Buffett swoops in, buys $5B stake in Goldman Sachs
— -- Joseph Mason, a banking professor at Louisiana State University, said that Buffett buying the stake means that "either Goldman is a great investment on its own, or the (contemplated government) bailout is so valuable that it makes sense to invest in banks" that may benefit.
Lloyd Blankfein, CEO of Goldman, said in a statement that the firm views the investment as "strong validation" of its business prospects.
Buffett, meanwhile, said in a statement that Goldman has an "unrivaled global franchise, a proven and deep management team" and the financial strength to outperform the industry.
The investment gives Goldman flexibility to grow its business, says Tom Marsico, founder of Marsico Capital Management — which owns 4% of Goldman on behalf of its clients — by giving it a "cushion of capital to buy distressed (financial) assets."
Berkshire will receive warrants it can exercise within five years to buy $5 billion of common stock at $115 a share. Berkshire's preferred stock carries a dividend of 10%.
Goldman's stock rose $4.27 to $125.05 ahead of news of the investment late Tuesday, then topped $135 in after-hours trading. Last week, the stock hit a four-year low of $85.88 before rebounding, amid the bankruptcy filing of rival Lehman Bros. and the hasty sale of Merrill Lynch to Bank of America.
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