Post by kelvin on Sept 24, 2008 22:26:21 GMT -5
ap.google.com/article/ALeqM5j-c69GBmSKF_RikuS0s4itm6jwygD93DACEO0
By STEPHEN BERNARD
NEW YORK (AP) — Goldman Sachs Group Inc., seeking to improve not only its balance sheet but its standing with investors, has undertaken a huge capital-raising program that includes an investment of at least $5 billion from Warren Buffett and a common stock offering for another $5 billion.
Just a week earlier, Goldman looked to be on precarious ground as its stock price plunged in response to fears that it could not survive as an independent investment bank. But the company contended Wednesday that the current crisis in the financial markets, which sent Lehman Brothers Holdings Inc. into bankruptcy court and Merrill Lynch & Co. into a sale to Bank of America Corp., wasn't the catalyst for the deals.
"Although we felt we were under no pressure to raise capital, we've always said if an opportunity arose, we would look at it," Goldman spokesman Lucas van Praag said. Raising capital "gives us greater firepower and greater flexibility," he said.
Goldman said Wednesday it was raising $5 billion through a common stock offering, doubling the amount it announced just the night before. Goldman priced 40.65 million common shares at $123 apiece. An additional 6.1 million shares may be sold to cover overallotments, potentially boosting proceeds by $750.3 million.
Buffett, considered among the top investors in the world, will buy through his Berkshire Hathaway Inc. $5 billion in preferred Goldman stock and receive an option to purchase an additional $5 billion in common stock.
Buffett said during an interview on CNBC "there's no better firm on Wall Street." Buffett acknowledged other investment banks, including Lehman, had approached him in recent months, but he passed on those investment opportunities. He declined to discuss the deal beyond the comments made on CNBC.
The investment by Buffett — which Goldman called an anchor for its common stock offering — will likely provide reassurances to a nervous market, said Brad Hintz, an analyst with Sanford C. Bernstein and a former chief financial officer at Lehman.
Wall Street appeared pleased with the moves. Goldman stock rose $4.95, or 4 percent, to $130 on the New York Stock Exchange.
"If one thing is for sure, Goldman knows how to reorient itself for a changed environment, and this move is what was needed now," Deutsche Bank analyst Mike Mayo wrote in a research note. "The result should be increased confidence."
Buffett's investment will be his second major foray into Wall Street. In the late 1980s, Berkshire Hathaway invested in Salomon Brothers Inc. When the investment firm admitted wrongdoing in bidding for U.S. Treasury bonds in 1991, Buffett became interim chairman and helped Salomon reach a settlement with the government before stepping down in 1992. Salomon was later sold to what is now Citigroup Inc.
The preferred stock purchase by Buffett will pay a dividend of 10 percent annually and can be repurchased by Goldman at anytime for a 10 percent premium. The warrants to buy common shares are exercisable by Buffett at anytime in the next five years at a price of $115 per share.
Goldman's efforts to raise capital come just two days after the company received approval to convert to a bank holding company, and less than two weeks after the bankruptcy filing of Lehman set off fresh concerns about the fragile credit markets.
Goldman's conversion to a commercial bank also provides it broader and permanent access to borrow federal money and the ability to build a stable base of deposits — which some analysts says provides further reassurance to the market.
"Lehman's failure spooked the market," Hintz said.
Within days of Lehman's collapse, Merrill agreed to sell itself to Bank of America and American International Group Inc. was rescued by a government loan of $85 billion that included the government receiving a 79.9 percent ownership stake in the insurer.
Amid the problems, shares of financial firms and the broader stock market tumbled as credit markets further seized up. Investors feared the stand-alone investment bank model was no longer viable. Although Goldman was widely considered one of the best performing banks during the crisis, its shares fell as low as $85.88 last week.
The broader credit crisis has forced financial firms worldwide to write down the value of their soured real estate holdings by more than $300 billion, but Goldman has taken less than $5 billion in write-downs. Still, despite the relatively small amount of damage it suffered, its stock plunged as investors lost confidence in the entire sector.
Credit markets began to deteriorate in 2007 as mortgages increasingly defaulted and investors worried that bonds backed by the troubled loans would default as well — which left investors shying away from all but the safest debt, essentially shuttering the credit markets.
The series of dramatic events last week — the Lehman failure and the Merrill and AIG deals — led the government to announce plans to provide up to $700 billion in support to the financial services industry, a proposal still being debated on Capitol Hill.
With the new capital, Goldman positioned itself to ensure stability regardless of whether the government can push through the $700 billion bailout.
If the government is able to pass through its $700 billion plan, Goldman Sachs could be a buyer of distressed assets, using some of the new capital it raised, while its competitors might not have the flexibility to do so, van Praag said.
He added that if the government plan is not completed, the new capital provides Goldman with "better ability to withstand a longer period" of problems or uncertainty in the financial markets.
Mayo said the new capital could be used to purchase distressed assets or even consider an acquisition. With its new status, that acquisition could include a depository institution.
