Goldman Sachs Group Inc. said that a $5 billion capital infusion from Warren Buffett's Berkshire Hathaway Inc. on Tuesday, coupled with a common stock offering priced Wednesday morning, raised $10 billion of capital.
In an interview Tuesday on CNBC, Mr. Buffett said that his investment in Goldman was the right deal at the right price and a sign of his confidence that Congress will soon pass a rescue package for the financial industry.
"If I didn't think the government was going to act, I would not be doing anything this week — I might be trying to undo things this week," Mr. Buffett said. "I am to some extent betting on the fact that the government will do the rational thing and act promptly."
Dow Jones wrote that the market generally views the investment as a vote of confidence and cited Mr. Buffett's reputation as an astute investor who bets on companies with strong brands. Goldman fits that description, it said. However, the adversity Goldman has recently faced — its stock is down about 50% this year — underscores the risk Mr. Buffett is taking, Dow wrote. Though the government gave the firm much-needed aid by allowing it, along with Morgan Stanley, to become a bank holding company, Goldman still must undertake radical changes to adapt its portfolio of assets to the new business model, Dow said.
Dow Jones also quoted Jeff Matthews, a hedge fund executive at Ram Partners, who wrote of Mr. Buffett's investment: "What he's doing is not what the U.S. Treasury wants to do with Goldman's sick brethren: He is not buying Goldman's 'bad' assets." "He is, instead, buying preferred shares with a nice, fat yield."
Mr. Buffett is to get perpetual preferred shares for his $5 billion investment that pay an annual dividend of 10%. Goldman has the right to buy back the shares at any time at a 10% premium. Berkshire Hathaway gets five-year warrants to buy $5 billion worth of common shares at a strike price of $115 a share, an 8.7% discount to the closing price Tuesday. Wednesday's common stock offering sold 40.65 million shares priced at $123, a 1.6% discount to Tuesday's price, Goldman said. It said it has an overallotment option of 6.1 million common shares, which could raise another $750.3 million. On Tuesday Goldman had said it planned to sell at least $2.5 billion of common stock. Goldman's shares rose 6.4% Wednesday.