In late September of 2008, while the country was struggling with a financial crisis, legendary investor Warren Buffett made an amazing deal with Goldman Sachs.
What exactly did Warren Buffett buy?
Why did Goldman, one of the best run banks on Wall Street, give Mr. Buffett such a great deal? To understand more about this, look at interest rates at the time and in particular, at the shape of the yield curvev and look for Data, Interest Rates, Daily Treasury Yield Curve Rates.
Compare the Yield curve rates in Dec 2007 to February 2015. We currently are experiencing a normal, upward sloping, yield curve. Compare the current yield curve to the December 2007 yield curve. How is it different? What was happening in December of 2007 in the financial markets?
Compare the Yield curve rates on Sep 02 2008 to Oct 02 2000
This shows the before and after effect of WB's deal with Goldman. What do you see in these yield curves? What changed?
The deal was signed on Wednesday, the 24th of September. Can you tell from the yield curve changes when rumors of the deal were first leaked
Fabled investor Warren Buffett took advantage of the turmoil in the markets last week to make a shrewd $5 billion investment in the beleaguered but best-run major Wall Street securities firm, Goldman Sachs. Mr. Buffett's Berkshire Hathaway, which owns companies in a variety of industries from insurance to candy making, is purchasing $5 billion of preferred stock with a juicy 10% dividend yield. Berkshire also is getting warrants to buy $5 billion of Goldman common stock at $115 a share, $10 below Goldman's share price when the deal was announced last Tuesday. More Stock Goldman issued another $5 billion in common stock on Wednesday. By week's end, Goldman rose to around $137 a share, making Mr. Buffett's deal even more attractive. More Stock Goldman issued another $5 billion in common stock on Wednesday. By week's end, Goldman rose to around $137 a share, making Mr. Buffett's deal even more attractive. Although the deal was widely heralded as a vote of confidence in the market, it looks most like a real money- Goldman Sachs (GS) 52-week stock price $250 ........ maker for Mr. Buffett. Mind Berkshire will get $500 million in annual dividends on the preferred shares, which is tax-advantaged for a corporation. 200 150 Preferred stock, which pays a fixed dividend but rarely fluctuates much in value, acts more like a bond than a typical common stock. Holders of preferred shares also are paid off ahead of common-stock holders if a company is liquidated. 100 L 2007 '08 Source: WSJ Market Data Group Plus a Premium Unlike most preferreds, which are callable after five years, the Goldman preferred held by Berkshire can be redeemed at any time at a 10% premium. This gives Goldman flexibility to pay off the issue if it can obtain more attractive financing later in a calmer market. If the issue is paid off, Berkshire will net a $500 million profit. Fabled investor Warren Buffett took advantage of the turmoil in the markets last week to make a shrewd $5 billion investment in the beleaguered but best-run major Wall Street securities firm, Goldman Sachs. Mr. Buffett's Berkshire Hathaway, which owns companies in a variety of industries from insurance to candy making, is purchasing $5 billion of preferred stock with a juicy 10% dividend yield. Berkshire also is getting warrants to buy $5 billion of Goldman common stock at $115 a share, $10 below Goldman's share price when the deal was announced last Tuesday. More Stock Goldman issued another $5 billion in common stock on Wednesday. By week's end, Goldman rose to around $137 a share, making Mr. Buffett's deal even more attractive. More Stock Goldman issued another $5 billion in common stock on Wednesday. By week's end, Goldman rose to around $137 a share, making Mr. Buffett's deal even more attractive. Although the deal was widely heralded as a vote of confidence in the market, it looks most like a real money- Goldman Sachs (GS) 52-week stock price $250 ........ maker for Mr. Buffett. Mind Berkshire will get $500 million in annual dividends on the preferred shares, which is tax-advantaged for a corporation. 200 150 Preferred stock, which pays a fixed dividend but rarely fluctuates much in value, acts more like a bond than a typical common stock. Holders of preferred shares also are paid off ahead of common-stock holders if a company is liquidated. 100 L 2007 '08 Source: WSJ Market Data Group Plus a Premium Unlike most preferreds, which are callable after five years, the Goldman preferred held by Berkshire can be redeemed at any time at a 10% premium. This gives Goldman flexibility to pay off the issue if it can obtain more attractive financing later in a calmer market. If the issue is paid off, Berkshire will net a $500 million profit
