Warren Buffett invests $5 billion in Goldman Sachs

24 September 2008

Legendary investor Warren Buffett yesterday disclosed plans to invest $5 billion in Goldman Sachs, which recently agreed to change its structure along with Morgan Stanley to a bank-holding company from an investment bank.

Buffett's Berkshire Hathaway will buy $5 billion worth of perpetual preferred stock from Goldman Sachs in a private offering, which will pay a 10-per cent dividend or $500 million a year. Goldman will however be able to buy back the stock any time, but at a 10 per cent premium.

In addition to this, Berkshire will also receive warrants to purchase further $5 billion worth of common stock within five years at a strike price of $115 per share.

Separately, Goldman plans to raise at least $2.5 billion in a common stock offering under pressure from regulators and shareholders in order to make its proposed  bank more stable.

The deal was announced after markets closed and amounts to a massive vote of confidence by Buffett in the 139 year old institution, which had not required external funding, but went ahead only to restore investor confidence that had been shattered by Wall Stret titans.

"Goldman Sachs is an exceptional institution," Buffett said in a statement. "It has an unrivaled global franchise, a proven and deep management team and the intellectual and financial capital to continue its track record of outperformance."