Goldman Sachs (GS) 01 (Jun 08 - Apr 10)

[financecaptain]

Could not agree more that the time was perfect. As they say "高手一出手， 便知有没有".
Terms are good because Warrant Buffet is a premium investor. Even if you have US$10 billion, Goldman may not want your money.
However, these "good terms" will surely make it more difficult for banks and PEs to price their deals. Imagnine, Goldman willing to pay 10% p.a. on top of equity kicker in the form of warrants. When the Fed billed out AIG they got 850 basis points above LIBOR for their 2-year bridge loan and the right to convert to 80% stake if they the notes are not repaid in 2 years time. And these notes are fully secured by AIG's good assets ! Do these mean lending or investing at minimum coupon or yield of 10% in US$ terms is the yardstick ???

[-dol-]

Hi all,

Some points to consider:

1) Buffett have quite a number of financials in his portfolio eg. WFC, USB, AXP etc
- Confidence is seriously lacking in the global financial system at the moment. US$5b could be $ well-spent to bring some of it back.
2) For GS:
- the fact that they are paying 10% is indicative of how expensive & difficult it is to raise funds in a very tight market now
- their business model, even under a holding bank company structure, still need some convincing ---> they need some "certification"
3) For Buffett:
- it is preferred, not ordinary. As always, such deals are only available to some priviledged people - although that's not to say the end result will be fantastic (eg. Temasek's ML investment, Buffett's Salomon Brothers investment).
4) The global financial landscape is in flux - and could be very different when we are through with this mess. Buffett & GS has particular vested interests in the current structure as well as the kind of landscape it will evolve into. Perhaps this deal will nudge it in the right direction for them?

It still very much a confidence game at the moment.

Comments welcome.

[kennynah]

i skip GS

[millionairemind]

Hi all,

Some points to consider:

1) Buffett have quite a number of financials in his portfolio eg. WFC, USB, AXP etc
- Confidence is seriously lacking in the global financial system at the moment. US$5b could be $ well-spent to bring some of it back.
2) For GS:
- the fact that they are paying 10% is indicative of how expensive & difficult it is to raise funds in a very tight market now
- their business model, even under a holding bank company structure, still need some convincing ---> they need some "certification"
3) For Buffett:
- it is preferred, not ordinary. As always, such deals are only available to some priviledged people - although that's not to say the end result will be fantastic (eg. Temasek's ML investment, Buffett's Salomon Brothers investment).
4) The global financial landscape is in flux - and could be very different when we are through with this mess. Buffett & GS has particular vested interests in the current structure as well as the kind of landscape it will evolve into. Perhaps this deal will nudge it in the right direction for them?

It still very much a confidence game at the moment.

Comments welcome.

dol,

Generally agree with your comments. Banking is a confidence game. We do not want to have a bank run like what happened to Northern Rock last August.

GS is highly leveraged. They would have to start de-leveraging their bets once they come under the FED's "protection".

The liquidity crunch is spreading FAR AND WIDE. It has been a week since the central banks had a co-ordinated 180Billion injection into the money markets to ease the crunch, but the 3-mth LIBOR rate is still stubbornly at 121 basis points above the FED fund rates.. banks are still not lending to one another out of fear, hoarding cash for themselves.

If this goes on, the whole economy will suffer. I think GS had no choice but to give such preferential terms to WB... Once again, WB is one smart deal maker..

Cheers,
mm

[LenaHuat]

Buffett will be interviewed by Becky Quick on CNBC's "Squawk Box" at 8 am Wednesday (ET).

[kennynah]

hope becky takes it slow with this old man....hahaha....wan him to live longer to give some more indications of where he is putting his money to work....heard he's bought $5bil of GS preferred shares???

[mojo_]

From seekingalpha

.....effectively Goldman has created a near monopoly, wiping out nearly all competitors while keeping a few weakened ones around so as not to feel any anti-trust pressure (Intel model), has its men running Merrill, Wachovia, and the new most powerful position in the world - Secretary of U.S. Treasury, has the credit line of the Federal Reserve behind it, has the SEC protecting it, has the US government looking to buy its toxic assets, and now has Buffett backing it.

[blid2def]

You can just tell the amount of respect the old man commands from the CNBC commentators, from the fact that there was not a single interruption when he was fielding their questions (or maybe they were under instructions through their earpieces to shut up and let WB talk...hahaha). Given how they've often shown a penchant for interrupting their guests and/or each other, this was amazing.

[blid2def]

From seekingalpha

.....effectively Goldman has created a near monopoly, wiping out nearly all competitors while keeping a few weakened ones around so as not to feel any anti-trust pressure (Intel model), has its men running Merrill, Wachovia, and the new most powerful position in the world - Secretary of U.S. Treasury, has the credit line of the Federal Reserve behind it, has the SEC protecting it, has the US government looking to buy its toxic assets, and now has Buffett backing it.

"All your base are belong to us..." Wahahahaha



Wiki: http://en.wikipedia.org/wiki/All_your_b ... long_to_us

[ishak]

Goldman Sells $5 Billion in Share, Doubling Plan
Reuters, 24 Sep 2008

Goldman Sachs Group, scrambling to strengthen a balance sheet questioned by investors, sold $5 billion of common stock in a public offering on Wednesday, twice as much as originally planned.

The offering, on top of Warren Buffett's $5 billion investment in Goldman on Tuesday, delivers $10 billion of fresh capital to help reduce the riskiness of the bank's $1.1 trillion balance sheet.

Goldman "is putting to rest doubts that a company could raise (money) without fundamentally needing it," Fox-Pitt Kelton analyst David Trone said in a note to clients. The offering "will simply pad its equity capital cushion to appease the market's recent concern about its model," he said.

In morning trade, Goldman shares rose nearly 4 percent to $128.86 on the New York Stock Exchange.

Buffett's Berkshire Hathaway is buying $5 billion of Goldman "perpetual" preferred shares, which are not convertible into equity but pay a dividend of 10 percent.

Buffett also received warrants for the purchase of $5 billion of Goldman common stock over five years. Together, the warrants and the bank's public offering boost Goldman's shares

outstanding by about 19 percent, based on the bank's average shares outstanding in the third quarter.

Because of this dilution, analysts polled by Reuters Estimates reduced their 2008 profit forecasts for Goldman to between $11.70 and $12.10 a share, down from $11.93 to $12.50 previously.

In the public offering, Goldman sold 40.7 million shares at $123 each. The bank said it has an option to sell an additional 6.1 million shares, worth $750 million at the offering price, to handle excess investor demand.

Goldman's stock price was hammered last week by investors worried that the highly leveraged Wall Street broker-dealer model was no longer viable. A little more than a week ago, Lehman Brothers Holdings filed for bankruptcy and Merrill Lynch fled to a merger with Bank of America .

Goldman -- and rival Morgan Stanley -- responded on Sunday by scrapping the investment bank model, changing themselves into bank holding companies under Federal Reserve oversight and securing permanent access to central bank funding.

By raising more than $10 billion of capital in less than 16 hours, Goldman has raised its Tier 1 capital ratio to 14.3 percent and its total capital ratio to 17.8 percent -- both in excess of regulatory standards.