Buffett To Invest $5BN+ in Goldman Sachs

[jyl]

Warren Buffett will invest $5BN in GS, with an option to purchase another $5BN.

Assume he isn't doing this to be a patriotic American. Then it implies that he thinks GS' balance sheet is acceptable. From memory, GS has appx $1TR assets and around $40BN book equity, meaning a 4% drop in asset value would make GS technically insolvent. If Buffet has decided such a drop is very unlikely, then that is a vote of confidence. I'd speculate he and his people have done their due diligence and are confident GS' assets are fundamentally worth significantly more than their book value.

Not sure what conclusions you can daw about MBS pricing overall. GS had gone further than any investment bank in shedding, hedging, and writing down their MBS exposure (GS recognized the developing problem nearly 1 year before the others). So confidence in GS' assets doesn't automatically imply confidence in others' holdings of MBS, or valuation of those holdings.

[Rich76_911s]

This sounds like a pretty sweet deal for Buffett. Is it a measure of confidence or was it such a great deal that the risk was worth the reward?

"Berkshire will receive preferred stock with a 10 percent dividend that can be called at any time at a 10 percent premium, the statement said. Berkshire will also receive warrants to purchase $5 billion of common stock with a strike price of $115 per share, exercisable at any time in five years."

I wonder what a 115 call with 5 years is worth?

Didn't Buffett do something like this a while ago with Lehman? It is a great position to be in when you have a ton of $, and someone needs it REAL bad. Couldn't MSFT do this with their cash instead of buying back their own stock?

[mjshira]

When you see him putting money in the market as he has been the last few weeks it should tell anyone who pays any attention that the views these investments as cheap purchase price wise.

[HardDrive]

I get a bit chubby whenever I look a the price of my BRK.B

Up over 20% this year.

[berettafan]

i get a vague feeling that the piggies just sold their house to Wolf Investments, Inc. in a sell-leaseback arrangement 'cause they were having trouble making the mortgage.



like i said, a vague feeling and not specific to this one particular instance.

[onewhippedpuppy]

Warren B doesn't make many bad decisions. Which is good, because GS owns a large portion of the company I work for.

[Rich76_911s]

According to the black scholes model the warrents on their own are worth roughly 2.5 BILLION dollars*. He just picked the pockets of those Golden Slacks.

*I did not run the numbers just heard it on CNBC.

It is a GREAT investment for Warren, but it sure doesn't indicate to me that I should be out there buying Goldman common stock. His biggest risk right now is if the Govt drops the ball on the bailout.

[VincentVega]

I look a the price of my BRK.B

x2

I just wish I bought more a few years ago.

[kstar]

Originally Posted by Rich76_911s

. . . snip . . .

His biggest risk right now is if the Govt drops the ball on the bailout.

That's exactly right! He's literally betting on the bailout.

Here's what Buffet said:

"If I didn't think the government was going to act, I wouldn't be doing anything this week. I'm to some extent betting on the fact that the government would do the right thing. If would be a mistake if the government was going to walk away - there's no telling what would happen."

More great quotes here:
http://www.telegraph.co.uk/finance/3073746/Buffett-on-Goldman-the-bailout-and-saving-sex-for-your-old-age.html

[sammyg2]

Maybe he's doing it to prop up all his other investments?
If he thinks he can throw out $5 bil (which the government will probably back to a certain extent) and by doing that it will keep his other stock holdings from falling more than $5 bil, it's a smart move.

[widebody911]

So, did anyone notice Buffett taking a hefty position in GS, and then pimping for the bailout plan?