Buffett Takes Stake in Goldman Sachs

Omaha, NE, Sept. 24, 2008--Warren Buffett's Berkshire Hathaway Inc., the parent company of Shaw Industries, said Tuesday it investing at least $5 billion in Goldman Sachs Group Inc., a vote of confidence for one of the survivors of the credit crisis.

In addition to buying $5 billion in preferred stock, Berkshire also got warrants to buy another $5 billion in Goldman's common stock. Goldman also said late Tuesday it would raise another $2.5 billion in its own public stock offering.

The news sent shares of Goldman Sachs and stock index futures soaring in electronic trading, after the Dow Jones industrial average posted a triple-digit decline for the second day in a row.

Goldman Sachs' shares had been tumbling ahead of the announcement of the government rescue plan last Friday as investors feared it could face the same kinds of funding squeezes as Bear Stearns and Lehman. Now members of Congress have to deal what may look to many taxpayers like Wall Street is already cashing in.

Buffett, one of the most successful investors in history, did not mention what is happening in Washington, but he did heap praise on the New York-based firm.

"Goldman Sachs is an exceptional institution," the chairman and CEO of Berkshire Hathaway said in a news release. "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."

It will be Buffett's second major foray into Wall Street.

In the late 1980s, Berkshire Hathaway invested in Salomon Brothers Inc. When the investment firm admitted wrongdoing in bidding for U.S. Treasury bonds in 1991, Buffett became interim chairman and helped Salomon reach a settlement with the government before stepping down in 1992. Salomon was later sold to what is now Citigroup Inc.

Buffett's latest investment comes two days after Goldman Sachs and Morgan Stanley, the last two independent investment banks on Wall Street, won approval from the Federal Reserve to change their status to bank holding companies.

By becoming commercial banks, the two companies avoided the fate of Bear Stearns and Lehman Brothers -- the first taken over in a fire sale and the second now bankrupt -- by giving them broader access to borrow federal money and the ability to build a stable base of deposits.

But it also comes with closer regulatory oversight that likely limit its ability to generate the kinds of sky high profits that were topped by few others companies.

Related Topics:Shaw Industries Group, Inc.