Futures Move Higher on Buffett Deal
U.S. stock index futures pointed to a higher open for Wall Street on Wednesday after news that billionaire investor Warren Buffett will invest $5 billion in investment bank Goldman Sachs.
Buffett's Berkshire Hathaway will buy $5 billion of perpetual preferred stock that carries a 10 percent dividend. It also will receive warrants to buy $5 billion of common stock at $115 per share, exercisable within five years, which could give it a roughly 9 percent stake in Goldman . Last week, Goldman said it averaged 448.3 million common shares in the quarter ended Aug 29.
Futures pared gains as the market digested the Goldman news and jitters remained over the government's bank bailout. Goldman shares gained 3.5 percent premarket, though they were up as much as 9.4 percent earlier.
In Tokyo, Kyodo news agency reported that Sumitomo Mitsui Financial Group, Japan's third-largest bank, plans to invest several billion dollars in Goldman, with which it has a long relationship. But SMFG said it had no plans at this time to invest in Goldman, whose spokesman Lucas van Praag said he could not confirm the Kyodo report.
Meanwhile, questions continue to mount on the fate of the $700 billion bailout package under debate in Congress, with some traders disappointed of the way the Federal Reserve has presented the case to lawmakers.
Federal Reserve Chairman Ben Bernanke bluntly warned reluctant lawmakers Tuesday that they risk a recession with higher unemployment and increased home foreclosures unless they act on the bailout.
But influential lawmakers in both parties demanded changes in the White House-backed proposal, and conservative Republicans recoiled at the prospect of federal intervention into private capital markets.
The Securities and Exchange Commission's ban on short-selling to prevent speculation should be followed by similar actions in the oil market, where speculative trading is rife, some traders say, according to Ben Liechtenstein, president at Tradersaudio.com.
"Why are we accepting long positions in crude oil and not expecting delivery?" Liechtenstein told "Worldwide Exchange."
Oil inventories data are due out at 10:35 am New York time and on the economic front. Crude prices gained more than $2 to move past $109 a barrel.
In economic news, mortgage applications fell 10.6 percent as a short-term drop in interest rates wore off.
Asian stocks closed mixed with fears over the fate of the U.S. bailout package still running high, while European stocks rose, helped by EDF's agreed bid for British Energy and the Warren Buffett news.