AP Writer Anna Jo Bratton and AP Business Writer Josh Funk in Omaha, Neb. and AP Business Writer Marcy Gordon in Washington contributed to this report.
By STEPHEN BERNARD
NEW YORK (AP) — Goldman Sachs Group Inc., seeking to improve not only its balance sheet but its standing with investors, has undertaken a huge capital-raising program that includes an investment of at least $5 billion from Warren Buffett and a common stock offering for another $5 billion.
Just a week earlier, Goldman looked to be on precarious ground as its stock price plunged in response to fears that it could not survive as an independent investment bank. But the company contended Wednesday that the current crisis in the financial markets, which sent Lehman Brothers Holdings Inc. into bankruptcy court and Merrill Lynch & Co. into a sale to Bank of America Corp., wasn't the catalyst for the deals.
"Although we felt we were under no pressure to raise capital, we've always said if an opportunity arose, we would look at it," Goldman spokesman Lucas van Praag said. Raising capital "gives us greater firepower and greater flexibility," he said.
Goldman said Wednesday it was raising $5 billion through a common stock offering, doubling the amount it announced just the night before. Goldman priced 40.65 million common shares at $123 apiece. An additional 6.1 million shares may be sold to cover overallotments, potentially boosting proceeds by $750.3 million.
Buffett, considered among the top investors in the world, will buy through his Berkshire Hathaway Inc. $5 billion in preferred Goldman stock and receive an option to purchase an additional $5 billion in common stock.
Buffett said during an interview on CNBC "there's no better firm on Wall Street." Buffett acknowledged other investment banks, including Lehman, had approached him in recent months, but he passed on those investment opportunities. He declined to discuss the deal beyond the comments made on CNBC.
The investment by Buffett — which Goldman called an anchor for its common stock offering — will likely provide reassurances to a nervous market, said Brad Hintz, an analyst with Sanford C. Bernstein and a former chief financial officer at Lehman.
Wall Street appeared pleased with the moves. Goldman stock rose $4.95, or 4 percent, to $130 on the New York Stock Exchange.
"If one thing is for sure, Goldman knows how to reorient itself for a changed environment, and this move is what was needed now," Deutsche Bank analyst Mike Mayo wrote in a research note. "The result should be increased confidence."
Buffett's investment will be his second major foray into Wall Street. In the late 1980s, Berkshire Hathaway invested in Salomon Brothers Inc. When the investment firm admitted wrongdoing in bidding for U.S. Treasury bonds in 1991, Buffett became interim chairman and helped Salomon reach a settlement with the government before stepping down in 1992. Salomon was later sold to what is now Citigroup Inc.
The preferred stock purchase by Buffett will pay a dividend of 10 percent annually and can be repurchased by Goldman at anytime for a 10 percent premium. The warrants to buy common shares are exercisable by Buffett at anytime in the next five years at a price of $115 per share.
Goldman's efforts to raise capital come just two days after the company received approval to convert to a bank holding company, and less than two weeks after the bankruptcy filing of Lehman set off fresh concerns about the fragile credit markets.
Goldman's conversion to a commercial bank also provides it broader and permanent access to borrow federal money and the ability to build a stable base of deposits — which some analysts says provides further reassurance to the market.
"Lehman's failure spooked the market," Hintz said.
Within days of Lehman's collapse, Merrill agreed to sell itself to Bank of America and American International Group Inc. was rescued by a government loan of $85 billion that included the government receiving a 79.9 percent ownership stake in the insurer.
Amid the problems, shares of financial firms and the broader stock market tumbled as credit markets further seized up. Investors feared the stand-alone investment bank model was no longer viable. Although Goldman was widely considered one of the best performing banks during the crisis, its shares fell as low as $85.88 last week.
The broader credit crisis has forced financial firms worldwide to write down the value of their soured real estate holdings by more than $300 billion, but Goldman has taken less than $5 billion in write-downs. Still, despite the relatively small amount of damage it suffered, its stock plunged as investors lost confidence in the entire sector.
Credit markets began to deteriorate in 2007 as mortgages increasingly defaulted and investors worried that bonds backed by the troubled loans would default as well — which left investors shying away from all but the safest debt, essentially shuttering the credit markets.
The series of dramatic events last week — the Lehman failure and the Merrill and AIG deals — led the government to announce plans to provide up to $700 billion in support to the financial services industry, a proposal still being debated on Capitol Hill.
With the new capital, Goldman positioned itself to ensure stability regardless of whether the government can push through the $700 billion bailout.
If the government is able to pass through its $700 billion plan, Goldman Sachs could be a buyer of distressed assets, using some of the new capital it raised, while its competitors might not have the flexibility to do so, van Praag said.
He added that if the government plan is not completed, the new capital provides Goldman with "better ability to withstand a longer period" of problems or uncertainty in the financial markets.
Mayo said the new capital could be used to purchase distressed assets or even consider an acquisition. With its new status, that acquisition could include a depository institution.
AP Writer Anna Jo Bratton and AP Business Writer Josh Funk in Omaha, Neb. and AP Business Writer Marcy Gordon in Washington contributed to this report.