Warren Buffett said Berkshire Hathaway intends to remain a long-term investor in Goldman Sachs. Photo: Nicholas KAMMNICHOLAS KAMM/AFP/Getty Images
Warren Buffett to Become Top 10 Investor in Goldman
By Richard Blackden, The Telegraph, UK – March 26, 2013
http://www.telegraph.co.uk/finance/newsbysector/banksandfinance/9955573/Warren-Buffett-to-become-top-ten-investor-in-Goldman.html
Warren Buffett is poised to become one of the largest shareholders in Goldman Sachs in the billionaire’s second vote of confidence in the Wall Street bank since the financial crisis.
Under the deal, the 82 year-old is exchanging the right to buy 43.5m shares in Goldman at $115 each by the beginning of October for a smaller number of shares in the bank at what is expected to be a higher price. The exchange is the latest chapter in an agreement that dates back to September 2008, when Goldman chief executive Lloyd Blankfein was looking to raise capital at the height of the financial crisis.
Then, Mr Buffett bought $5bn of preferred Goldman shares that carried a dividend of 10pc, and also acquired the right to buy $5bn more shares at $115.
As part of a revised agreement announced on Tuesday, Goldman will give the billionaire a number of shares that reflects the difference in value between Goldman’s closing share price in the last 10 days of September and the original $115 price, multiplied by 43.5m.
Based on Goldman’s current share price, Mr Buffett will receive about 10m shares, making him the bank’s ninth-largest shareholder, according to Thomson Reuters.
Analysts said the agreement amounts to a vote of confidence from Mr Buffett in Goldman, which, more than its rivals, has proved a lightning rod for public anger about the financial crisis. Mr Buffett – dubbed the “Sage of Omaha” for his often shrewd investing strategies – could have exercised his right to buy the shares and then, based on Goldman’s current share price, sold them at a profit.
“Who wouldn’t want [Warren Buffett] as a larger, long-term shareholder?” said Glenn Schorr, an analyst at Nomura. Mr Buffett said on Tuesday that he intends to hold “a significant investment” in the bank. Shares in Goldman were little changed at $146 in New York in early afternoon trading.
However, by giving up the right to buy 43.5m shares sometime over the next six months, Mr Buffett is also avoiding the potentially heavy cost of executing such a large trade. While Goldman welcomed the billionaire’s intention to be a long-term investor, the bank can now expect to find Mr Buffett pressed for his opinion on his investment by the press. He has given his name to the Buffett Rule, a law that President Barack Obama is pushing that would see America’s wealthiest pay more tax.
The move to become a major shareholder in Goldman Sachs is also a departure from the strategy that Mr Buffett has so far pursued when investing in financial services firms. The 82 year-old has stuck to investing in banks with significant retail and mortgage businesses, including Wells Fargo and Bank of America.
With Western economies still struggling and new regulations hitting once profitable activities, Goldman has faced pressure to restructure its business. Mr Blankfein has insisted that the bank does not require radical surgery and that profit growth will accelerate once the broader economic recovery does so.
via Golden Age of Gaia
