The value of Warren Buffett's options to buy Goldman Sachs Group Inc. shares dropped by $950 million after regulators sued the bank for misleading clients on the sale of securities tied to the subprime mortgage market.
The value of Warren Buffett's options to buy Goldman Sachs Group Inc. shares dropped by $950 million after regulators sued the bank for misleading clients on the sale of securities tied to the subprime mortgage market.
The warrants, which give Buffett's Berkshire Hathaway Inc. the right to buy New York-based Goldman Sachs common stock for $115 a share, were worth about $2.06 billion at 1:48 p.m., down 32 percent from $3.01 billion yesterday. Goldman Sachs dropped $21.97, or 12 percent, to $162.30 in New York Stock Exchange composite trading.
Buffett, Berkshire's chief executive officer, got the warrants on $5 billion of Goldman Sachs stock as part of an agreement that extended financing to the bank during the depths of the 2008 credit crisis. The deal reflected Buffett's belief in “not just the strength of Goldman but its integrity,” Ronald Olson, a Berkshire director said this week in an interview.
“I'll bet he's not pleased, he hates anything that could shred any of your reputation,” said Gerald Martin, a finance professor at American University's Kogod School of Business in Washington. “He wants to make sure the managers do the right thing.”
Berkshire fell $1,422, or 1.2 percent, to $118,328. Buffett didn't respond to an e-mail request for comment sent to his assistant.
Goldman Sachs misstated and omitted key facts about a financial product tied to subprime mortgages as the U.S. housing market was starting to falter, the Securities and Exchange Commission said in a statement today.
Unfounded in Law
“The SEC's charges are completely unfounded in law and fact and we will vigorously contest them and defend the firm and its reputation,” Goldman Sachs said in a statement today.
Buffett, a longtime Wall Street critic, has praised Goldman Sachs CEO Lloyd Blankfein for his stewardship during the recession. Buffett, 79, served as interim chairman and CEO of Salomon Inc. in 1991 and 1992 as the company sought to recover from involvement in a Treasury debt auction scandal.
“I don't look at Wall Street as ‘evil,'” Buffett said in an interview last year conducted by the CEO of Business Wire, the Berkshire subsidiary that posts corporate press releases. “I look at Wall Street as given to huge excess sometimes.”
Buffett's firm rose to first place this month in Harris Interactive's annual survey of corporate reputations as the financial crisis pushed the nation's biggest banks toward the bottom of the list. Goldman Sachs came in 56th out of 60.
Goldman Sachs turned to Buffett in September, agreeing to sell $5 billion in preferred shares paying 10 percent interest, after the Lehman Brothers Holdings Inc. bankruptcy and emergency takeover of Merrill Lynch & Co. by Bank of America Corp. The investment amounted to an explicit endorsement of Goldman Sachs from Buffett, the so-called Oracle of Omaha who is celebrated for his investing savvy.
