Goldman, which recently converted from an investment bank to a bank holding company.

"Goldman Sachs is an exceptional institution. 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.”

Goldman CEO Lloyd Blankfein returns the favor in his quote. "We are pleased that given our longstanding relationship, Warren Buffett, arguably the world’s most admired and successful investor, has decided to make such a significant investment in Goldman Sachs. We view it as a strong validation of our client franchise and future prospects. This investment will further bolster our strong capitalization and liquidity position."

Berkshire will also receive warrants to purchase $5 billion of common stock with a strike price of $115 a share. The warrants can be used at any time over a five year period.

In addition, Goldman will raise at least $2.5 billion in common equity through a public offering.

Goldman shares are higher in after-hours trading tonight (Tuesday.) Morgan Stanley is also gaining.

Buffett's strong endorsement of the newly minted "bank holding company" could help lift the financial sector, and the entire stock market, when trading gets underway in the morning.

Current Berkshire stock prices:

Class A:

Class B:

Questions? Comments? Email me at buffettwatch@cnbc.com

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