Buffett Banks Billions from Bullish Bets on the Financial Industry
Berkshire Hathaway (NYSE:BRKA)(NYSE:BRKB) Chairman and CEO Warren Buffett is once again queued up to make billions off of a white-knight investment he made in a major financial institution during the late-2000s crisis. The firm is expected to receive approximately 13.2 million shares of Goldman Sachs (NYSE:GS) stock worth about $2 billion through the exercise of warrants acquired in return for a $5 billion loan made to the bank in 2008.
The deal came in the wake of the collapse of Lehman Brothers, once the fourth-largest investment bank in the United States, and was just one of several that Buffett made with top Wall Street banks. All told, Berkshire Hathaway extended a lifeline worth about $24 billion spread throughout the financial industry, establishing what has been one of the boldest and most successful bets on the U.S. financial sector. Bank of America (NYSE:BAC) and General Electric Capital (NYSE:GE) were among those who received support from Buffett.
Buffett’s deal with Goldman was very similar to the ones he struck with Bank of America and GE Capital. The basic structure was that Berkshire Hathaway would make a loan in exchange for preferred stock (which paid out a handsome dividend) and warrants to buy additional stock at a fixed price until some future date.