Tuesday, September 23, 2008

Goldman Initiates the $7.5B "Buffett Bounce"

Per Bloomberg:

Goldman Chief Executive Officer Lloyd Blankfein is turning to Buffett, the billionaire investor and second-wealthiest American, to boost market confidence even though Goldman hasn't reported a quarterly loss since it went public in 1999. The bankruptcy of Lehman Brothers Holdings Inc. and emergency sale of Merrill Lynch & Co. to Bank of America Corp. on Sept. 15 have fueled fears about firms that rely on bond markets for funding.

Expect the "Buffett Bounce" to fall flat. As reader Scott Frew astutely points out in a post by Yves over at Naked Capitalism regarding the $5 billion preferred portion of the capital raise:
$5 billion of 10% preferred--Goldie's been of late on a $7-8 billion annual net income run rate, so this dividend, which is paid in after-tax dollars, is a significant hit. The warrants are $10 in the money at the moment of the deal, $25 a share in the money not much later as the market reacted. This is not cheap capital for Goldman, to put it mildly.