Buffett Watch

Warren Buffett Takes $1 Billion Hit As SEC Charges Goldman Sachs


Warren Buffett can't be happy today that the SEC is charging Goldman Sachs with fraud.

First, the value of Goldman warrants held by Berkshire Hathaway has dropped by a little over $1 billion in just 24 hours, as the common stock plunged almost 13 percent to close at $160.70 today on the news. 

They still have a current value of $1.987 billion, so he remains "in the money" on those warrants.  Today's loss is just on paper.  Buffett has said he plans to keep the warrants until close to their expiration in 2013, so there's time for the stock to make up the day's drop.

And no matter what the common stock does, Berkshire still gets 10 percent a year on the $5 billion it loaned Goldman in September of 2008, at the height of the credit crisis.  (It received the GS warrants as part of that deal.)

But money is one thing.  Reputation is another.

Buffett is more closely associated with Goldman than any other Wall Street firm.

The $5 billion loan came with his personal vote of confidence.  In the press release announcing the deal, he called Goldman an "exceptional institution."

Buffett is co-chair of a $500 million initiative to help small businesses, announced last November amid widespread criticism of Goldman's big profits and executive paychecks.

And last month on Squawk Box, he defended the firm against critics who see it as a prime example of 'greed' on Wall Street.

QUICK: Would you still, given the political backlash, buy into this company, own stock, be associated with it and do you think it's a fair rap?

BUFFETT: Yeah. No, no, you're right. I mean, they're going to rewrite Genesis and have Goldman Sachs offering the apple, I mean, pretty soon. But no, I feel--I feel good about their business prospects. I mean, it is a--it's a very, very strong, well-run business.

Goldman rejects today's SEC charges as "completely unfounded in law and fact" and a court will have to decide if there's proof of any wrongdoing.

But Buffett's sterling reputation for integrity is very important to him. 

It seems to me that it must be uncomfortable, at least, for him to see SEC charges brought against Goldman.

It will be interesting to hear what he has to say about today's developments when he answers questions at Berkshire's annual shareholders meeting in Omaha two weeks from tomorrow.

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