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Monday 01st of December 2008
September 24, 2008

Goldman Sachs receives cash injection from US billionaire Warren Buffett


by Kay Murchie
”Goldman

Berkshire Hathaway has bought a stake in American bank, Goldman Sachs, as part of an injection of cash which will see the group raise $7.5 billion (£4 billion).

The investment vehicle, which is run by US billionaire investor Warren Buffett, came to an agreement to buy $5 billion of preferred stock in a private offering. The stock will pay a dividend of 10% and under the terms, can be re-purchased by the bank at any time at a 10% premium.

Following the news, shares in Goldman gained 2% to $127.88 during early trading in New York.

Its shares took a battering last week after the collapse of Lehman Brothers which led to investors fearing that the bank would suffer the same fate.

On Monday, Goldman Sachs, along with Morgan Stanley, changed status and received regulatory approval to convert themselves into traditional bank holding companies.

As a result, Goldman is looking to shore up its balance sheet with new cash as the US Federal Reserve, its new regulator, demands that it cuts its borrowings.

Following the cash injection from Mr Buffett, Goldman sold twice the amount of stock it planned to sell in a public offering today. It sold 40.65 million of shares at $123 each, raising $5 billion.

Lloyd Blankfein, chief executive of Goldman Sachs, welcomed the surprise move and described Mr Buffett as the world’s most admired and successful investor.

However, some traders in Hong Kong and Tokyo described the move as ‘worrying‘ as it is understood to have derailed a large stake-building exercise by Sumitomo Mitsui Financial Group, one of Japan‘s largest banks.

Sumitomo had proposed to invest around $2.5 billion in Goldman and would have become the third Tokyo banking giant to pounce on Wall Street within a matter of days.

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