24 Sep 2008

Buffett to invest $US5b in Goldman Sachs

3:27 pm on 24 September 2008

Billionaire investor Warren Buffett is to invest $US5 billion in Goldman Sachs Group Inc through the Berkshire Hathaway group.

The move is seen as a major boost for the Wall Street bank from perhaps the world's best-known investor.

Shares of Goldman rose 6.5% following the announcement on Tuesday.

Berkshire will buy $US5 billion of perpetual preferred stock that carries a 10% dividend.

It also will receive warrants to buy $US5 billion of common stock, or 43.5 million shares, at $US115 per share, within five years, which could give it a roughly 9% stake in Goldman.

Goldman also plans to sell at least $US2.5 billion of common stock in a public offering.

On Sunday, Goldman said it would become a bank holding company, enabling it to accept deposits and killing the investment bank model that dominated Wall Street for decades.

Mr Buffett has built his reputation on investing in companies he considers undervalued.

The investment is his second major purchase in less than a week. On Thursday, Berkshire's MidAmerican Energy Holdings Co affiliate agreed to buy power supplier Constellation Energy Group Inc for $US4.7 billion.

As of June 30, Berkshire disclosed stakes in six major US banking and financial services companies: American Express Co, Bank of America Corp, M&T Bank Corp, SunTrust Banks Inc, US Bancorp and Wells Fargo & Co.

The latter was Berkshire's largest equity investment other than Coca-Cola Co.