Buffett Bet on Goldman Sachs ‘Integrity,’ Olson Says

April 19, 2010 · Leave a Comment

(Bloomberg)

Warren Buffett’s $5 billion investment in Goldman Sachs Group Inc. was partly a bet on the “integrity” of the Wall Street firm, Berkshire Hathaway Inc. Director Ronald Olson said.

“When Warren and Berkshire stepped up to make this investment, it was a very strong statement of its belief, his belief, in not just the strength of Goldman but its integrity,” Olson said in an interview this week with Bloomberg Television.

Goldman Sachs, the most profitable firm in Wall Street history, has been criticized for benefiting from $10 billion in bailout funds in 2008 and its role in the subprime mortgage- securities market. The bank repaid bailout funds last year and Chief Executive Officer Lloyd Blankfein, 55, said in a letter to shareholders that he was grateful for public assistance.

“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,” he said. “I don’t want to get rid of it. We need something to allocate capital and distribute securities and all of that throughout the system.”

Buffett’s investment in Goldman Sachs preferred shares, as financial firms were shut off from their usual sources of funding in 2008, earns 10 percent interest. Omaha, Nebraska- based Berkshire also obtained warrants to buy $5 billion of Goldman Sachs common stock for $115 a share. The bank closed at $177.84 on the New York Stock exchange yesterday, and has gained about 37 percent in the past 12 months through yesterday.

‘Not a Supplicant’

“When the financial system went into cardiac arrest in September 2008, Berkshire was a supplier of liquidity and capital to the system, not a supplicant,” Buffett, 79, wrote in his annual letter to shareholders this year.

Berkshire 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.

Blankfein defended Goldman Sachs against criticism this month by telling shareholders in his annual letter that the firm didn’t “bet against” clients during the decline of the U.S. mortgage market. He hired a former New York Times reporter to help burnish the company’s image and navigate new government regulation.

‘Not Carping’

Berkshire’s “board is not carping about this, it’s not flinching as a result of the limelight that is on them,” said Olson, a director since 1997. “Would we prefer to have the investment out of the limelight? Sure.”

Goldman Sachs, under fire in Washington for setting aside billions of dollars for bonuses, said last year it would join Buffett in providing assistance to 10,000 U.S. small businesses. Buffett was named as co-chairman of the $500 million initiative.

Olson, a partner in the Los Angeles office of law firm Munger, Tolles & Olson LLP, also serves with Buffett on the Washington Post Co. board. He specializes in transaction and corporate governance issues, and he advised the board of Yahoo! Inc. on Microsoft Corp.’s takeover proposal, according to his law firm’s Web site. The firm advised Buffett on the Goldman Sachs investment.

The Berkshire board, led by Buffett and Vice Chairman Charles Munger, 86, is prepared to handle succession and will make an “immediate decision” when the need arises, Olson said. There are several qualified candidates to take over for Buffett, who also serves as CEO, he said.

Categories: Value Investing
Tagged: Warren Buffett, berkshire hathaway, goldman sachs, olson, integrity, subprime crisis

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