They don’t call him the Omaha Oracle for nothing. American billionaire Warren Buffett will become one of the 10 largest investors in Goldman Sachs after he converted his warrants into a smaller stake in the bank on Tuesday.
Buffett received those warrants as part of a deal in 2008 with the investment bank in the depths of the financial crisis. He essentially loaned GS $5 billion at an interest rate of 10 percent a year and also got warrants giving him the right to buy another $5 billion worth of common stock at $115 per share anytime in the following five years. But he won’t need to buy anything. Today, the vote of confidence is bringing him 9.2 million shares, or a 2 percent stake in Goldman. A total of $5 billion.
“He’s basically taking the profit that he would get without having to lay out the cash,” said Gregory Warren, an analyst at Morningstar who covers Berkshire Hathaway to Reuters. “He just takes the shares and sticks them in his portfolio.”
For Goldman, this is the end of a chapter. Some analysts believe this move could be a game changer to the bank as well as for Wall Street.
“Investors need to consider Buffett’s well communicated investing criteria as well as the work Goldman has done to change its earnings profile in the wake of the credit crunch,” The Street’s Antoine Gara says, “Simply put, Goldman Sachs is quietly turning into a classic Buffett investment, with little fanfare.”
But this is not the only symbolic, world crisis related news of the week. Lehman Brothers Holdings Inc said on Wednesday it plans to distribute about $14.2 billion to creditors early April. The payout will be the company’s third since it emerged from the so-called Chapter 11 (bankruptcy) protection on March last year. Once Wall Street’s fourth-largest investment bank, Lehman filed for bankruptcy protection on Sept. 15, 2008, triggering the biggest economic chaos of the recent Western history.