The Buffett Goldman Sachs deal and why Buffett is simply amazing!
There were a couple of blurbs yesterday on how Morgan Stanley and Goldman Sachs were switching over to be commercial banks, because it just didn't make sense to be investment banks anymore. Well the oracle of Omaha didn't let that one slip buy him! He knew one thing that the hopheads on TV didn't think about. Commercial Banks can be bought easier! Goldman Sachs with its 50 billion market cap and clean balance sheet suddenly looks good to the few big banks that are looking to acquire assets. Goldman is shopping for cash and what does Buffett negotiate? 5 Billion in P E R P E T U A L L Y P R E F E R R E D STOCK!!! What does that mean? It means that Buffett gets his before any other stockholder in the worst case scenario. He negotiated a sweet 10% dividend. AND Sweetest of all is he gets to invest 5 Billion more at anytime he wants in the next 5 years @ 115 per share!!!!!
At the time I'm writing this, Goldman shares are trading at 137.22. If Buffett exercised his warrants at this very minute, he'd make almost a billion dollars or 20% in less than a 24 hour period on just the common stock. When the market opens tomorrow, I fully believe the stock will be trading at 150 at the least. Goldman will get that boost from just the 7.5 billion in additional capital. Once the talking heads on TV start talking about the endorsement by Buffett, it will be like an endorsement from Lebron James for Crocs and Lebron stating that they improve his jumping ability. The 1 thing everybody is looking for in the financial sector is stability and Buffett tracks stability all over the carpet when he comes home.
If a big bank does come a calling, (which I doubt now given the price boost I expect) Buffett walks away with a 50% or more return on his investment in a very short time frame.
If the stock does absolutely nothing for the next 5 years, Buffett could exercise his warrants and still make 20%.
If he waits a few years for the financials to totally recover, he'll probably triple his investment.
The guy is simply amazing!