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Strategies & Market Trends : The Residential Real Estate Crash Index -- Ignore unavailable to you. Want to Upgrade?

To: Roads End who wrote (149632)	9/23/2008 6:54:01 PM
From: Jim McMannis	Respond to of 306849

Goldman to Raise $7.5 Billion From Berkshire, Public (Update1) By Christine Harper Sept. 23 (Bloomberg) -- Goldman Sachs Group Inc. will raise at least $7.5 billion from Warren Buffett's Berkshire Hathaway Inc. and public investors in a bid to quell concerns that pushed up the Wall Street firm's borrowing costs and hurt its stock. Berkshire is buying $5 billion of perpetual preferred shares, New York-based Goldman said today in a statement. Goldman, which this week transformed itself from the biggest U.S. securities firm to the fourth-largest bank by assets, also plans to raise at least $2.5 billion by selling common stock in a public offering. Goldman Chief Executive Officer Lloyd Blankfein is turning to Buffett, the billionaire investor and second-wealthiest American, to boost market confidence even though Goldman hasn't reported a quarterly loss since it went public in 1999. The bankruptcy of Lehman Brothers Holdings Inc. and emergency sale of Merrill Lynch & Co. to Bank of America Corp. on Sept. 15 have fueled fears about firms that rely on bond markets for funding. ``At this point you're better safe than sorry, I think that's the moral of Lehman,'' said David Hendler, an analyst at CreditSights Inc. in New York. ``Everything's different because of the extraordinarily weak market conditions, as vividly described by our Treasury Secretary and Fed Chairman'' in congressional testimony today, Hendler said. Federal Reserve Chairman Ben S. Bernanke joined Treasury Secretary Henry Paulson in urging skeptical lawmakers today to quickly pass a $700 billion rescue for financial institutions, saying the U.S. economy will shrink if markets don't begin functioning normally. Shares Rise Goldman stock surged in trading after the close of the New York Stock Exchange. The shares, which closed at $125.05 in composite trading, jumped as high as $138.88, an 11 percent increase, at 5:50 p.m. in New York. ``The investment will further bolster our strong capitalization and liquidity position,'' Blankfein, 54, said in today's statement. Berkshire's investment ``is a strong validation of our client franchise and future prospects.'' The decision to seek a cash infusion marks a reversal for Goldman, which less than a year ago was posting record profits and paying record bonuses: Blankfein and his two top deputies reaped payouts totaling more than $67 million apiece in 2007. The company, while suffering from a decline in trading and investment banking revenue, has booked $4.9 billion of losses on devalued assets, a fraction of the writedowns taken by rivals such as Citigroup Inc., Merrill Lynch and Morgan Stanley. `Intellectual Capital' ``Goldman Sachs is an exceptional institution,'' said Buffett, the 78-year-old chairman and CEO of Omaha, Nebraska- based Berkshire Hathaway. ``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.'' Berkshire will receive preferred stock with a 10 percent dividend that can be called at any time at a 10 percent premium, the statement said. Berkshire will also receive warrants to purchase $5 billion of common stock with a strike price of $115 per share, exercisable at any time in five years. Both Goldman and Morgan Stanley said this week that they are converting to bank holding companies supervised by the Federal Reserve, a move that allows them permanent access to borrowing from the Fed and permits more flexible accounting for some assets. Morgan Stanley agreed on Sept. 22 to sell as much as 20 percent of the firm for about $8.4 billion to Mitsubishi UFJ Financial Group Inc., Japan's largest bank. Leverage Goldman's stock has dropped 42 percent since the start of 2008 and 19 percent since the beginning of last week. The cost of credit default swaps, contracts used to insure against a default in the firm's debt, jumped 0.9 percentage points to 3.8 percentage points today, according to broker Phoenix Partners Group in New York. That means it costs $380,000 a year to protect $10 million of Goldman debt for five years. Last week the price reached a record $685,000. Lucas van Praag, a spokesman for the firm, said yesterday that Goldman would consider raising capital in order to acquire attractive assets although it had no immediate plans to raise money. One concern for investors has been the firm's leverage, or the amount of assets held with every dollar of shareholder equity. Goldman owned $23.7 of assets for every dollar of shareholder equity at the end of August, making the firm dependent on raising debt in the markets to help finance its $1.08 trillion balance sheet. To contact the reporter on this story: Christine Harper in New York at charper@bloomberg.net. Last Updated: September 23, 2008 18:38 EDT