Goldman Sachs Group Inc., hoping to quell investor concerns that have lifted the firm's borrowing costs and hurt its stock, is raising at least $7.5 billion by selling stakes to Berkshire Hathaway Inc. and public investors.
Warren Buffett's Berkshire is buying $5 billion of perpetual preferred stock, Goldman spokesman Lucas van Praag said Tuesday. New York-based Goldman also plans to raise at least $2.5 billion by selling common stock in a public offering, he said.
Goldman Chief Executive Officer Lloyd Blankfein, 54, is taking action to boost market confidence even though the firm 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 to finance themselves.
“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 Tuesday, Hendler said.
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Federal Reserve Chairman Ben Bernanke joined Treasury Secretary Henry Paulson in urging skeptical lawmakers to quickly pass a $700billion rescue for financial institutions, saying the U.S. economy will shrink if markets don't begin functioning normally.
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 for 2007. The company, while suffering from a decline in trading and investment banking revenue, has booked $4.9billion of losses on devalued assets, a fraction of the writedowns taken by rivals such as Citigroup Inc., Merrill Lynch and Morgan Stanley.
Goldman and Morgan Stanley said this week that they were 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 Monday to sell as much as 20 percent of the firm for about $8.4billion to Mitsubishi UFJ Financial Group Inc., Japan's largest bank.
Goldman's stock has dropped 42 percent since the start of 2008 and 19 percent since the start of last week.