The surprise injection of $5bn into Goldmans from the ‘Sage of Omaha’ – or more correctly his investment company Berkshire Hathaway - has certainly put the cat amongst the pigeons. Especially in the Asian markets where potential buyers for what until very recently was the world’s most prestigious financial institution will now have to look elsewhere for a slice of US action. Japanese bank Mitsui Sumitomo for one, which had been planning a ‘mere’ $2.5bn punt on Goldman’s. Other investment opportunities are (or will become) available.
And Buffet’s cash is just the start, according to legendary Goldman Sachs boss Lloyd Blankfein. He says he can raise a cool $12.5bn from ‘existing investors’, which is banker speak for tapping his mates. Presumably he is hoping that with friends as good as these, it doesn’t really matter who his enemies may turn out to be.
The deal should provide a huge psychological boost to the markets, if only because this is exactly the kind of robustly independent action that we have come to expect from Goldman’s but which has been sadly lacking over the past couple of weeks. If there is to be a new world order, it seems that Goldman Sachs has concluded that it very much wants a piece of it.
Speculation as to why Buffet is doing this and what he hopes to gain is rife, of course. Some are inevitably seeing it as his calling the bottom of the market; some that he’s protecting the rest of his portfolio, heavily exposed as it is to any systemic collapse of the US financial system; others that it’s a gesture of his belief in the superiority of the American way; and still more that he simply knows a great bargain when he sees one. The truth is probably a combination of all of the above.
Meanwhile, the nightmare on Wall Street has taken a dramatic turn, with the news that the FBI is to investigate potential fraud at Fannie Mae and Freddie Mac plus Lehman’s and AIG. Franklin D Roosevelt – whose 1930s New Deal included founding the two giant US mortgage firms, ostensibly to keep the housing market secure and out of the hands of speculators – must be turning in his grave. The investigation is said to focus on the ways in which subprime mortgages were sold, and on whether officials at the four institutions systematically misled investors as to their financial strength.
Back here in the UK, there is some good news for those employees of Lehman Brothers who were so publicly sent home less than two weeks ago. Japanese bank Nomura (yes, another one) is to buy up parts of the bankrupt bank’s London operation, safeguarding some 2,000 of the 5,000 jobs there. But even this deal was not without its haggling over the price. The business eventually went for a princely $2 - Nomura initially offered £1but the administrators asked to be paid in US greenbacks. Cautious types, these accountants.