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September 24, 2008 3:00 am
Goldman Sachs is raising $7.5bn (£4bn) in capital, including $5bn from Warren Buffett's Berkshire Hathaway, and another $2.5bn through the sale of common stock to other investors, the bank said late yesterday.
The boost in equity comes one day after Goldman received an accelerated approval from the Federal Reserve to restructure itself as a bank holding company. The transition from pure investment bank, which could operate outside the regulatory purview of the Fed, to bank holding company was designed to allay investor concern about the future of Goldman's investment banking model.
The move was also perceived as something of a capitulation in the wake of an investor stampede that wiped out three of New York's top five investment banks in the past six months.
Mr Buffett's $5bn infusion comes in the form of a private placement of perpetual preferred stock, the company said.
The sudden infusion of capital into Goldman's coffers from Mr Buffett indicates that one of the world's savviest investors believes in the firm's business model. The preferred stock carries a 10 per cent dividend. The stock is callable by Goldman, which can buy it back any time at a 10 per cent premium, the company said.
Berkshire Hathaway will also receive warrants to purchase $5bn of common stock with a strike price of $115 per share, which can be exercised at any time for a five-year term.
"We are pleased that given our long-standing relationship, Warren Buffett, arguably the world's most admired and successful investor, has decided to make such a significant investment in Goldman Sachs," said Lloyd Blankfein, chief executive of Goldman, in a prepared statement. "This investment will further bolster our strong capitalisation and liquidity position."
"Goldman Sachs is an exceptional institution," said Mr Buffett. "It has an unrivalled global franchise, a proven and deep management team and the intellectual and financial capital to continue its track record of outperformance."
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